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Understanding Credit Score Drops and How to Recover

There are numerous reasons why your credit score might have decreased, such as a recent late or missed payment, applying for new credit, or changes to your credit limit or usage. At O1ne Mortgage, we understand the importance of maintaining a good credit score for your financial health. If you have any mortgage-related needs, feel free to call us at 213-732-3074.

Key Factors Affecting Your Credit Score

Understanding the factors that influence your credit score is crucial. Payment history has the most significant impact, followed by the amounts owed on your debt accounts and the length of your credit history. Other elements, such as inaccurate information on your credit report, can also affect your scores.

1. Late or Missing Payments

Your payment history is the most critical factor in your FICO® Score, accounting for 35% of your score. Even one late or missed payment can negatively impact your score. Ensure you make all your payments on time to maintain a strong credit history.

2. Recent Credit Applications

Applying for new credit can result in a hard inquiry on your credit report, which might slightly affect your score. Accumulating too many hard inquiries in a short period can negatively impact your scores and affect your chances of getting approved for new credit.

3. Increased Credit Utilization

Maxing out your credit card can cause a quick drop in your credit score. Your credit utilization ratio, the second most important factor in calculating your FICO® Score, should ideally be below 30%, and for the best scores, below 10%.

4. Decreased Credit Limits

Having your credit limit decreased can increase your credit utilization ratio and negatively affect your credit scores. Keeping an eye on your credit utilization ratio will help you understand your fluctuating credit score better.

5. Closing a Credit Card

Closing a credit card can increase your utilization ratio and reduce the length of your credit history, both of which can impact your credit score. Unless the card has a high annual fee or tempts you to overspend, it’s often better to keep the account open.

6. Inaccurate Information on Your Credit Report

Regularly checking your credit reports ensures no inaccurate information shows up in your file. If you find any inaccuracies, dispute the information with all three credit bureaus as soon as possible.

7. Major Events Like Foreclosure or Bankruptcy

Events such as foreclosure or bankruptcy can significantly harm your credit scores. These events can disqualify you from certain types of borrowing in the future and remain on your credit report for several years.

What Is a Good or Bad Credit Score?

On the FICO® Score range, a score from 670 to 739 is considered good, while scores above 739 are very good or exceptional. Scores below 669 are considered fair or poor. Maintaining a good credit score can save you money and stress over time.

Ways to Improve Your Credit Scores

Here are some tips to help you improve your credit scores:

• Pay your bills on time by setting up automatic payments.
• Minimize overall debt and avoid leaning on credit for purchases you can’t pay off by the end of the month.
• Monitor your credit regularly to identify and address any dips in your score quickly.
• Avoid applying for unnecessary credit cards to prevent overspending.
• Practice responsible spending habits by setting up a budget.

Handling a Dip in Credit Scores

A drop in your credit score can be stressful, but it doesn’t have to be permanent. By understanding the factors that caused the drop and taking proactive steps, you can improve your score over time. For personalized advice on improving your credit score, check your credit score for free through Experian.

At O1ne Mortgage, we are here to assist you with all your mortgage-related needs. Call us at 213-732-3074 for expert guidance and support.

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