Originally posted on February 10, 2020 @ 4:44 pm
Why Did My Credit Score Drop As Per The Original Order?
This era is all about working smart to manage things well and have something good stored up for our future. Everyone has some liabilities and some assets. Some people have inherited money from their father and forefathers while some others have to work hard to earn some. Those inherited with money are already living the life on their terms without any worries of the future but the other ones are trying each day to live a life they always wanted to! Amongst all these people, there exists another category of people who don’t have inherited money but have smarter plans to live the way they want! These people are the ones who have made some strategies to achieve their goals and the rest is taken care of, by the debts. Yes, you heard that right! Managing the debts can help. Debts don’t just add up to your worries but they can release your burden to some extent, if managed well. The only thing to be kept in mind is that you pay the interest of your debts on time and clear off the debt within the time span it was expected to be done!
Managing the debts and paying the balance timely helps you to maintain your credit score. However, if your credit score has sloped down to something you never expected then it’s high-time you take a view of the factors you have overlooked previously. For that,you must first know what does a credit score actually mean and what are the effects of its range! Basically,a credit score is a numerical value that explains your creditworthiness. It is based on your credit history. It gives a clear idea to the lenders or banks about, how much of your debt are you going to pay off within the given time limit. If your credit score is high, then you are definitely more trustworthy financially. The desired credit score range of a person is generally 300-800. If your credit score falls in this range, then you are gladly going very well and will be freed of your debts on time. Ultimately, you are managing the debts well. The most commonly used credit score model was given by Fair Isaac Corporation (FICO). Most of the financial institutions follow this system of credit scoring. Unfortunately, if your credit score is lower than the desired range then you must consider the factors affecting it.
Let’s take a dig at the factors. First and foremost is the payment history accounting to 35% of your credit score. It reveals whether you pay your obligations on time or not! Secondly stands the total amount owed accounting to 30% of your credit score. The amount of available credit being used by you is measured by credit utilization. The length of the credit history accounts to 15% of your credit score. You might be little surprised to know that the longer the length of your credit history, the lesser you are at the risky side. It clearly explains that you are managing the debts well by providing more data on your payment history. Next comes the types of credit being used. It adds up to 10% of your credit score. It comprises the installment credit and the revolving credit. Lastly, the new credit fills up the remaining 10% of your credit score. It takes into view the new accounts you have and when was the recent account opened that results in inquiry of the credits.
If you are missing your payment on the credits then you must surely take into consideration the frequency as it affects the deduction in credit score. Missing out on a lot of small credit card payments is comparatively less risky than missing out on a big payment. Also, if you have some amount of balance on your credit card with a high limit then you are much responsible. Else, if you have a big amount of balance nearing to your credit card limit then it’s risky. Although a long credit history indicates you are financially trustworthy, a short history would also be fine until you are paying it off well and don’t owe a lot. One must note to leave the credit card account open even when it’s not in use as the account’s age gives your credit score, a boost. On applying for a new line of credit, you would have to go through a hard inquiry which may result in a deterioration of your credit score. Know the fact that your credit score speaks a lot about your credit risk. You must make sure that you apply less for and open less lines of credit within the same year. If you have a mix of different types of credit then your credit score definitely won’t slope down. Different types of credit may comprise of credit cards, mortgages, installment loans and store accounts. Not owning a mix of all these types is perfectly alright as it accounts to only a small percentage of your credit score.
Now, you might actually be wondering of the ways to prevent your credit score from dropping down and to manage the debts well. Maintaining the balance to be around 25% of your total available credit boosts your credit utilization ratio and maintains your credit score. On-te payments simply add more to your credit score. Even if it’s late, it is ought to be not more than 30 days late to do the payments. Opening a lot of new accounts in the same year may affect your credit score. Stay away from doing this. Keep a regular check on your credit score and monitor it 6 months prior if you are about to make a big purchase. Keep on trying to correct your errors to improve your score for the long-run. Finally, prefer making the best choices even if you have a bad score to help your credit score improve.
The last word is that act financially responsible while managing your credit to prevent your score from sloping down. You definitely won’t have to worry anymore and your debts will be managed well. Keep in mind, your credit score is important.