Realising your credit score has dropped is never pleasant, especially as a lower credit score may lead to lenders rejecting you for loans, credit cards and mortgages.
However, it is critical to remember that credit scores change frequently, and there is likely a simple explanation for why yours has dipped. Once you determine the reason for the low credit score, you can start rebuilding and strengthening your credit history.
Below, you will find the top five reasons your credit score is going down and how to remedy them. Scroll down to get started.
Have you recently applied for new credit? Well, your credit score may have dropped because of these new applications.
When you apply for a new line of credit, the lender carries out a hard credit check. Hard checks leave a visible mark on your credit history, showing other lenders that you have applied for credit.
Sometimes lenders offer soft checks. These show how likely you are to be accepted. However, a hard check will still be needed if you want to go through with the application.
Hard checks can affect your credit file in the short term, but your score will recover if you continue to make regular and timely payments.
Alongside opening a new account, closing a credit account can temporarily affect your credit score. For example, if you cancel a credit card, your overall credit utilisation ratio may increase as you decrease your available credit.
However, do not let this stop you from closing a credit account. It is a responsible decision to limit your access to credit if you know it is not right for you at that point in time. Just make sure you carefully consider which accounts you close, as well-managed long-term accounts do improve your credit score.
Credit utilisation shows the amount of credit you are using vs how much credit a lender has agreed to lend you. The credit utilisation ratio is how much you owe divided by your limit.
Having negative markers on your credit accounts can lead your score to drop (e.g. missed or late payments).
If you have fallen behind with payments on one of your credit accounts, your credit score will drop quickly. Your score is always being monitored, so make payments on time and in full when possible.
Explore our beginner's guide to credit scores now for the basics.
Similar to closing a credit account, if one of your credit limits decreases, your score may drop. Your credit utilisation will also increase, even if your spending does not change.
If you do not need to decrease your credit limit, it is sometimes worth leaving it as it is to protect your overall credit score. If you are unsure what is best for you, a finance professional or debt charity can provide credit score help and tailored advice.
Finally, your credit score may have decreased because you have simply reached your limit. Hitting your limit can show instability in your spending, and this can cause a spike in your credit utilisation ratio.
Keeping your credit utilisation ratio lower shows you are managing your finances well and not overspending or maxing out your limits.
Navigating the world of credit scores can be challenging. But once you have identified why your score has dropped, you are one step closer to solving the problem.
Read other articles on our website to learn more about responsible borrowing and personal finances.
A guide to managing your money: Paying off debt
Best Ways to Use Credit Cards For Financial Success
Pros & Cons of Working With a Financial Advisor
Or visit the Polar Credit Info Hub to continue learning about personal finance, loans and credit alternatives.