Tuck Associates Shares Three Questions to Ask When Your Credit Score Drops

Noticing an unexpected credit score drop can cause someone to temporarily despise the financial system in the U.S. For those who might be working on rebuilding their credit, the feelings of hatred and anger are much stronger. Fortunately, there is always a way to reverse a reduction in someone’s credit score. Not to mention that many of them reverse on their own after a few weeks go by. To determine the best course of action for each situation, people must ask the following three questions.

Did I Use Credit Cards to Pay for Items?

According to the company that specializes in debt consolidation, Tuck Associates, the number one reason for credit score drops is an increase in utilization. When people go from never using their credit cards to suddenly paying with them for everything, their utilization will no longer be zero percent. Due to various spending limits, however, everyone’s new percentage will be different. The higher that the utilization goes, the lower the credit score will be. Fortunately, usage is one of the categories that often fixes itself. When a person starts using their credit cards for the first time, their credit will need some time to adapt to the new debt. If they maintain a consistent pattern of purchases and keep the utilization rate under 30 percent, the credit score will eventually rise.

Did I Forget to Make a Payment?

Late payments on any liability will immediately reduce the credit score. Unlike utilization, bouncing back from a missed deadline may take a long time. The reason why is that there is no “adjustment” period for someone who forgot to pay their bills. Instead, the overall consistency will go down, and it might take a few years to bring the percentage of timely repayments back up. This is why people who have multiple deadlines for their liabilities should remain proactive by covering all of the expenditures long before the due date.

Did I Close Any of My Accounts?

When people close their largest or oldest credit account, they seldom consider the effects on their credit score. In most cases, there will be a noticeable drop in points. While it may sound counterintuitive, two perfectly logical reasons explain why this situation ensues. Closing the oldest account will considerably reduce the average age of someone’s credit. Lower age will translate to a lower credit score. Closing the largest account will have a similar effect as the utilization rate goes up. Consider, for instance, a person that has 5 credit cards with a total spending power of $20,000 and a current debt of $6,000. If their largest account has a spending limit of $10,000, closing that account will increase the overall utilization rate from 30 percent ($6,000 divided by $20,000) to 60 percent ($6,000 divided by $10,000). Even though there is no new spending, the new usage percentage is twice as high, and the credit score subsequently plummets.

In case that none of these questions resolve the mystery, people should check if new collections were filed against them. Circumventing them, however, is borderline impossible because most collection disputes have an unfavorable outcome. Luckily, learning from the aforementioned questions from Tuck Associates can help avoid major credit issues, especially when it comes to large point deductions

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