Yesterday, I wrote about a temporary drop in credit score due to opening a new line of credit. Today, I explain two additional reasons you might see your score go down.
Possible Reasons for a Credit Score Drop
- If you raise your revolving credit card balances to above 50%, above 80%, or max them out, your score will drop, even if all payments are made on time. The cure is to reduce your balances again (and keep them low).
- If you have recently removed all collections/charge-offs from your credit report, you might see your score go down. This is because there are at least 10 credit slots (some call them buckets) or categories for credit profiles.
All the people who have a bankruptcy go in one category. All the people who have collections/charge-offs go in a category. All the people who have seven years of perfect credit go in a category. Etc. (This is an example. I don’t have the actual category “bucket” labels as that is highly protected and classified by the credit bureaus.)
If you have been moved from the “D” credit category to the “C” or “B” credit category, then you are competing with people who have better credit than before. Credit scores are calculated by comparison with the rest of the population. It is like a grading curve in school.
If this happened to you, don’t fret or get upset. It will work itself out in time.
Manage your credit like the people who have 740+ credit scores, and eventually you will get to 740+ also.
The best policy is not to obsess and micro-manage your score day-to-day or even week-to-week. That is like a person who is working on weight loss jumping on the scale every hour and then getting upset because their weight went up slightly due to drinking a glass of water.
Repair Your Credit Like the Pros, and your score will improve — sometimes faster than you expected!
By the way, I have a brand new, ground-breaking book coming out soon!!! It is written, the formatting is complete, and the cover design is in progress. I am very excited about this, so keep a watch out for the announcement coming.
Hint: everyone who has had a bankruptcy in the past 10 years will benefit.