Credit Cards Reasons Why Your Credit Rating May Drop

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					Credit Cards Reasons Why Your Credit Rating May Drop

Credit rating is very important. It is used to determine how much
interest you need to pay. It is also a reflection of your
creditworthiness. If you have high credit rating, you can enjoy lower
interest charges on loans. Apart from that, you also get higher credit
limit and great deals on your credit card. If you find that your rating
has dropped significantly, this may mean that you may have made a
financial mistake.

There are a number of reasons why you may suddenly have a lower score. If
you know what these reasons are, there is a chance that you can avoid or
at least fix your current dilemma. Here are some possible causes of
abrupt score drop and how you may be able to avoid them.

Late Payments

Your payments reflect 35% of your FICO score, regardless of whether you
pay on time or not. If you missed a payment, this will not completely
damage your rating. However, if you turn this into a habit, your score
will eventually be affected. Moreover, your creditor may charge you with
more fees and you may likely end up having to make many more payments,
which could include your credit card bills, immediate fees for missed
payments, and charges on credit lines and later, loans. The only solution
to avoid all these is to pay your bills on time.

New Credit Card Application

Applying for a new card when you are struggling with paying another can
hurt your credit score. Know that 10% of your credit rating is made up of
new inquiries for credit. New card applications will show on your credit
report for 12 months. If you wish to get a new card, do so with control.
If you are to make an inquiry, do it only once as much as possible. One
inquiry is acceptable since your score can rebound within a year.

Credit Card Cancellation

You have the option to close your account if you have credit card debt.
However, doing so will actually damage your score, especially if your
account carries a balance. Another possible scenario is that creditors
may cancel your account. Both scenarios can have an effect on your
rating; therefore, avoid credit card cancellation as much as possible.

Unemployment Benefits

If you are unemployed and you get benefits, this will have a slight
effect on your score. It is advised that you receive the benefits for a
short period only. Although the credit bureaus will not find out if you
are unemployed, they will certainly see that your income has decreased.

High Credit to Debt Ratio
Your extended credit will take 30% of your credit score. Sudden increase
in balances without higher credit limit will result to a score drop. If
you have balances, strive to pay them off as soon as possible.

Poor Debt Management

Credit score is not only about what you do with your credit cards. There
are other factors that can influence your score. These include your lines
of credit and loan balances, which comprise 30% of your FICO score. If
you have too much debt, your rating will definitely go down. It will also
be difficult for you to afford the payments each month. Hence, you should
be able to manage your debt by lowering the amount of money you owe from
various financial institutions.

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