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5 Possible Reasons why your Credit Score Dropped

5 Possible Reasons why your Credit Score Dropped

Credit scores often seem random but there is a lot of math and science behind them. If you suddenly realize your credit score dropped and cannot think why, there is usually a reason for it somewhere.

 

We asked our Bronte auto loans team to list 5 common possible reasons why your credit score dropped. The reason is probably here somewhere!

 

You got preapproved for an auto loan

 

Did you know auto loan preapproval usually involves a hard inquiry on your credit report? That hard inquiries will reduce your score for a short time?

 

Not many people do but it can be a prime reason why your credit score has dropped.

 

You got a new credit card

 

Opening new credit accounts can reduce your credit score in a couple of ways.

 

One, the application involved a hard inquiry which we covered above. Two, the average age of your credit accounts reduces, which also impacts your credit score.

 

If you open and then begin using that new credit card, you’re using some of your credit utilization ratio, which calculated how much of your available credit you’re using.

 

This can also negatively impact your score.

 

You closed one or more credit cards or accounts

 

If you were doing some housekeeping and closing old accounts, that could have reduced your credit score.

 

Your average account age drops, as mentioned above as the closed accounts no longer count. Your debt utilization also drops, as the credit limit of credit cards or credit accounts can count towards it.

 

The impact shouldn’t be much but it does cause a drop.

 

You have just made a large purchase on credit

 

Have you just bought a big ticket item on a credit card? Bought some furniture on credit? Bought anything without paying cash?

 

This can also help reduce your credit score as you’re using more available credit, which impacts your score.

 

That new purchase may have included a hard inquiry, which would be true if you bought furniture on store credit or something similar.

 

You cleared a loan or other form of credit

 

If you had a personal loan, auto loan, payday loan or other form of credit and have paid it off, that can also negatively impact your credit score.

 

Closing the loan reduced your credit mix, which can have a minor impact on your credit score.

 

Changes to your score

 

Some of these effects seem counterintuitive. After all, how can paying off debt be a bad thing?

 

It isn’t a bad thing but it does have a minor impact on your credit score. The less credit you have, the less the credit bureaus have to go on when calculating your score.

 

Remember, your credit score is about how you handle credit. The less credit you have, the less there is to maintain your score.

 

If you need help or advice on anything to do with auto loans in Bronte, contact Car Nation Canada today, we can help!

 

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