Why Did My Credit Score Drop? - Part 2
Closed or Canceled Credit Card AccountClosing a credit card account has a good chance of hurting your score, especially if there is still a remaining balance on the card. The effect of closing an account is the same whether the closure came from you or from the folks who issued you the card. It doesn't make a difference who shut it all down; a closed credit card account will ding you.
CollectionsIf you had an unpaid account sent to collections, your score probably fell faster than an elephant on a unicycle. There's no sugarcoating this one. Any account sent to collections will show up on your report, and when it does, it's going to hurt. If you're the type of person who pays all your bills on time, you won't make this mistake.
Quick tip--If you're not the type of person who pays all bills on time, become the type of person who pays all bills on time. Paying bills on time is the single most important thing you can do for your financial history.
Credit Report Collection Account Drop-offNot a lot of people know about this one, but if a collection account is dropped from your report, your score might change. Why? As mentioned above, FICO compares your profile to the profiles of others on your specific scorecard. Even with a collections account on your report, you may still have been at the top of your particular scorecard. When the negative information of a collections account finally drops off your report, you will most likely move to a different scorecard. Do you see where this is going? Though you might have been at the top of your previous scorecard, you could be at the bottom of the new one. This shift can tank your score.
Bankruptcy Fall-offIf you've ever faced bankruptcy, it's good to know that this incident falls off your report after about ten years. If it does, guess who is relocating to a new scorecard? That would be you. That new scorecard is probably full of people who haven't filed for bankruptcy, which will likely result in a drop. They know how to get you at every turn, don't they?
Quick tip--Don't fret, it will pass. Just keep all your accounts in the black, and your score will improve again.
It's All a Mistake!Mistakes happen, and you should review your report regularly and very carefully. The people working at report agencies are still people, and people make mistakes. For example, your report may claim you missed a loan payment when you didn't. An error like that can hurt you. Sometimes a card issuer increases your limit but does not report that promptly, which hurts your utilization. In some cases, an account belonging to someone who shares your name may be incorrectly assigned to you, or you may even be hit by identity theft, with some low-life borrowing in your name and destroying your credit. Any errors or issues of this kind must be disputed immediately online through the three major reporting companies; Equifax, Experian, or TransUnion.
Quick Tip—Check your report as soon as you get it, and if you find an error, get your skates on! You have only 30 days to file a dispute from the day you received your report.
Final WordYour score is of vital importance in our credit-based economy. Using the list above, you should be able to uncover what caused the drop. Once you've pinpointed the issue, make some serious efforts to resolve the issue, along with the necessary lifestyle changes to protect your score in the future. All it takes to fix most of these issues is a good-faith effort, and time.
You're entitled to a free report from all three of the major agencies each year. AnnualCreditReport.com is the place to go, and it's authorized by Federal law. Good luck!
1. "Free Annual Credit Reports website" . AnnualCreditReport.com