If you’ve noticed that your credit score has recently gone down, even when it seems like nothing has changed, you might understandably be a little worried. There are many factors that affect your credit score, which can make it hard to figure out what’s causing it to dip.
Firstly, don’t worry! In this blog, we’ll help you get to the bottom of why your credit score has gone down, and how you can start improving it again.
Why is my credit score going down?
Your credit score may drop if the credit reference agencies (CRAs) receive any information that may make you seem less reliable as a borrower.
Here are some reasons that might explain why your credit score has gone down:
Missed Payments
One of the more common reasons for your credit score dropping is missing payments. Lenders will report any late or missing payments to any of the three main CRAs (Experian, Equifax and TransUnion), and as these three agencies generate your credit score, any new information about missed payments, defaults or county court judgments will likely to cause your credit score to go down.
There are a number of reasons why a payment may be missed, such as a recent change in bank account/payment card, or not having enough money in your account to cover the payment. It’s also important to remember that the longer the delay in a payment being made, the bigger the impact it will have on your credit score.
In order to avoid missing payments, be sure to check your usual payments regularly and make sure that they’ve all gone out. You could also set yourself reminders for when big payments are due, so you can ensure everything goes smoothly.
Moving House
To lenders, having the same address for a long period of time indicates that you are in a financially stable position, and are therefore more reliable. While this isn’t true for everyone, lenders will still look at this to determine your reliability when borrowing.
Because of this, frequent changes in address can cause your credit score to drop. Not to mention if you need to open multiple utility bill accounts at the new address (see how multiple ‘hard checks’ affect your credit score below).
If you have recently moved, be sure to get on the electoral roll in your new area, as this can help to boost your credit score.
Applying for credit
During credit applications for things like loans, credit cards, mortgages, bank accounts, or opening a new accounts with utility providers, lenders will perform ‘hard checks’ on your credit report.
These searches are recorded on your credit file and if too many hard checks happen in quick succession, it can end up causing your credit score to fall.
In order to minimise the effect this has on your credit score, try to avoid applying for multiple lines of credit in a short period of time (one every six months is a good rule of thumb).
It’s frustrating to see your credit score dip when you’ve been working hard to improve it, so if it happens, don’t worry. After six months of showing to the credit provider that you can pay responsibly each month, you should start to see your score improve again.
You can also use an eligibility checker to find out if you qualify for credit before applying. If you want to learn more about the different types of credit checks, follow this link.
Errors on your credit report
Your credit file contains important information about you and your financial behaviour. This information is also used to help calculate your credit score, so it’s important to make sure that everything on your report is accurate and up-to-date across Experian, Equifax and TransUnion.
The most important thing to look out for is fraudulent activity using your name and details. Check your credit report with each of the three credit reference agencies and let them know urgently if you spot anything suspicious!
Another factor that could negatively affect your credit score, is if there are any out-of-date financial connections on your credit file i.e. an ex-partner or housemate you once shared a joint account or utility bill with.
Joint accounts are a double-edged sword when it comes to credit-building. If the other person is really great with their finances, it could theoretically bring your credit score up. But if they make any financial boo-boo’s while you are ‘financially associated’, you could see your own credit score go down with theirs.
Your score may have dropped because they’ve removed your financial connection from their own report and their good credit history was helping to keep your score up. Or they may have faced a bankrupcy, and because you’re still financially connected this is bringing your credit score down.
Mistakes on your credit report could lead to a drop in your credit score.
The best way to avoid this is by checking your credit report, and reporting any errors you find and start afresh! If you need help with fixing mistakes on your credit report, check out our blog.
Opening or closing accounts
When you open or close a credit account, there are a few things you should consider:
1. Firstly, your credit utilisation ratio is likely to change, which can sometimes result in your credit score dipping. Your credit utilisation ratio is essentially how much of your available credit you are using. For example, if you have a credit limit of £2,000 and you spend £1,000, your credit utilisation ratio would be 50%.
A ‘good’ ratio is normally around 30% (but the lower, the better), so if you open or close any credit accounts this can change.
2. Secondly, opening and closing accounts can also lower the average age of your credit accounts, which can end up impacting your credit score.
Lenders will view you as more creditworthy (meaning someone who is a low risk to lend to) when you have a long and healthy history with other lenders. So if you have two bank accounts open and you’d like to close one, choose to keep the oldest open if you can.
TLDR: To avoid a negative effect on your credit score, try to avoid opening or closing accounts too frequently, and try to keep your credit utilisation ratio as low as you can.
If you need a little more help with your credit utilisation, Loqbox Grow can help you boost yours without the worry. For just £2.50 a week, we’ll increase the amount of credit you can use and report those regular payments to the credit reference agencies — win, win!
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