Why Did My Credit Score Drop? 5 Possible Reasons and How to Fix Them

Daniel Rosen  0:00  

Hey, Credit Heroes, have you ever checked your credit score and found that it dropped by 2050? Or even 100 points for no reason at all? Well, today, I'm going to reveal the causes of these mysterious drops and what you can do about them. So you better stick around. So the big question is this: How can we take our passion for helping people with their credit and turn it into a successful business without taking loans and spending a fortune by bootstrapping it from nothing? So we can help the most people and still become highly profitable? That is the question, and this podcast will give you the answer. My name is Daniel Rosen, and welcome to credit repair business secrets.

If this is your first time listening to my podcast, every week, I give credit repair tips and advice on bootstrapping your business from nothing. So be sure to click subscribe now and get ready to start changing lives. Okay, let's get into this. Over the years, I've had a lot of people reach out to me in a panic because their scores dropped by 50 or 100 points overnight, and they feel scared and frustrated, especially if they work really hard to improve their credit. In my experience, when one of these sudden and unexpected credit score drops happens, most people assume it's a sign of a financial disaster. They think it's a major bank error like the one that almost cost me my house, or they think it's a sign of fraud. And while that sometimes is the case, more often than not, there's a simple explanation, and the problem can be easily fixed. The key is not to panic. And if you act calmly and quickly to review your credit report and identify the cause, you can address the issue and bounce back fast. Here's how this relates to us. For anyone new to credit repair. The factors determining your credit score are usually split into five categories. Payment History, credit utilization, length of credit history, new credit, and credit mix. Changes to any of these factors can cause your credit score to drop. 

When a drop is sudden and unexpected. There are several common reasons why. The first is a reporting error. 79% of all credit reports have errors, and different errors can do different levels of damage to scores. For example, if a payment was incorrectly reported as late or an account had the wrong balance details, it can cause an unexpected sudden drop. The second is an account that you didn't know about that went to collections. If, for example, you have medical debts that you didn't know about or thought that your insurance company already paid. Your score can take a steep drop when that debt goes to collections. The third is identity theft. If someone opens a line of credit in your name, maxes it out, and then doesn't pay the bill. That's a serious problem. This sudden drop in your credit score becomes a blessing in disguise because it acts like an alarm, letting you know to review your credit report immediately. The fourth is credit utilization. Other than a reporting error. It's the most common reason for credit scores to drop unexpectedly. 

The good news is that it's the easiest problem to fix. An example of this just happened to a friend of mine. My friend recently called me because her credit score dropped 56 points overnight. She said she worked for over a year to boost her score from the five hundred to the seven hundred. She had a few credit cards, but her utilization was below 30%. She was paying her bills on time, and she didn't apply for any new lines of credit. So we pulled up her three-bureau report, and we reviewed it, looking for errors and signs of fraud. But everything looked normal, except for one thing. One of her credit card balances was much higher than the previous month. In fact, most of her credit cards had zero balances, and the only one with a balance was nearly maxed out. I asked her about it, and she said she used the card to pay for a trip. But she thought that was okay because she had already made her first month's minimum payment, and her overall utilization was still below 30%. Bingo. I explained that even though her overall credit was below 30%, That 30% was all on one card, and the high credit utilization on the one card was probably the reason why her score dropped. We reviewed the rest of the reports to make sure that that was the only issue. I warned her about the trap of making minimum payments. And I helped her to form a plan of action. She adjusted her repayment strategy, I had her apply for credit limit increases on her card, especially that one. And guess what? Her scores were back above 700 within a month. 

Here's the thing to remember: credit scores are very sensitive to certain types of changes. Payment history and credit utilization alone make up two-thirds of your entire credit score. So, even if you think you're doing everything right, all it takes is one or two minor changes to your recent activity to trigger a drop. Although these sudden drops in credit scores can be scary. The sooner you respond, pinpoint the cause, and address it, the faster you can recover. Here's why this is important. The cause of an unexpected credit score drop determines the solution. If you review your reports, know how credit scores work, identify the cause, and take simple actions to resolve the issue. You can bounce back and avoid any serious long-term effects.

If you aren't applying for credit or making a major purchase anytime soon, you might think an unexpected 50-point drop is not a big deal. But until you learn the cause of the drop, you don't know how serious the situation is. Every month, your credit profile has new information reported. Any negative items added to the report can damage your financial health, and they need to be investigated immediately. Especially if it's from out of nowhere. Here's what you need to know. If you find yourself in a situation where your credit score drops suddenly and unexpectedly. 

There are five simple steps for how to respond. Step one: review your credit reports for any new negative items that could drop your score. If you know your credit score dropped, you probably already have access to your most recent credit reports. But if you don't, you can request free copies at annualcreditreport.com. When you have your reports, compare them and note any changes, increased balances, new late payments, collection accounts, or hard inquiries that you weren't expecting. Step two: If you notice any reporting errors, even if they aren't the cause of the unexpected drop, flag them and begin the dispute process immediately. And if you're thorough, you might end up with a higher credit score than the one that you started with. If you see an error that you don't know how to dispute, you can scroll through my channel and find a video that tells you exactly how to remove it. Step three: If you see any suspicious activity, names or addresses that you don't recognize or accounts that you don't remember opening, that may be a sign of fraud or identity theft, and you want to report that immediately. For more information, check out my episode on how to respond to identity theft in eight simple steps. Step four: Reduce the amount of available credit that you use. Also known as your credit utilization. You want to get it below 30% Overall, and if possible, reduce it to below 30% of each line of credit. Paying down credit card balances and requesting credit limit increases will help reduce your utilization rates. Step five: hold off on applying for any new credit until your score recovers to avoid further hard inquiries. Step six: Check your credit score monthly to make sure that it rebounds. 

You should see improvements within one or two billing cycles. If you stay calm, act quickly, and follow these steps, you can minimize any long-term damage and get your credit score back on track. And if you want six months of Credit Repair Cloud software for free, plus access to our advanced disputing and business courses, go to creditrepaircloud.com/freetraining and sign up for our masterclass. Here's my final point: An unexpected credit score drop can be scary, but with some credit knowledge and a plan of action, you can undo the damage just as fast. Don't let a minor setback keep you from reaching your credit goals. 

And now, for my favorite part of the episode. Every week, I feature one of our Credit Heroes inside our Credit Repair Cloud Facebook community so that you can see firsthand what real people are doing as they run and grow their businesses. And today's spotlight is on Ashley Kemp. Ashley recently posted an image of two credit reports: the clients' original credit report and the one that she improved. After one round and 11 deletions, it showed a total increase of 370 points or about 123 points per bureau. She added that she made the post because she just wanted to inspire someone who might be thinking of throwing in the towel to know that anything is possible as long as you set your mind to it. Thank you for sharing those amazing results. Actually, that client is going to love you. And they're probably going to give you a great testimonial. Keep up the great work, you have the perfect attitude to achieve your dreams. 

And I'll end by saying if you still need a Credit Repair Cloud account, check it out. It's the software that most credit repair businesses in America run on. Just sign up for a 30-day free trial at creditrepaircloud.com/freetrial. And if you'd like to change lives and grow your very own credit repair business, check out our Credit Hero Challenge. It's a live experience that has helped tonnes of Credit Heroes to get certified in disputing and gain confidence as they run their credit repair business on a solid foundation. So they can change a whole lot of lives and make a great living in the process. We're starting the next challenge very soon. So you want to join before the doors close, or you're gonna have a long wait until the next one. So, sign up right now at creditherochallenge.com. 

And if you're finding value in the things that I share on this podcast, click below to subscribe and follow. Also, do me a favor, give me a five-star review, or share the show and help me to change more lives. If you'd like to read the show notes, they're posted on my blog. If you have a question or a comment, drop it down below because I read each and every one of them, and I would love to hear from you. And I'll respond as fast as I can. If you want to learn how to spot errors and dispute them even faster, check out my episode credit report 101. So take care, credit hero, and keep changing lives. Hey everybody, it's Daniel again. And really quick, I'd like to invite you to join what I believe is the best thing we have ever created inside the Credit Repair Cloud community. It is a challenge that we call the Credit Hero Challenge if you're just planning out your business, or you're just getting started, and you dream of having a successful business of your own. So you can quit your nine-to-five and fire your boss and have financial freedom, or you can add another revenue stream to your existing business. If that's your dream, you need to get into this challenge. We created this challenge to help you create and launch your very own credit repair business to build a proper foundation for a really successful business. This challenge is going to help you understand the strategy, the tactics, and all the things you need to be successful at credit repair. It really is the greatest thing we have ever built, and it will change your life. So I recommend you do it right now. Stop everything, pause this audio, go online, and go to creditherochallenge.com That's creditherochallenge.com and join the next challenge. And there's a challenge that starts in just a few days. So go get started right now at creditherochallenge.com