Why my credit score drop?
Paying off loans or credit card debt may temporarily drop your credit score. Even as it seems paying off debt should raise them.
Q: So my mortgage got sold again to a new loan servicing company. And, again my credit score went down. My score went down when they closed my oldest loan. My credit score is around 780 and fluctuates between that number and 800. I’ve used about 2 percent of my credit on about $5,000 available.
With the change to the new loan servicer, my credit score dropped about 15 points. What a scam. I wonder if others feel like I do? What do your readers think?
A: How and why credit scores work are a mystery to most people. Many credit reporting bureaus will include an explanation on how and why your credit score may go up and down from time to time. In our view, and according to FICO, 800 is an exceptional credit score.
So, you don’t really have to worry about temporary drops – and if everything else stays the same in your financial life, it will be temporary. But many other prospective homeowners could be affected if their score dropped 15 points. We’ll address that below.
We’re also confused by how your credit score changed when your loan company changed servicers. The underlying debt — your home mortgage — remained the same and the history of your loan payments should have been static.
It could be something as simple as the break between your on-time payments getting recorded. Or, it could be adding a new tradeline to your credit history. We suspect that in a month or two, your credit score will once again recoup those lost 15 points and resume showing your score at around 800.
Here’s something else to keep in mind: You have more than one credit score. There are education scores published by Experian, TransUnion and Equifax for consumers to use. There are a variety of credit scores purchased by banks, credit unions and other financial services companies. Mortgage lenders have their own credit score, which is supposedly better at predicting how you’ll repay your mortgage. Auto lenders have another set of scores tuned to repaying auto loans.
In short, the credit score you see on your bank or credit card website is likely similar, but not the same, as the credit score a lender would pull. So, an 800 score in one place, might be a 780 in another or an 820 at a third institution.
Where your question becomes critical is when someone has a lower credit score. The average credit score in the U.S. is 700. If your credit score is around 680 and drops 15 points, that can mean you’ll pay a lot more for your loan. If your credit score is 600 and drops 15 points, you might not be able to get a mortgage at all.
This would be important if you got a loan when interest rates were 8 percent and you’re now looking to refinance. A small drop in your credit score could mean you’d miss out on the best rates, which are around 7 percent as we went to press.
To keep your credit score as high as possible, you need to pay your bills on time and, if possible, in full each month. Use less than 30 percent of your available credit. Keep your longest credit accounts open and active. And, don’t cancel accounts solely to reduce the number of credit cards you have.
Review your credit history frequently. You can access your credit history by going to each of the major credit reporting agencies, Experian, Equifax, and TransUnion, and setting up a free account online. Once you do that, it’s easy to freeze and unfreeze your credit history. Each of these companies will ask you to pay for a higher level of service or to see multiple credit scores, but it isn’t necessary. You should be able to review your entire credit history online and get a free monthly credit score.
Another option: Go to AnnualCreditReport.com and download a free copy of your credit history from each of the three major credit reporting agencies. You might not need to download reports from all three of them, but you can start with one. There may be products and services offered to you when you go to the site. You don’t have to accept any offers to get your free report. And, you don’t have to put any credit card information into the site to obtain your credit report. You will, however, need to input your social security number and other personal information.
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©2024 by Ilyce Glink and Samuel J. Tamkin. Distributed by Tribune Content Agency. A1617