Why did my Credit Score go Down when Nothing Changed?

Your Credit Minute Show Notes:

 

• 00:00                                   Hey what’s up guys, Nik Tsoukales from Key Credit Repair. We are gonna go through the credit question of the day, which is, why did my credit score drop even though nothing changed? Well, I have to tell you, something did change. Uh, just things you might not realize. So the credit report, keep in mind, is constantly changing. The credit score when you’re pulling it up online, or whether a lender is pulling it up, um, is going to pull data or it’s going to be a snapshot of the data in that moment. Now keep in mind from one moment to another things can change. Okay? And let me elaborate a little bit on that, ’cause some of the things you might think of haven’t changed, but I’ll actually break down some of the things that could have.
• 00:43                                   So, you’re going to notice here, I included a little chart here of what makes up your FICO score. Okay? So at 35 percent which is payment history, we 30 percent is amount owed or debt, 15 percent length of history, 10 percent new credit, and 10 percent credit mixed. So let me give you an example of some things that may have changed that you haven’t realized. Um, first thing is payment history. Okay? You might not have a new lay payment so you’re wondering, Nik why should my credit score change if I don’t have a new lay payment. Well maybe you’ve had a few more positive payments. That could actually cause your credit score to go up. Okay? Um, if you’ve had a recent lay payment obviously the credit score is going to go down. Okay?

 

• 01:27                                   Amounts owed. This is the big one. I would say this is the biggest culprit. Um, we get people that call us all the time and they will say my credit score has dropped five thousand points, five million points, I don’t know why. I haven’t been late, I haven’t done anything wrong. And in fact they really haven’t done anything wrong, but typically what we’re seeing is this part of the credit score is being affected because of something called, uh, credit card utilization rate. The proportion of your credit card balances compared to your credit limits affect this 30 percent of your credit score.
• 02:02                                   So let’s say, um, two months ago you pulled up your credit report and it was almost identical with the exception to the fact of, oh, with the exception to the fact that your credit card balance was 100 dollars. Okay? And when we pulled it up this time, the credit card balance was 300 dollars, and that credit limit is, is 500 dollars. Okay? Um, that utilization rate, okay, your proportion of balance compared to credit limit, um, is, has gone up considerably higher. Okay? And that will affect the 30 percent of what makes up your credit score. And obviously if, if that credit card utilization rate has dropped, this part of your credit score will benefit. Okay? So if you’ve pulled up your credit report recently or you’ve pulled up your credit score and there hasn’t been really any adverse change or new negative, uh, uh information, this is the first thing I would check out. Okay? It’s, it’s really the quickest opportunity to grab some points too. Okay?
• 03:03                                   Um, the next thing is, length of history. Okay, the length of history for your active accounts really affects your credit score in a pretty big way. It’s 15 percent of your credit score. So let’s say you have had a couple accounts that have just dropped off, some older accounts that were closed out a decade ago and they just fell off your credit report because of the statutes of limitations. Well that could adversely affect this part of your credit score as well. Okay?
• 03:28                                   The other thing is new credit. Let’s say if you’ve got a bunch of new, uh, credit cards recently, um, typically that will, you’ll see a small drop on your credit score. Okay? Um, probably if it just happened, you might see a quick 10 point drop in your credit score, but really over the course of 90, 120 days it should actually help your credit score pretty substantially because you’re gonna start getting on time payments on those cards. Which will positively affect the 35 percent of you credit score that’s payment history. Okay? If they’re credit cards, um, and you keep the balances at zero, it should help your credit score which is amounts owed. Um, because your credit card utilization rate, theoretically, should drop because your proportion of balance to limit has now dropped. Okay?
• 04:16                                   Um, and then we have credit mix. This is one no one is really talking about. Okay? Let’s actually circle this. The ideal mix is real estate number one. Uh, you have installment credit number two and revolving credit number three. Revolving being things like credit cards, lines of credit, overdraft protection. Installment credit is things like student loans, care loans, car leases, um, personal loans. Okay? And real estate credit being home equity lines of credit and mortgages. Okay? So let’s say your entire credit picture has stayed the same, um, but maybe you don’t have a car loan anymore. Maybe that balance was already down to like your last payment. The last time you checked your credit report recently was closed out. Um, this 10 percent of your credit score could be affected, ’cause you no longer have that perfect mix. You no longer have any installment credit. Um, maybe you have, uh, you know length of history maybe is gonna be a little more adversely affected if that auto loan was 10 years old and it just dropped off. Okay?
• 05:21                                   Um, so that could have an affect. Amounts owed really shouldn’t have an affect. Um, you could see an adverse affect from payment history, because now you have one less account reporting an on time payment. Okay? So there’s a little bit more than what’s, than what meets the eye with your credit score. There’s a lot that goes into it, but keep in mind the culprits typically are right here. Okay? The culprit is typically right here in amounts owed. So if you’ve seen your credit score drop or there’s been an adverse change, um, obviously if you’ve had a new late it would show up inside of payment history. If you haven’t and all of your accounts are intact, I want you to check your credit card utilization rate. Again, proportion of credit card balances to the available credit limits.
• 06:04                                   Guys this is Nik Tsoukales with your credit minute. Check us out at keycreditrepair.com for anything credit related. If you have any credit questions you’d like me to answer, uh, I’d be happy to, uh, drum out here on my fancy new little white board. And um, thanks for checking us out guys. Have a great day. Peace.