Why did your credit score drop despite no missed payments or defaults?

Your credit score speaks to your credit health. It is your portal to borrowing at a competitive interest rate. While there are some loans you can avail yourself of without having your credit rating checked, no lender will ever sign off on your application for long-term loans without perusing your credit score. If your credit report is not in good condition, you will have bleak chances of getting approval for a loan. Small loans can be approved but at higher interest rates.

Many people struggle with keeping their credit score up to snuff. Undoubtedly, it is the most complicated thing to tackle. Missed payments and defaults are the prime causes of impairing your credit health, but there are some factors that can pull your credit points even if you continue to keep up with your debt payments.

Here are the reasons why your credit score dropped despite making payments on time:

· You close your old accounts

It is no wonder to see people closing their old accounts in order to avoid debt. When you have cards to use, you will certainly end up maxing out them. The best way to get over your tempting usage is to deactivate them.

You will probably prevent yourself from racking up credit card balances, but you will cut out the length of your credit history, an important factor that accounts for your credit score calculation. You will earn more points when you prove that you managed your credit for a long period of time responsibly.

· Identity theft

This is one of the significant and worst reasons to have your credit score badly affected. It means somebody has opened new accounts using your name, and the impact of their credit handling is being recorded on your credit report.

You can prevent yourself from being the victim of identity theft by monitoring your credit file. You should regularly check it, at least once in six months. If you find that your credit report consists of accounts you never took out or inquiries, missed payments and defaults of loans that you never applied for, you should immediately report it to credit bureaus. They may need a month to sort the matter out as they will have to confirm the status of loans with your lender first.

· Your erroneous credit report

Your lender reports credit reference agencies of your credit details such as timely payments, missed payments, etc. It is likely that they inaccurately report your payments, which results in a drop in your credit points.

As soon as you spot an error, you should always try to contact your credit reference agency and let them know about erroneous reports. Before they make any changes to your credit file, they will check it with your lender.

In fact, you can even directly contact your lender about wrongful reporting. It may take a couple of days to get the issue fixed. The best way to avoid such mistakes is to check your credit rating periodically.

· Your credit limit has been reduced

Despite the fact that you have been paying off your credit card balances in full, your credit card issuing company reserves the right to alter the limit. They can increase or lower the limit at any time. It increases your debt utilisation ratio, and as a result, your credit score will go down.

If it happens so, you should call your credit card company and demands an explanation. If they do not have any reason to tell you that highlights your fault in some way, you should try to ask them to put you back on the original credit card limit.

Do not forget to check your credit reports because sometimes erroneous information can result in a lower credit limit.

· You have settled your debt in full

If you have settled the whole of the debt, you will see a drop in your credit score. It is a good thing to get out of debt, but it can negatively impact your credit rating temporarily. It can be due to a reduced credit mix and you closed specific types of credits.

For instance, if you have a mortgage, car loan, personal loan and a business loan with no credit check and you have cleared your business loan and car loans, now the credit mix will be reduced. Therefore, you will see a drop in your credit points.

To sum up

It is no wonder that your credit score has dropped despite no missed payments and defaults. Identity theft and erroneous credit reports can be the reasons. In addition, when you close your old accounts and pay off your debt in full, you may see a drop in your credit score. However, you do not need to be worried about your credit rating drop as long as it is not due to your financial irresponsibility.