Alarmed by a Sudden Change to Your Credit Score? The Answer Could be Simpler Than You Think

checking credit score through a magnifying glass

11 Jun Alarmed by a Sudden Change to Your Credit Score? The Answer Could be Simpler Than You Think

Imagine this – you’ve been responsibly checking your credit report regularly to watch for errors and better understand your financial situation. Then, one day, you notice a very sudden rise or fall in your credit score. You’re probably sitting on your desk thinking – what could it mean?

Your first reaction might be to assume that some error has been made and that the inaccurate information has caused the abrupt change. While such an assumption is understandable, and certainly possible, sudden changes to your credit score are not necessarily errors. In fact, sudden changes are common and often have a very simple explanation.

Continue reading to learn some of the most common reasons why your credit score might suddenly change.

Late payments

In the field of finance NZ wide, a payment of at least $100 NZD that’s 30 days late or more is considered a default. Not all defaults are reported the moment they occur, so there may be a delay before it is reported to the credit agencies. Depending on the amount of activity in your credit history, you may find that a single default has an outsized impact on your credit score.

New applications for credit

Here’s a common instruction in financial advice you’ve probably heard before: Don’t apply for too many new lines of credit at once. If you are applying for a personal loan, for example, it is unwise to send applications to ten different lenders at once. These applications are reported as part of your credit report, and too many at once can trigger alarm bells.

Here’s the bottom line: When applying for new lines of credit, it’s important to do your research and apply to the one ideal lender.

Changes to borrowing limits

A crucial element of your credit report is the amount of remaining credit available to you at a given time. Therefore, a sudden rise or fall in your borrowing limits can lead to changes in your credit score.

Say, for instance, recent payment issues caused a sudden drop of 20% in your credit card borrowing limit. The reduction in your borrowing limit means that your outstanding debt now makes up a larger percentage of your borrowing capacity, which can lower your credit score.

The reverse is also true if sound financial habits lead to a rise in your borrowing limits.

Credit card was recently closed or cancelled

This is based on the same principle as a change to your borrowing limits. Closing or cancelling a line of credit results in a sudden drop in your overall borrowing capacity, which can lead to a lower credit score.

Unpaid account was sent to a collection agency

Collections agencies and court summons for outstanding debts are rightly seen as major warning signs by credit agencies. If you are late on credit or loan payments, it is vitally important that you show progress paying down your outstanding debts. Collectors can be a drag on your credit report for years.

Debt consolidation is a viable option if you are at risk of collectors or summons.

Bad Credit fell off your credit report

Your bad credit history doesn’t haunt you forever. If you suddenly discover that your credit score has leapt upward, you should ask yourself what major financial events occurred five years ago. That’s because the information that would damage your credit score only remains on the record for five years. Defaults and collections drop off your credit report five years after they are reported. Bankruptcy stays on credit reports for 7 years from the date loaded.

If you’ve improved your financial circumstances in the meantime, the disappearance of something so significant can rapidly boost your credit.

Give your credit score a boost

 

A low credit score can make it difficult to borrow money when you need it or cause higher interest rates, putting your family and your standard of living at risk.

A bad credit loan from Max Loans can help you turn around a struggling credit score. It’s quick and easy to apply online. Don’t let a bad credit score prevent you from realising your dreams. Contact Max Loans today to see what a bad credit loan can do for you.

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This publication should not be deemed as financial advice. While all care has been taken in the preparation of this publication by the writer, Max Loans and the writer give no warranty as to the accuracy of this publication and whether the information contained within it is appropriate for your individual circumstances. No responsibility is taken by Max Loans or the writer for any errors or omissions in this publication. You should seek specific financial advice appropriate to your individual circumstances before acquiring or disposing a financial product.