How To Make Sense Of A Decrease In Your FICO Score And Effective Ways To Bounce Back.

How To Make Sense Of A Decrease In Your FICO Score And Effective Ways To Bounce Back.

If you've recently experienced a decrease in your FICO score, don't panic. It's common to experience panic and some fear when your score decreases for no apparent reason. FICO scores are inherently variable based on your recent actions, but once you assess why your score decreased, you'll know how to effectively bounce back. This blog will explore potential reasons your FICO score decreased and effective steps for a rapid recovery.

Common Causes for Your FICO Score Decrease

Increased Credit Card Debt

One of the most common reasons for an unexpected decrease in your FICO score is increased credit card debt. Experts agree that if you go over 30% of your credit limit on a card, it may impact your score. Thus, say you have a credit card with a limit of $10,000, if your balance goes above $3,000, you will get a drop in your score. It's important to keep utilization low..

Late or Missed Payments

Your FICO score is made up of 35% payment history. Therefore, one late payment is all it takes to harm your score. When lenders see that you missed or were late with a payment, it means your score can drop. There’s no need for that to happen to you. Avoid the drop by having reminders or automatic payments set in place so that you always pay before the due date.

New Credit Inquiries

Every time you apply for new credit, a lender runs a hard inquiry on your credit file. This means that in a short window, your score may decrease because of the flagged request to extend you new credit. Moreover, although one inquiry will only result in a minor decrease, many inquiries in a short span can start to add up. For this reason, if you are considering applying for credit, it may be best to limit applications—especially if you plan on making a big purchase in the near future..

Closed Accounts

According to FICO, closed accounts do in fact impact your score. Although they do not seem to be as negative as opened accounts, closing old accounts can bring your score down. Closing accounts can account for a shortened credit history and an increased credit utilization ratio (if applicable); how does closing an account make sense if you have balances on other cards? If you intend to close an account, be mindful of how this will impact your credit moving forward.

Collection Accounts or Charge-offs

Debts sent to collections reported to credit agencies can tank your FICO score. Collection accounts or charge-offs mean that you aren't paying your debts. Collection agencies may be more hesitant to loan to those inappropriately using credit (or failing to use credit appropriately). Clear debts regardless of whether they're in collections or not as soon as possible to avoid another dent in your credit score.

How long will it take to get my FICO score back?

It depends. If your FICO score dropped because you had exceptionally high credit card balances and you resolved it, the collection agencies reporting may improve your score by 30-60 days. If your FICO dropped because of a late payment, it may take years for the score to return because payment history affects your FICO for up to ten years.

The sooner the better. The more consistent positive habits there are—payments made on time and low balances—the faster the FICO rebounds.

How To Restore Your FICO Drop

1. Review Your Report

The first thing to doing is to see what's causing your FICO score drop by reviewing your report. Each of the credit bureaus—Experian, TransUnion, and Equifax—allows you access to one free copy of your report each year. Making sure there's no adverse reporting on it is essential. If you see an error or something suspicious, address it with the bureau for a fix.

2. Pay Off Credit Cards

If your score drop is related to debt levels, namely your credit cards, then ensure that you're maintaining a credit utilization level of 30% or less by paying them off sooner than later. There are common methods to determining how to pay them off (snowball vs. avalanche) to keep you encouraged to do so.

3. Set Reminders to Avoid Late Payments

One way to ensure you'll never pay your debts late again is to set reminders or automatic payments so that your due date never slips your mind. Reported late payments negatively impact your history and payment history make up 35% of your score.

4. Avoid New Credit Applications

Wherein a hard inquiry for a new credit application doesn't kill your score, it's certainly something that can contribute to making it lower. Avoid applying for new credit (or too much of it) if you're banking on making an important purchase (house, car, etc.) and need your score as high as possible.

5. Consult With A Credit Counselor

Credit counseling services can help you formulate a plan for a FICO drop response if things get complicated for you. These are certified teams that can work with you on the specifics of how and why to improve.

6. Monitor Your Score

Monitoring services will take all changes into account—even the slight ones—and provide you with a daily, weekly or monthly report on what works best (or worst) for your score.

7. Create Good Habits

Over time, the best way to boost your FICO score is to create good habits relative to credit. That means putting everything into action learned after determining what caused the drop!

Final Thoughts

Now that you know how a sudden FICO drop can happen and why you hopefully have a better understanding of what went wrong and some options how to get back on track quickly! It takes awareness and effort, but over time a consistent approach is one that will yield results.

Want some help along the way? Book a free credit consultation with Maximum FICO Score! We'll point you in the right direction for your new and improved credit journey!

Staying ahead of the game with the above information will help ease concern relative to a FICO drop and allow for all the best opportunities in the future.