Making on-time payments can help you maintain a solid credit score, but it is possible for your score to drop even if you’re never late.
It can be frustrating to feel like you are doing everything right only to end up with a lower score. Here’s what to know about the other factors that impact your credit score, and why yours might have fallen.
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Your credit score is about more than payment history
Payment history is the most important component, making up 35% of your FICO Score. However, that means 65% of your score is influenced by other factors.
The remaining categories are your amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%). Making on-time payments but ending up with a higher credit utilization ratio — the percentage of your available credit that you’re using — due to interest accumulation can result in a lower score. Applying for a loan, paying off a loan in full and closing an old account can also hurt your credit score.
Paying off a mortgage, auto loan or similar product in full is an accomplishment, but not having that loan anymore can hurt your credit mix and the average age of your credit accounts. In the long run, losing a few points isn’t something to panic about.
Where You Can Fix Your Credit Right Now
- SkyBlue: Fix your credit starting at $79 a month, including 1:1 consultations
- Lexington Law: Start with a free credit assessment and learn about legal options available
Common reasons your score can fall without a missed payment
High balances on your credit card can hurt your credit score even if you pay it on time. Having a credit utilization ratio above 30% (such as carrying a $300 balance on a credit card with a $1,000 limit), can do damage to your FICO score, and minimum payments may not be enough to get you under that percentage.
Hard credit checks can also trim your FICO score temporarily. You incur hard credit checks when you apply for a loan, credit card, rental unit or other credit product. Creditors run hard credit checks to review someone’s credit profile to assess if they can keep up with monthly payments.
Your score can even drop if you open a new account or close an old credit card, since both actions reduce the average age of your credit accounts. Reporting errors are also possible, which is why it’s important to check your credit report each year. You can do that for free.
What to do after your score drops
A lower credit score isn’t always a bad thing, especially if you just paid off a loan. However, if you want to apply for a mortgage, auto loan or similar financial product, it’s a good idea to boost your credit score. Paying down any revolving debt is often the best place to start. Not only can you strengthen your already solid payment history, but you also improve your credit utilization ratio.
If your credit score drops, you can review your credit report to determine what changed. Then, correct any mistakes and keep building the habits that matter the most: paying on time, keeping balances manageable and limiting how often you apply for new credit.
Must Read
- Warren Buffett on Market Volatility — and 3 Ways You Can Take Advantage
- Experts are Bullish on Gold — Here’s How to Get In
Making on-time payments can help you maintain a solid credit score, but it is possible for your score to drop even if you’re never late.
It can be frustrating to feel like you are doing everything right only to end up with a lower score. Here’s what to know about the other factors that impact your credit score, and why yours might have fallen.
Must Read
Warren Buffett on Market Volatility — and 3 Ways You Can Take Advantage
Experts are Bullish on Gold — Here’s How to Get In
Your credit score is about more than payment history
Payment history is the most important component, making up 35% of your FICO Score. However, that means 65% of your score is influenced by other factors.
The remaining categories are your amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%). Making on-time payments but ending up with a higher credit utilization ratio — the percentage of your available credit that you’re using — due to interest accumulation can result in a lower score. Applying for a loan, paying off a loan in full and closing an old account can also hurt your credit score.
Paying off a mortgage, auto loan or similar product in full is an accomplishment, but not having that loan anymore can hurt your credit mix and the average age of your credit accounts. In the long run, losing a few points isn’t something to panic about.
Where You Can Fix Your Credit Right Now
SkyBlue: Fix your credit starting at $79 a month, including 1:1 consultations
Lexington Law: Start with a free credit assessment and learn about legal options available
Common reasons your score can fall without a missed payment
High balances on your credit card can hurt your credit score even if you pay it on time. Having a credit utilization ratio above 30% (such as carrying a $300 balance on a credit card with a $1,000 limit), can do damage to your FICO score, and minimum payments may not be enough to get you under that percentage.
Hard credit checks can also trim your FICO score temporarily. You incur hard credit checks when you apply for a loan, credit card, rental unit or other credit product. Creditors run hard credit checks to review someone’s credit profile to assess if they can keep up with monthly payments.
Your score can even drop if you open a new account or close an old credit card, since both actions reduce the average age of your credit accounts. Reporting errors are also possible, which is why it’s important to check your credit report each year. You can do that for free.
What to do after your score drops
A lower credit score isn’t always a bad thing, especially if you just paid off a loan. However, if you want to apply for a mortgage, auto loan or similar financial product, it’s a good idea to boost your credit score. Paying down any revolving debt is often the best place to start. Not only can you strengthen your already solid payment history, but you also improve your credit utilization ratio.
If your credit score dr
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