Your credit score fluctuates because of a variety of reasons. This happens because lenders use credit scores to determine your ability and risk to repay a loan. This is especially true if you need to apply for a home loan. Here are three common reasons that your score might be dropping. These are some tips that will help you improve your score and keep it up. For a better score, it is important to have a clean credit record.
Paying off a loan
You might be curious as to why repaying a loan can impact your credit score. Although it is a relief to be debt-free, there are many factors that may cause your score to suffer. Lenders could view you as a potential risk if there are too many lines of credit. To counteract this, pay off one or more of your existing lines of credit and build up your total credit available.
Applying for new credit
Lenders do credit checks and hard inquires on your credit history when you apply for credit. While your existing credit score won't be significantly affected, a single inquiry will lower your score by three to seven points. This decrease will fade in a matter of months. Limit your credit applications to avoid having your credit score drop too much. Consider getting a credit card if you have excellent credit. You might also consider a secured card.
Medical debts paid off
It's not a common question that paying off medical debt could affect 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. Your medical provider may send your bill to a third party collection agency. They will then report it to credit bureaus, depending on your circumstances. 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, your provider may not give you notice at all. This means you will have to pay the debt in the grace period.
Use caution when applying for credit
You can lower your credit score by opening new credit accounts. Although these accounts have lower interest rates than others, they can still negatively impact your credit score. Instead, limit your credit card applications to the ones you need and only pay for them on time every 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. Also, it is common for auto loans and mortgages to be combined. Identity thieves can use your personal details to apply for new credit. This could lead to defaulted payments.