your credit score is affected by more than one reason, so you might have made your credit card bills payment and loan due payments on time, but your credit score is going down. many people assume that if they have paid their dues on time, their credit score should be high, and when it's not the case, they wonder why. if you also want to know why your credit score is going down, even though you have paid all your bills on time, then we are here to help. read below to find out the five most common reasons why you may have a lower credit score range than you expected:
1. you have a high credit utilization ratio
you might have paid your bills on time, but you also need to check the balance you carry on each credit card. if you have a high credit utilization ratio, it can cause a drop in your credit score. you should check your credit limit usage on both an overall and per-card basis. it's ideal that you should not consume more than 30% of your credit limit on any card. if you want to have a good credit score, scale down your credit utilization ratio. for example, you have a relatively low limit on a credit card and you use it to buy a new air conditioner. if you don’t pay off enough before the next billing cycle, your credit score can drop. however, credit card providers typically report to the credit bureaus every month, so as soon as your credit card payment, your credit score will improve.
2. you missed payment and the same is showing on your credit report
missed payments that are 30 days late or more can severely damage your credit score because timely payments are one of the biggest factors that build your credit score. the worst part is that the late payments stay on your credit report for over five to seven years. you can improve your credit report by piling up a streak of on-time payments, but the recovery will be slow, especially if you have a high credit utilization ratio.
3. identity theft or a mixed credit file is decreasing your credit score
it happens sometimes that someone else’s credit activity is being reported as yours in your credit report. if your credit score is dropping constantly even after you pay your bills on time, check your credit report to find out if someone else is using your credit card or applying for new credits in your name. if this is the case, you should immediately inform the credit card company and the lender about the fraudulent activity. it is also possible that your credit files have become mixed with your namesake which is dragging your credit score down. whatever be the case, you should inform the credit bureaus to rectify the misinformation.
4. you applied for new credit in a short gap
credit bureaus cut a few points from your credit score every time you apply for a fresh credit card or a fresh loan. it does not matter whether you have applied or the lender has offered the credit. whenever a lender inquires about your credit score and credit report, it is considered a hard inquiry and causes a drop in your credit score. having multiple credit applications is linked with a higher risk that you won’t be able to pay as agreed, and as you know - higher risk equals lower credit score. if your credit score is dropping because of too many credit applications, the solution is to stop applying. The hard inquiries generally disappear from your credit report after two years. if you want to get a new credit card or a fresh loan, first do your research to find out the product that best fits your financial requirement and your eligibility for the same based on your current credit score. once you are satisfied, then only apply for it.
5. there's a default judgment and you don’t know it
your credit report contains information from public records such as lawsuits and settlement orders. it might be possible that there is a default judgment against you that you might not be aware of. for example, if a summon letter was issued but was misdelivered or not forwarded to you, then you would know nothing about the lawsuit.if this is the case, you should make a decision whether you want to accept the judgment, settle it or challenge it further.
check your credit score
you can check your credit score and credit report for free on the CRED.
As an enthusiast with a deep understanding of credit scores and financial matters, let me shed light on the various factors that can affect your credit score, even if you're making timely payments on your credit card bills and loans.
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High Credit Utilization Ratio:
- Your credit utilization ratio plays a crucial role in determining your credit score. This ratio represents the amount of credit you're using compared to your total credit limit.
- It's recommended to keep your credit utilization below 30% on each card and overall. High utilization can lead to a drop in your credit score.
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Missed Payments:
- Timely payments are fundamental to building and maintaining a good credit score. Any missed payments, especially those that are 30 days late or more, can significantly damage your credit score.
- Late payments remain on your credit report for five to seven years, impacting your score during that time.
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Identity Theft or Mixed Credit Files:
- In some cases, someone else's credit activity may be mistakenly reported under your name, leading to a constant drop in your credit score.
- Check your credit report regularly to identify any instances of identity theft or mixed credit files. Report such cases to credit card companies and lenders promptly.
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Frequent Credit Applications:
- Each time you apply for a new credit card or loan, a hard inquiry is made on your credit report, causing a temporary drop in your credit score.
- Multiple credit applications suggest a higher risk to lenders, resulting in a lower credit score. Hard inquiries typically disappear after two years.
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Default Judgments:
- Your credit report includes information from public records, such as lawsuits and settlement orders. A default judgment against you, even if you're unaware of it, can harm your credit score.
- Regularly check your credit report for any public record information and take necessary steps to address any default judgments.
In conclusion, understanding the nuances of credit scoring is essential for maintaining a healthy credit profile. Regularly monitoring your credit report, managing credit utilization, making timely payments, and being cautious about credit applications are key practices to ensure your credit score reflects your financial responsibility accurately.
If you're curious about your current credit score, consider checking it for free on platforms like CRED, which provide valuable insights into your credit health.
