You can easily let the slight ups and downs in your credit score roll off your back, but at this point, it feels like credit scores are just a game of chance. We get it; it can feel like none of your credit use is changing, but your credit score is still fluctuating.
Feeling like you’re not in control of your credit position can be frustrating, especially with credit scoring algorithms never being clear-cut. Trust us; there’s always a reason behind a change in your credit score. Even if the answer is complicated.
You may have overlooked a couple of things when considering what could have changed your credit score. We’ve rounded up some credit-changing circumstances that you may not have thought of.
Problem: Increase or Decrease In Credit Limit
One of the most significant factors for calculating your credit score is your credit utilization. Credit utilization is how much of your available credit you use. For example, if you have a credit line of $1,000 and spend $100 of it, you have a utilization rate of 10%.
If your credit limit increases or decreases, it could change your utilization and therefore, your credit score.
Creditors periodically review cardholders' accounts and may consider increasing the credit limit as a reward for consistently making on-time payments and maintaining a low debt level.
On the other hand, If you haven't used a credit card much or at all over a certain amount of time, the card issuer might lower your credit limit. In this case, if your credit limit went from $1,000 to $300, and your balance is still $100, your utilization rate would have jumped to 33.33%, which could negatively impact your credit score.
Remember that your utilization considers all forms of credit you have open. If your credit score goes down after paying off a loan, that open line of credit was being factored into your utilization ratio. Paying off debt means one less open account.
Solution: Pay Attention to Your Utilization
If your credit limit decreases, lower your outstanding balance as well. Credit bureaus recommend keeping your utilization ratio below 30%. To calculate your utilization, add up all of your credit limits, combine all of your credit use, and divide your total credit use by your total credit limit.
If your credit limit increases, that’s a good sign; continue to use your credit as responsibly as you have been.
Problem: There’s Been An Error
You’ve been on your credit score game and it seems like your score went down for no reason - this could mean there has been an error.
An error can easily decrease your credit score, no doubt about it. It’s important to review your credit report and see if anything has been falsely reported. This error could be anything reported to the credit bureaus within the last 30-45 days.
Check for a missed payment, credit inquiry, or charge off; any of these marks on your credit report could have a negative impact on your credit score.
Solution: Dispute the Error
If you discover an error, call the creditor that reported it and dispute your credit report. The two of you should be able to resolve the issue and have the mistake removed from your credit report.
Problem: You Were The Victim of Identity Theft
If you’ve combed through your credit report and see errors that don’t seem like innocent mistakes, you might have a bigger problem on your hands. Someone might be up to no good with your identity.
There are a few things that could indicate identity theft:
- You see a purchase made or a hard credit inquiry that you don’t recognize
- Your bills are missing or coming from accounts that you’re unfamiliar with
- Your bank statement seems off
- Your utility services are cut off
If someone else has access to your social security number or any of your credit accounts they can do some serious damage to your credit score. Somebody might be applying for credit in your name and missing payments on those open accounts. After a few hard inquiries and one missed payment, you’ll quickly see the negative effect on your credit score.
People who commit identity theft don’t consider your credit score and personal finances once they’ve gotten what they’re looking for. In pursuing financial gains, identity thieves will quickly trash your credit and leave you with the mess.
Solution: Contact the FTC
Gather any documentation you can and report identity theft to the Federal Trade Commission (FTC) online at IdentityTheft.gov or by phone at 1-877-438-4338. The FTC will collect the details of your situation.
In the meantime, freeze your credit and limit your use of credit cards and your social security number. Once everything is settled and your identity’s back in your control, work on rebuilding your credit score with the Extra debit card.
Problem: Not Enough Time Has Passed
The length of your credit history determines a portion of your credit score. In other words, the longer your credit history, the better the impact on your score. Creditors like to know that you can maintain your credit and responsibly manage it for a healthy amount of time.
The longer you can keep an account open, the better. Most consider seven years to be a reasonable amount of time to establish a well-respected credit history. Perhaps you’ve just hit your seven-year anniversary with your first credit issuer, and the trust in your relationship is really there.
The seven-year mark doesn't guarantee your credit score will improve, but it does better your chances. It might feel like just yesterday that you turned 18 and got your first credit card, but through college and your first job, it’s been your trusty steed in the journey to financial independence.
On the other hand, you may have recently closed a credit card account. In this case, your closed account could bring your average credit length down a few years and your credit score down a few points. It’s easy to think nothing has changed if you weren’t using that card anyway, but that’s not how the credit bureaus see it.
Solution: Wait Patiently
Try to keep your longest-standing account open until the average of all your other accounts hits seven years. If you have an account that’s not getting as much attention as before, consider connecting it to an Extra debit card.
Note that Extra is a debit card, so using it won’t sacrifice your credit score; in fact, Extra lets you build credit.
Know What’s Changing Your Credit Score
After you’ve learned the basics of what makes up your credit report, it can still feel like you’re in the dark about what’s impacting your score.
Hopefully, the above four scenarios and solutions have helped you feel slightly more in control of your situation.
There’s always a way to take back control of your score, and Extra’s here to help. We encourage you to read through more posts on the Extra blog and treat yourself to the credit-building information you deserve.