We’ve all been there, you think you’re doing good at avoiding the use of your credit, haven’t missed any payments, and bam– your credit score went down for no reason. Maintaining a good credit score takes a little finesse and mental elbow grease.
As if understanding credit isn’t confusing enough, different credit scoring models have varying criteria for how they rate your credit and your score might be different amongst them. But, for the most part, these 3 general underlying reasons could be the culprit of your credit score dip.
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3 Reasons Your Credit Score Went Down
Did you know your score can drop even though there aren’t any new changes to your credit report? Below, we’ll breakdown why your score decreased and give suggestions on how to bring it back up.
1. High Credit Utilization
Maintaining a high balance on any credit type could be hurting your credit score. You need wiggle room between the debt you owe and available credit–especially in an emergency situation. We recommend keeping a credit utilization ratio of 30% or less. Try to decrease the credit utilization on all of your credit files by using the tips below.
Pay Down Bills
Simple enough, right? If you’re having trouble balancing the 30% ratio amongst your debt, try picking up a side hustle to throw cash on your debts. High balances could be holding your credit score back and once you start paying them down you should see your credit rating begin to climb.
Organizing your income and scheduling outgoing expenses is a pain when you have money flowing from different accounts. When you’re a MoneyLion RoarMoney user you can get instant access to a virtual debit card, track your budget through the mobile app and borrow 0% APR cash advances.
Set Up Balance Notifications
Set up balance alerts to notify you when your credit cards are at a certain balance and pay down immediately. The last thing you want is to go over credit limits from interest charges and having your limit is too high.
Spread Out Spending
If you have multiple credit card accounts, keep tabs on what you spend on each. If you’re nearing the 30% credit utilization limit, don’t use that card or switch to another card. The best rule of thumb, don’t spend what you cannot afford!
BUDGET, BUDGET, BUDGET! We all have those “luxuries” we can cut back on. Frivolously spending our money on acai bowls and new clothes instead of things that matter can only lead to one thing–stress.
By tracking your budget using your MoneyLion app, your spending will get separated into categories. This will give you a birdseye view of where your money is going and how you can snip out extras to reallocate.
Pay Before Issuer Reports
Okay, we need to break this one down a bit. Issuers report payments to the 3 credit bureaus every 30 days, but the date they do this varies. Meaning, if you make your payment on the due date of the 27th every month, but they report on the 23rd–you look like you’re always carrying a high balance.
Simply put: call the insurer, find out the date they report payments and make your payment at least a few days before this date.
Ask For A Credit Limit Increase
Give your credit card issuers a call and ask them to increase your budget. You might have to provide updated income and personal information.
This might be difficult if you’ve missed payments or you’ve been over the limit within the past 6 months to a year, but if it’s possible the credit increase can give you some cushion in your credit utilization. Remember, if a credit increase is available to you, this doesn’t mean you should push your spending to the limit. Be smart about the increase and your card each month to keep below 30% utilization. It’s worth a try!
Pay Twice A Month
Also known as micropayments, split your payments into two payments –with extra on top if you can–every month. You’ll end up ahead of payments, your issuer will report two payments per 30 days, and you’ll cut down on the interest.
2. Hard Inquiry
Have you applied for a car loan, mortgage, or major credit card recently? Maybe you were hoping to increase your overall credit history and credit mix? Well, depending on how many inquiries you made, the period of time they were requested, and what they were – your score may have dropped.
A hard inquiry stays on your credit for up to 2 years. If you were approved, as long as you make your payments on time in full, you should start to see an improvement.
Pro Tip: Shopping for a car? You can apply and compare multiple auto loans on the same day or within a few days of each other and they will only count as one hard inquiry. Because the type of inquiry will be all auto loans they and are reported on your credit history as one hard inquiry versus individual hits.
Hard Inquiry Or Soft Inquiry?
A hard inquiry is when you applied for some form of credit in the form of revolving, installment, or open accounts. Lenders will review your credit when making their decisions to qualify you for approval. This type of credit pull will show up on your report and impacts your overall credit score. An example of this is a mortgage or auto loan.
In contrast, a soft inquiry happens when you review your credit score or a lender, like a credit card company, checks your credit for a pre approval offer. These types of inquiries do not impact your credit score.
A Credit Builder loan from MoneyLion not only can get you up to $1000 with an affordable interest rate, but you could get money in your hands today–no hard credit pull needed! During your 12-month repayment terms, we’ll report your payments to all 3 credit bureaus and help boost your credit score by up to 60 points within 60 days. Learn more about it here!
You might be thinking that avoiding the use of your credit card or line of credit is a good idea. It’s quite the opposite! Credit card issuers and lenders will close your account due to inactivity, which can decrease your credit age, credit mix and add derogatory marks to your score.
Blemished Credit? Enhance Your Score with A Credit Builder Loan
In summary, sustaining a healthy credit profile is easier when you know what to look for and can utilize credit-building tools like a MoneyLion Credit Builder Loan. Our solution to damaged credit is only $19.99/month and it’s stacked with perks like 0% APR cash advances, credit monitoring, and auto investing.