Your credit rating is a legit indicator of your reliability and trustworthiness as a borrower. In other words, a lender will carefully assess the information present in your credit file to determine the level of risk you pose. Your credit rating has an immediate impact on the interest rate you get, and the loans you could choose from.
On that note, if you’re asking why my credit rating is dropping, we will outline the main aspects that cause that. This way, you could do what you can to enhance your rating. Let’s get started!
- Your loan or credit card payment was more than 30 days late
Obviously, your payment history is one of the fundamental aspects that affect your credit score. Making timely payments is one of the best practices you should promote. That’s because late payments will diminish your credit score. As soon as the late payment appears on your score, it will imminently drop.
- You made numerous credit applications
If you’re still wondering why your credit rating could drop, you should know that making many loan and credit card applications will cause that. Many people underestimate the fact that each application will instantly diminish their credit rating. In other words, the more credit applications you file, the lower your credit score will be. It’s as simple as that.
Therefore, whenever you’re in need of a loan of any kind, you should carefully analyse your situation and establish if that is truly a necessity or not. Additionally, you should determine the chances of getting approved. For instance, if the likelihood of having your application approved is minimal, then it would be best if you didn’t send that form. That’s something to keep in mind next time you’re on the lookout for a favourable loan solution.
- You made expensive credit card purchases
Another common reason is making expensive credit card purchases. In other words, the way in which you utilise your available credit will affect your credit score. Let’s say that you made a significant purchase on your credit card one month. The odds are that the upcoming month your credit score will diminish, even if you do manage to pay the balance in full by the end of the month.
Why is that? In the simplest terms, the balance might be reported before the payment was received. In this direction, you could pay down the balance and wait for it to show on the credit report. This could help you to recover those ratings.
- You closed a credit card
Did you know that closing a credit card could lead to unwanted consequences when it comes to the credit rating? This applies particularly if the card has a balance.
Additionally, your credit rating could drop if credit card issuers decide to cancel a credit card, for whichever reason. That doesn’t happen because the credit card issuer closed the account, rather because it was simply closed.
One of your accounts was sent to collections
If you want to safeguard your credit rating, it’s quintessential to try to pay all your accounts, not just your loans and credit cards. If you fall behind on your non-credit payments, these could be directed to a collection agency. Hence, this means that they will be added to your credit report. In other words, as soon as a collection account is displayed on your credit report, it will make your credit rating drop.
- One of your credit limits was diminished
Just as purchasing an expensive item will likely minimise your credit rating, having one of your credit limits lowered could have the same consequence. In the event in which you have a balance on one of your credit cards, and it features a low credit limit, your credit utilisation will go up, as your credit score will drop.
Final Thoughts
In my opinion, keeping an eye out for your credit rating is mandatory. This way, you know what to expect, and you know what to do in order to prevent it from dropping considerably.
One important consideration is to know that each credit-related decision you take will immediately impact your credit score, one way or another. That’s why you should avoid making reckless decisions when it comes to taking out a loan or a new credit card.
If you know that your credit rating isn’t the best, you could always request the assistance of a proficient company like Personal Loans. Call us now for free advice and free consultation to help you sort out your financial problems.