Factors that can lead to a decrease in credit score.

With easy access to credit reports, monitoring credit scores have become a regular occurrence for many that are trying to gain control over their finances. Many hope that their score is increasing or holding steady, but when you see a decrease, it may come as a shock if you are unaware of the factors that could contribute to a decrease in your credit score. Listed below are several reasons why there might be a negative impact on your credit.

1. Missed or late payments – Payment history can account for 35% of your credit score. Missing or making late payments can lead to negative marks on your credit reports, causing a decrease in your credit score. This can be avoided by setting up automatic payments to come out of your bank account or setting reminders. If you are finding it hard to come up with the funds to cover the payments, have a look at your budget to see where you can cut back or reallocate funds.

2. High credit utilization – Credit utilization can account for 30% of your overall credit score. It is the percentage owed versus available credit limit. By using a large portion of your available credit, it will result in high credit utilization which will negatively impact your credit score.  As well as impacting your credit score, high levels of credit utilization can result in financial stress trying to meet those financial obligations. 

3. Collections – Having accounts sent to collections due to non-payment will have a negative impact on your credit score. In addition to the negative impact on your score, lenders may refuse to give you credit. If you are having trouble paying your financial obligations, it’s always best to reach out to the creditor to attempt to make payment arrangements rather than letting your debt go to collections. 

4. Applying for multiple credit accounts – Applying for multiple credit accounts within a short period of time, especially if denied, can result in multiple hard inquires on your credit report which can result in a decrease in your credit score. 

5. Closing credit accounts – The age of existing credit accounts for approximately 15% of your credit score. Closing a credit account, especially an older one with good payment history can shorten your credit history, potentially lowering your credit score. 

6. Errors on your credit report – Errors on your credit report, such as accounts that do not belong to you, and incorrect payment statuses, can negatively impact your credit score. If you notice an error, it’s important to dispute the error or request a correction. That can be done directly by requesting a dispute form on either the Equifax or TransUnion website.

 
7. Identity theft – Identify theft is on the rise and can have severe impacts on your credit score. Individuals could use your information to apply for loans, mortgages, credit cards, etc., with no intention to ever pay, resulting in damage to your credit. If caught early, it is possible to fix your credit within a timely manner. 

By regularly monitoring your credit report, you are able to check for any inaccuracies and better understand your current financial position, leading to making better financial decisions in the future. 

There are multiple third-party platforms available to check your credit report, such a Borrowell and Credit Karma, but Equifax and Transunion have been a trusted source for many years that financial institutions rely one.

To receive a free on-line Equifax credit report and score, visit: https://www.consumer.equifax.ca/.../request-free-copy...  or submit a request by mail and receive delivery 10-20 days after submission (copy of application can be found on the website). 

To receive a free TransUnion credit report, visit: https://www.transunion.ca/product/consumer-disclosure or submit request by mail. There is also an option to request your report via telephone at 1-800-663-9980.

If looking at your credit report is discouraging due to debt obligations, there are options available to help you tackle your debt.

If you are looking for advice, or a second opinion about your debt, it does not cost anything to talk about your options. Every financial situation is unique and viable options can differ from person to person. A conversation free of judgment is the first step to determine options for debt that make sense to you. For a free consultation, please call or text (506) 645-1814 or email jaime@tackledebt.ca; or visit www.tackledebt.ca.