If you noticed your credit score has gone down since the last time you reviewed it, there’s probably a good reason. To make sense of it, compare these common reasons for a drop in a credit score to how a new creditor might interpret those actions or behaviors.
Your payment history is a record of how well you pay back loans. Creditors prefer clients who pay their bills on time and in full each month.
- If you are late on a payment, or more than one, new creditors may be concerned if you will be late on their payments.
- If you skip a payment, creditors might ask themselves if you will take their loan payments seriously.
- If you default on a loan by missing several payments, creditors may wonder if you will default on a new loan, too.
Before lending you money, creditors like to know that your budget can handle the new loan payments. If you have a lot of debt already, it could make it difficult to pay back a new loan.
- If you borrowed more money recently, this could affect your credit score. Creditors are less likely to lend money to you if you recently took out a new loan or two.
- Your credit card debt increased. A sudden increase in spending could make new creditors wonder when you will pay it all back.
- If you max out your credit cards, creditors may worry that you might not be able to pay back a new loan if your debt load has already increased significantly.
Most of the information on your credit report remains there for seven years. Since most loans take years to pay off, it would make sense that creditors would want to know your track record.
- If you recently applied for a lot of new credit, even if you didn’t accept it, this could set off red flags to creditors that you may be having money problems.
- If you stop using loans and credit, then creditors can no longer see how well you pay back loans or make payments on a credit card.
Tax and Legal Issues
- If a creditor has sued you, this could damage your appeal to future creditors, who don’t want to worry about paying for lawyers.
- You have a tax lien imposed on you by the IRS, creditors might wonder if this financial burden will make it hard to pay back a loan.
- If you have a court judgment against you, for child support or other reasons, creditors may be concerned if you can take on more debt.