Top 3 Causes of a Declining Credit Score

Credit scores fluctuate normally, but scores with a downward trend or a large decline can have a significant impact on one’s financial life. Declines in scores occur due to a variety of reasons, such as a decrease in credit limit, an increase in debt load, or multiple lines of loans in a short period of time. 

Learning about these reasons is important to avoid a poor credit rating and become more financially stable. Here are some common reasons that an individual must always look out for when maintaining their credit score:

Reason #1: Identity Theft and Fraud

A person’s credit score is a reflection of their finances, but it does not always mean what it entails. More often than not, people can become victims of fraud. This is one of the most pressing reasons people should check their credit scores, as inaccuracies or fraud can greatly affect one’s score. Mistakes can either happen, but identity theft is also a common occurrence. 

Individuals may end up using another person’s information to apply for credit, which is why good credit scores are attractive targets for thieves. They can open new accounts and apply for new loans, which they never pay for—and consequently suffer from delinquent debts, leading to a poor credit score. 

Reason #2: The Credit Limit Has Decreased

Unfortunately, people also go through a decrease in credit limits. This is usually an action taken by a creditor, which effectively impacts one’s score. The credit utilization ratio, or the amount of credit that is accessible versus how much one has already used, inherently suffers from the change. 

A decrease in the limit happens for a variety of reasons, but more often than not due to income changes or repayment issues. In some cases, lines of credit end up being underutilized, hence the decrease of the limit.

Reason #3: Late or Missing Payments 

All payment debt histories play a huge role in one’s credit score. Simply put, the later the payment, the bigger the impact will be on the credit score. 

Should one pay a month later than their due date, for instance, the lending institution or credit company has all the rights to report the problem to a governing body. This report can affect an individual’s credit score, which further increases after 60 to 90 days. As a result, the credit score declines.

Debt Solutions to Invest In 

Improving one’s credit score entails making better choices and avoiding any reason for significant drops in the score. This is especially important when planning for major purchases in the future, such as financing a new home. Credit scores can significantly affect these purchases, so an individual must always look out for any declining trends and take preventative measures. 

How long it will take to get the credit score back up will depend on the reasons it declined in the first place, so one must always be conscious of their accounts and purchasing habits to avoid any problems.

Consulting the help of experts is always a helpful strategy in maintaining a good financial standing, so it’s best to seek their assistance whenever possible. For those looking for personal debt solutions in Canada, allow the professionals at DebtHelpers.ca to provide assistance. DebtHelpers.ca offers customized solutions to help individuals reach their goals of becoming debt-free. Book a consultation and contact our professionals today.