Q: I received a copy of my credit report last year and the score was 761. I have not applied for credit anywhere, but a year later my score was 448. What made my score drop so low?
A: It's definitely possible for a credit score to drop during a 12 month period even though you haven't applied for new credit. Without knowledge as to exactly what has happened in your financial life in the last year, it's hard to predict what might have caused this. That's because there are a number of factors involved in calculating your credit score. There are also a variety of companies that provide their own branded version of your credit score, using their own special (secret) formula. It can be a little complicated and cumbersome to understand how credit scores are derived, but there are some basic tenets you can use to extrapolate what might have caused your lower score.
The most important tenet is that your credit score is based on information in your credit report, so it's important that you go through all 3 of your credit reports on a regular basis to check for errors. The other critical fact is that you have 3 different credit scores, one from each of the 3 credit bureaus – Equifax, Experian and TransUnion. It's possible that your credit score of 761 was from one credit bureau and your score of 448 was from a different bureau. Credit reports from the 3 different bureaus can differ because creditors often report your credit information to just 1 or 2 of the bureaus instead of all 3. This means that you can end up with 3 very different looking credit reports and thus 3 different credit scores.
Many of the credit report monitoring services we review offer free 3-bureau credit scores and credit reports when you sign up for their trial, including our #1 ranked Identity Guard TOTAL PROTECTION®. Our #2 ranked service, Privacy Guard has a 30-day trial for $1, and provides all 3 credit scores and reports when you sign up as well as monthly updates of your three reports and scores.
Let's talk about the factors commonly involved in calculating a credit score as detailed by the very popular FICO® Score. If any of these things has changed in the last year it could explain your lower credit score. The percentages given indicate how heavily the category is weighted in determining your credit score.
35% = Your Payment History: This is your track record for paying your credit accounts on time. It also includes any bankruptcies, foreclosures, liens or judgments against you. In order to maintain a good credit score you'll need to pay your credit off in a timely manner. If you aren't currently doing so, you should make this a high priority as 35% of your credit score is a sizeable chunk.
30% = Amount Owed: When calculating your score, the amount of money you owe on your credit accounts is a large factor. Obviously, owing less is owing better than owing more but total credit utilization ratio is also taken into consideration. To understand this concept instead of thinking of each credit card and loan you have as a separate bucket, think of them as grouped together. For example, if you have 2 credit cards and on the first card you owe $2,000 with a $10,000 credit limit while the second card has a $3,000 balance and a $5,000 credit limit that means you have a credit utilization ratio of 33% ($2,000+$3,000 / $10,000+$5,000). To improve your score you should strive for a lower credit utilization ratio than what you currently have because a high ratio is an indication that you may be overextended.
15% = Length of Credit History: The amount of time you've had a credit history is also a factor, with a longer credit history being seen as more favorable. A part of this is the length of time you've had your credit cards. It's a good idea to keep all your credit cards regardless of how much you use them, because part of your score is based on the age of your oldest credit card.
10% = New Credit: Any new credit accounts you've opened are part of your overall credit score, although they are weighted less at 10%. This includes the number of recently opened accounts, and the type and proportion of accounts that are recently opened. It also includes any credit inquiries on your credit report, as they indicate that you have applied for new credit and the potential lender is determining whether your are a good credit risk before extending the loan (or credit card) to you.
10% = Types of Credit in Use: Another factor including in your credit score calculation is the type of debt you have – typically credit score companies like to see a mix of debt such as credit cards combined with an installment loan like a mortgage.
By going over all 3 of your credit reports you can see if any of the above factors caused your credit score to decrease. We recommend staying on top of your credit reports and scores at all times because credit reports (and thus scores) are constantly changing. Monitoring your credit reports can also help catch any fraudulent activity or identity theft.
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