It’s not a big drop, but it can be annoying to see.
- Credit scores can fluctuate from month to month, so it’s important to keep track of yours.
- Applying for a new loan or a new credit card could cause your score to drop slightly.
It’s a good idea to have an idea of what your credit score looks like at all times. The higher this number, the more likely you are to be approved for a new credit card or loan. And if you’re taking out a big personal loan or mortgage, a good credit score could be the difference between being offered a favorable interest rate or a more expensive one.
Sometimes you may notice that your credit score has taken a hit, even though you haven’t done anything negligent, like skipping a bill or paying it very late. But there’s a good reason you might notice a five-point drop in your credit score. And for the most part, there’s really nothing to worry about.
What causes a minor drop in credit rating?
If you’re late on a bill or have a very high balance on your credit cards, you could see your credit score drop a little. However, if you only see a five-point drop, chances are it’s because of a thorough investigation of your credit report.
Each time you apply for a new loan or credit card, the lender or company in question will check your credit report to make sure you are not an overly risky borrower. When this happens, it is considered a difficult investigation.
Usually, a thorough investigation will drop your credit score by around five to seven points, sometimes a little more. And so, if you see that your score has dropped slightly, chances are it’s because you recently applied for a new credit card, financed a car, refinanced a mortgage, or borrowed money from a another way.
Should you be worried about a five point drop in your credit score?
In most situations, a five point drop in your credit score will have no impact on you. Let’s say your credit score is 815 and it takes a hit of five points. A score of 810 is still considered outstanding, so it’s no reason to lose sleep.
Also, let’s say your credit score is 680, which is considered good but not great. If your score drops to 675, you are still in that same category. With a good credit rating, you are likely to be approved for a loan. However, you may not qualify for the lowest interest rate offered by a given lender. But chances are five points won’t make a difference there.
Now in certain situations, a five point drop in your score could to have an impact. A minimum credit score of 620 is required to qualify for a conventional mortgage. If your score is 620 and it drops five points, you may need to wait to apply for a home loan and work to increase that number. But most of the time, a five point drop is nothing to stress about, especially if you have great credit to begin with.
How to Avoid a Modest Credit Rating Drop
If you don’t want to see your credit score stay the same any damage, make sure you don’t apply for new loans or credit cards for a while. But rather than focusing on avoiding a move that could result in a five-point drop, it’s better to work on increasing your credit if it clearly needs work.
This could involve paying off some existing debt to reduce your credit utilization rate and paying incoming bills on time to establish a more favorable payment history. If you’re able to raise your credit score by 100 points, you’ll give yourself more leeway to withstand a five-point drop without worry.
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