The Experian credit score is one of the most crucial figures in your life, especially if you are a borrower. A credit score is how the lenders determine the extent to which lending the money to you is a risky affair. Having a high score means you have a good credit risk and will be able to meet the obligations as and when due. A low score is also bad news for lenders because it indicates the borrower may not be able to pay back the loan.
Being aware of the fact that the Experian credit score is computed based on several different variables, Knowing the things that would reduce your score will enable you to avoid such issues to prevent any further reduction of your score. Below are the key areas that explain why Experian credit scores may drop.
Missing Payments Payment history is the most significant element that defines your Experian credit score. If you have missed the debt payments, if you failed to pay at least the minimum due, or if you have paid your debts late, then you will see your score go down. A single payment that was made a day past the due date will result in a lowered score with a greater reduction in the score for every new payment that has been made after the due date.
The degree of the score reduction depends on the payment’s time of arrival. Late payment for 30 days is worse in terms of the impact it has on the company than a delayed payment spanning a few days. Late payments over 90 days or if an account is referred to collections your credit score gets significantly affected. While you can’t change your past behavior, you can regain your on-time payment history, which will begin to improve your score.
Maxing Out Credit Cards These comprise credit utilization where your score depends on the amount of credit you use about the amount of credit limit available to you. This is referred to as the credit utilization ratio. It is however important to maintain low this ratio, below thirty percent as advised by experts.
The utilization of credit utilization is also very important and if you have maxed out all your credit cards and are utilizing all or most of your credit limit, then your score will drop. Getting anywhere near your limit severely punishes your score. This is especially so if the more cards are maxed out, the worse the damage that it will deal. It is better to have lower balances close to your credit limit because they help increase the Experian number.
The problem of opening too many new accounts can also be attributed to the following factors:
If you applied for a new credit, the credit provider pulls your credit report in the process. Although multiple credit inquiries can be beneficial to the consumer, if they occur within a short span, they will reduce your Experian credit score. This means that you are a very desperate person who is in dire need of credit or rely a lot on it.
The general advice should be to avoid applying for new credit cards more than twice every year to prevent the score from plummeting. Inquiries commonly remain effective only for one year and may affect the scores. Likewise, opening many accounts in a short period puts an alert on them, as it does even when done in the long run.
Closing Old Accounts
Another crucial aspect that affects your Experian score is the length of your credit history which refers to the average age of credit accounts. However, if you choose to close the old credit card accounts, this average account age will be lowered, and also your credit score. Do not close the oldest credit cards you have as they are beneficial for maintaining a good credit rating. This is helpful even though you may not use them during the scoring process.
It also helps to close accounts that were used to make the purchases to limit one’s total credit as well. This in turn can bring the credit utilisation ratio up and therefore reduce your Experian number even more. It is advisable to keep old accounts open and ensure that they remain active to help achieve a higher score.
Applying for New Loans
The score decreases with the number of loan applications submitted which is reflected by the Experian score. Each of the applications also generates a hard inquiry in your credit report. As we have seen, if one has made too many hard inquiries over 12 months, they appear risky and make lenders question your financial reliability.
Credit scores matter before making auto loans, mortgages, personal loans, and other credit as below. Before filling in applications, it is important to check that you fit the criteria based on the current score. Applying for financing without first checking scores often causes a score to drop. One well-thought-out application submitted has fewer adverse effects on the scoring.
Transferring balances to new cards
To lower interest charges, credit card firms employ the strategy of providing intro 0 percent interest rates if one is to transfer balances from another card. Swapping high-rate balances to a new card that offers 0 percent interest is a sensible thing to do. But, it reduces the Experian score quite commonly.
Every balance transfer application is considered a ‘hard pull’ which in turn knocks the credit score for some time. Opening a new account also has the effect of decreasing the average account age, thus affecting the number badly. It is only justified to transfer if the amount saved in interest outweighs the cost of scoring.
Co-Signing Loans
However, it appears as if helping another person by co-signing an auto loan, mortgage, student loan, or any other financing is doing someone a favor. Yet if the primary borrower fails to make the payments on time your credit score is affected in the same way as theirs. Failure to make payments on a joint account has impacts on credit performance and score.
Late payments on co-signed loans may reduce the credit score but even on-time payments might also reduce the score. The amount of debt from the co-signed loan may still be above normal expenditure - this expenditure. If you use the card more, meaning that your utilization levels are high, your score will be low. Here are a few tips to follow to ensure that you are not caught off-guard by score hits every time you co-sign:
Settling Debt for Less
A large number of people with outstanding credit card balances attempt to negotiate for lower amounts with their creditors. Debt settlement appears to be pretty appealing but only ruins your credit profile. Paying owed balances rather than closing accounts erases ratings for years on end.
The accounts that are settled are closed by the lenders and marked on your credit report as settled for less than the amount owed or paid in full for an amount below the overall balance. Both notations reduce alarm score calculators, which leads to significant point deductions. This is the only correct strategy when paying down debts: it’s best to pay them off, if possible. And if you settle, then the best way to work on rebuilding your scores is gradually over time.
Bankruptcy
By far in my opinion the quickest way to ruin an excellent Experian credit score is through filing a Chapter 7 or Chapter 13 bankruptcy. Although it’s embarrassing and painful to have unmanageable debts since you lose your credit score, creditors take care of it for you. It drops by approximately 130- 150 points on bankruptcy. The credit information does not fade quickly; rather it is indicated that it takes between 7 to 10 years before it is removed from credit reports if one files.
There are certain situations such as the loss of jobs or having to pay large medical bills that may force one to file for bankruptcy even with score destruction. When possible, reconstruct credit gradually over the subsequent years by regularly monitoring accounts and paying off dues on time. First of all, be prepared to be rejected for a loan or offered a very high rate.
How to safeguard your stats: 7 things to avoid
Any Experian credit score is a pass to get loans at reasonable interest rates and with suitable loan terms as per your needs. It is important not to make big mistakes that would lead to reducing the quality of the score and increasing the price of credits. Maximize credit card use, pay all its and other bills on time, avoid running high balances, and limit the number of credit applications and accounts. Review your credit reports at least once per year, to ensure the information is correct and there is no fraud against your identity. If you want to get good credit and maintain it, there is nothing easier than that to do with your accounts.
Call now for expert credit repair services: (888) 803-7889
Read More:
Is Credit Karma good for credit monitoring?
How to check if someone is using your SSN?
Is Experian a good credit monitor?
How much does Experian membership cost?
How much does it cost to get your credit report from Experian?
