Why Did My Credit Score Drop?

Aditi: Hey Meera, I just checked my credit score, and it is dropped! I’m so confused, what might have happened?

Meera: Oh!! There are a many of reasons this could happen, even if you think everything’s fine.

Aditi: Can you please tell me what all can affect my credit score?

Meera: Sure, Read this blog by LXME it will give the detailed understanding on the same.

Aditi: Thank you so much, Meera!

It is possible to see unexpected drops in your credit score, which can be alarming and confusing at the same time. For women, who often juggle between multiple financial responsibilities, these drops can be particularly worrying. If you are not aware about the reason for your credit score down and if you’re wondering why did my credit score drop ? or why did my credit score went down ? Then, Let’s look at some reasons for these unexpected drops in your score and the steps that you can take to solve this problem!

But first, what is a credit score?

A credit score is an indicator of a person’s creditworthiness i.e. their ability to repay the debt/loan. It’s usually shown as a number based on how well a person has repaid their debts and their credit history with different loans and credit institutions.

What could lead to a drop in your credit score?

1. Delayed or Missed Payments

Whether it is a credit card bill, loan EMI, or any other financial liability, timely payments are very important. Even one late payment can negatively impact your credit score. For example; if your credit card bills are due on the 3rd of every month and you either missed the payment or ended up paying it a few days later then that might affect your credit score.

What to Do:

• Set up reminders or automatic payments to ensure you never miss the due date.
• If you’ve missed a payment, then make it as soon as possible and avoid any further penalties

2. High Credit Utilization

Credit utilization refers to the percentage of your available credit that you are currently utilising. A high credit utilization ratio, particularly above 30%, can signal to lenders that you’re overly dependent on credit, which can negatively impact your score.

For instance;

Card 1: Credit 20,000, balance 7,000

Card 2: Credit 25,000, balance 8,000

Therefore the total credit is 45,000 and the total balance is 15,000

This means that the ratio is 15,000/45,000 i.e. 0.33 or 33.33%

What to Do:

• Aim to keep your credit utilization below 30%.
• Pay off your credit card balances regularly, even if it means making multiple payments in a month.

3. Multiple Credit Inquiries

When you apply for new home loan, lenders check your credit report, resulting in a hard inquiry (A hard inquiry is when a lender checks your credit report because you’ve applied for a credit card or a virtual credit card, and it can slightly lower your credit score). While a single inquiry might not have a significant impact, however, multiple inquiries within a short period can lower your score down.

What to Do:

• Be cautious while applying for new credit frequently.
• Consider spacing out credit applications to minimize the impact on your credit score.

4. Debt Settlement

If you’ve settled a debt for less than what you owe or filed for bankruptcy, it can seriously hamper your credit score. Debt settlement involves negotiating with a creditor to pay a lower amount than you owe, usually with help from a debt settlement company. Once the creditor agrees, they can’t pursue you for the remaining loan or debt balance, and you avoid the risk of being sued for that debt. But, these actions are seen as signs of financial trouble.

What to Do:

• Focus on rebuilding your credit by making payments timely and managing your credit responsibly.
• Consider consulting with a financial advisor to develop a plan for improving your credit over time.

A drop in your credit score can be concerning, but understanding the reasons behind it is the first step towards recovery. By addressing the factors contributing to the decline and adopting good financial habits, you can work towards improving your credit score. Remember, it’s a slow process, and patience and consistency are key. Hence, above pointers are the answer to the questions like why did my credit score drop ? or why did my credit score went down ?

As Indian women, financial independence and literacy are empowering. By staying informed and proactive about your credit health, you can confidently manage your finances and achieve your goals.

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