It is not clear why your credit score fluctuates. This happens because lenders use credit scores to determine your ability and risk to repay a loan. This is especially important if you're applying for a mortgage. In this article, we'll cover three common reasons why your score may be dropping. These are some tips that will help you improve your score and keep it up. We'll also discuss the importance of a clean credit report to help boost your score.
Repayment of a loan
You might be curious as to why repaying a loan can impact your credit score. Although it is a relief to be debt-free, there are many factors that may cause your score to suffer. Lenders could view you as a potential risk if there are too many lines of credit. To counteract this, you can pay off one or several of your existing credit lines and increase your total credit.
Applying for new credit
Lenders will conduct hard inquiries and credit checks when you apply to credit. While your credit score will not be adversely affected, you may see a decrease in your score from one inquiry. This drop will even out within a few months. To avoid lowering your credit score by too much, limit your applications for new credit. A credit card is a good idea if you have great credit. You might also consider a secured card.
Paying off medical debt
It's not a common question that paying off medical debt could affect your credit score. Most people who receive medical bills go into credit. If you pay the medical bills within the grace period on time, your credit report will not reflect them. Your medical provider may send your bill to a third party collection agency. They will then report it to credit bureaus, depending on your circumstances. The credit bureaus will report medical bills to them for one full year, starting July 1, 2022. Sometimes, you may not receive any notice from your physician. If that happens, you will need to pay off the debt within the grace period.
Prudently apply for credit
You can lower your credit score by opening new credit accounts. Even though these accounts may offer lower interest rates, your credit score can still be affected if they aren't paid on time. Instead, limit your credit card applications to the ones you need and only pay for them on time every month. Your credit score will rise if you have multiple credit cards with different limits.
Hard inquiries should be avoided
Your chances of getting a loan are affected if you make several hard inquiries on credit reports. This type of inquiry indicates to a lender that your are taking on a lot more debt than you can handle, and it is recorded on your credit reports. Many auto loans and many mortgages are combined. Identity thieves will be able to use your personal information in order to get new credit. This could eventually lead to missed payments.