There are a number of reasons behind a falling credit score. Some of these can be easy to rectify, but some can be more serious. It is important to address them as soon as you notice them to stop the score from dropping even further.
This article will outline five central reasons behind a dropping credit score. These include the following:
- Late or missed payments
If you have previously missed payments over 30 days behind the payment date, this is likely to impact your credit score. As such, it is so important to keep track of your bills, credit cards and any personal loans or cash advances and ensure that you are meeting any monthly repayment dates.
A great way of doing so is by setting up a direct debit or standing order for each repayment so that the money leaves your account automatically and budgeting so that you pay them off on time. Don’t be shy to give yourself a few days after your pay date from work to make a payment, just so that you have more breathing space.
- Black marks on your record
If your lender has previously reported a default where they close your account because they don’t believe you will repay the debt, or if you have been issued with a County Court Judgment because you have been taken to court over an unpaid debt, then this is likely to significantly bring down your credit score.
Typically, your lender will give you prior warning before pursuing these actions, such as in the form of a default notice.
- A low credit limit
A drop in your credit limit can also cause your credit score to consequently drop. This is because it might push your credit utilisation above 30%, as well as mean that an older line of credit has now been closed.
Typically, lenders prefer their prospective borrowers to have stable usage from accounts that have been open for several years. As such, it is worth keeping your credit limits high despite changing needs.
- Applying for extra credit
Applying for a new loan or credit score will leave a mark on your credit history file. Even if this application is successful, your credit score may briefly fall.
If you fail to meet a number of applications then this can cause your credit score to plummet. It is thus worth taking advantage of ‘soft searches’, which can help you to see if you will be accepted for a loan or credit card application without leaving a mark on your file.
- Moving house multiple times
Loan lenders will always prefer stability, and this includes those who stay in their property for a lengthy period of time, a group which typically does not favour young people or those who rent and thus move frequently.
While it can be difficult to overcome this situation, having long-standing bank accounts with positive repayment rates can really help to counter the impact on your credit score.
