If you’re like most people, your credit score is something you want to keep as high as possible explains Martin Polanco. So what should you do if it drops? Nothing! The truth is that unless there’s an error in the reporting of data to one of the three national credit bureaus (Experian, TransUnion’s and Equifax) and it’s not corrected within 90 days, your score will probably go back up.
Here’s what you need to know:
- If your credit score has dropped recently and you haven’t applied for new credit or taken out a loan, there’s no need to panic. If your score was high before the drop, it’s likely that it will rise again in six months or so (check TransUnion’s chart).
- Your credit card company may tell you your available credit line has decreased even if your score hasn’t gone down because of extra security measures they’re taking to prevent identity theft and fraud — but don’t worry, your credit will be restored in about six months if there’s no fraud.
- If your score has dropped because of late payments that you made, then you need to take corrective measures by paying off your balances or setting up an automatic payment plan. If the delinquencies are recent (less than six months old) and they’re not more than 30% of your available credit limit, then they may not affect your score much — unless other negative factors are present. Also, make sure to set up automatic payments for any future bills.
- If you’ve recently become unemployed and missed some bills, don’t give up! The fact that you’ve always paid on time before makes a big difference to lenders — but if your financial situation is likely to remain precarious for more than six months, you should contact creditors to set up a payment plan says Martin Polanco.
- Remember that your credit score is based on the information lenders see when they check your report (and not what’s inside). Most negative information will disappear from your report after seven years if it has no significant effect on your score. If you’re having difficulty paying bills now, there may be larger problems ahead — like bankruptcy. Take action now! Contact debt collectors and ask about repayment plans, negotiate with creditors or consider an alternate payment strategy. You can also sign up for free financial management tools, such as Smart Money’sSmarter Budgeting program, which helps you create a realistic spending plan by comparing income and expenses.
- If you believe there’s an error in your credit report, investigate it — or file a claim. If you find an error, contact the creditor and ask them for proof that you owe the money. You can also submit documentation to the credit bureau (attach copies because originals won’t be returned).
- The most important thing is not to panic because there are steps you can take to fix whatever’s wrong in your credit history. And in many cases, your score will rebound in time without any action on your part. So sit tight and wait for things to get better!
What misc. credit factors affect my credit score?
In addition to payment history, the amount you owe and the length of your credit history, other miscellaneous factors that can affect your score include:
Length of Credit History The longer your credit history, the better it is for your score. If you don’t have a long credit history, lenders may take a guess at how well you’ll manage future accounts based on past experiences. That’s not always a good bet. Inquiries Accounts in good standing generally won’t be affect by a few hard inquiries over a two-year period says Martin Polanco. But if you apply for several accounts in a short period of time, this could signal financial problems and lower your score.
Types of Credit Used Hard inquiries from auto loans or student loans will have a less significant impact on your score than credit cards. So having more experience with the latter will usually boosts your score over time. Recent Credit Use Lenders look at whether you’re using new accounts, not just how many you have. Recent use of available credit may signal financial problems, so don’t open accounts unless you really need them — or are planning to pay off the balance right away.
If your score has dropped below 550, you may have serious difficulties qualifying for the lowest interest rates.
Your score will rebound in time if you pay off your delinquent debts or successfully negotiate repayment plans with creditors.
Credit scores are based on information contained in your credit report. If you find an error, contact the creditor and ask them for proof that you owe the money.