You may be astonished at the reason why your credit score fluctuates. Lenders use your credit score in order to determine how likely you are to repay a loan. This is especially important if you're applying for a mortgage. Here are three common reasons that your score might be dropping. Follow these tips to get your score back up and keep it there. You will also learn the importance and benefits of having a clean credit score to improve your score.
Paying off a loan
It may seem strange that paying off a loan can affect your credit score. It is an excellent relief to be debt-free. However, there are several factors that can cause your score to fall. Lenders might view you as a threat if you have too much credit. To counteract this, you can pay off one or several of your existing credit lines and increase your total credit.
Applying for new credit
When applying for new credit, lenders perform hard inquiries and credit checks on you. While your credit score will not be adversely affected, you may see a decrease in your score from one inquiry. This drop will even out within a few months. Limit your credit applications to avoid having your credit score drop too much. A credit card is a good idea if you have great credit. You might also consider a secured card.
Repayment of medical debt
Are you wondering if medical debt will impact your credit score? Many people who have to pay medical bills end up in debt. Good news is that medical bills won't show up on credit reports if they are paid on time. Depending upon your individual situation, your provider might send the bill to a third person collection agency who will report it on credit bureaus. Although medical bills will not be visible on your credit report for six month, they will be reported by the credit bureaus starting July 1, 2020. Sometimes, you might not receive notice from your medical provider. If this happens, the credit bureaus will report the debt to the credit bureaus for a full year beginning July 1, 2022.
Use caution when applying for credit
You can lower your credit score by opening new credit accounts. These accounts might have lower interest rates but can still affect your credit score if you don’t pay them off on time. Instead, apply only for the credit cards that are essential to your financial goals and make payments on time each month. A variety of credit cards will increase your credit score over time.
Answering hard questions
You are reducing your chances of being approved for a loan if you make too many hard inquiries. This type of inquiry shows a lender that you are taking on a lot of debt all at once, and is reflected on your credit report. Many auto loans and many mortgages are combined. Identity thieves may use your personal data to apply for credit in your name if your inquiries are not separated. Ultimately, this could result in defaulted payments.