Rachel Surman • Sep 27, 2018
So you checked your new (monthly!) updated credit score with Borrowell and it has dropped by a few points. While it can sometimes be a little worrisome – don’t freak out just yet. There are a lot of things that can contribute to a slight change in score that you may not realize.
So to help make things a little clearer, we’ve put together this list of the most common reasons why your score may have decreased.
Have you made a big purchase recently? Your credit cards and the amount you put on them can have a substantial impact on your credit score. 30% of your credit score depends on credit utilization, which is how much of your available credit that you’re using.
Our advice: Figure out the total amount of credit available to you. Divide your total credit card balance by your total number of credit card limits. For example, if the balance on your only credit card is $500 and your credit limit is $1,000, then your credit utilization for that credit card is 50%. Credit scoring models favour utilization of under 30%, so be mindful.
Along the same lines, if your credit limit was lowered – then the total amount of credit available to you will also decrease. This means that the total amount of credit you’re using will most likely increase, since your limit was lowered.
Technically, your bank can lower your limit without warning. This can bring you dangerously close to your credit limit, which as we know, can negatively affect your score.
Our advice: Call your bank and asked why your limit was lowered. If you can, try to pay off the balance as soon as possible.
Canceling or closing a credit card will most likely lower your credit score, even more so if you carry a balance on your card.
Even after you close your credit card, it will still be reported to the credit bureaus as normal, but it will have a closed status. Your monthly payment history is still updated each month, as you make, or don’t make payments.
Our advice: Don’t cancel your credit card – hide it! We know it sounds a little odd, but it’s a good solution to still keep the credit line open and to remove the temptation.
Everyone knows it’s bad to make a late loan or credit card payment, but sometimes life gets in the way. If you miss a payment or even make a late payment, it will be reported to the major credit bureaus. This will reflect negatively on your score.
Our advice: While the best advice we can give is to make the payment as soon as possible, we realize sometimes it’s just not that simple. You can try to call the lender or credit card company to explain what happened and ask for some leniency.
Credit inquiries – everyone’s favourite topic! Did you know that the number of credit inquiries you have on your credit report only makes up 10% of your credit score?
It’s also important to recognize the difference between a hard and a soft credit check. If you’re applying for credit, such as a personal loan or a car loan, lenders will need to check your score to determine the amount of credit they are able to give you. This will negatively affect your score, but only slightly.
A soft check is checking your score yourself, though a trusted company like Borrowell. You can check your score for free in 3 minutes, and don’t worry – this will not affect your credit score!
Our advice: Be mindful when checking your score through an institution and check it yourself when it makes sense.
Another reason your credit score may have fallen is that you missed a payment that is outside of your financial payments. These can include phone bills, Internet bills, or auto insurance payments.
The classic example: switching Internet providers and forgetting to return the modem to the previous provider, which will definitely affect your credit score!
Our advice: Make your next payment as soon as possible to avoid any further negative consequences.
At Borrowell, we provide free credit scores and make product recommendations based on your unique financial goals. Our only goal is to help you improve your credit score and to help you save money. To do this, we’ve moved to monthly credit score updates! Learn more here.
Borrowell® is a registered trademark of Borrowell Inc. All Rights Reserved. The Equifax credit score is based on Equifax’s proprietary model and may not be the same score used by third parties to determine your credit profile. The score provided to you for educational use is the Equifax Risk Score.
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