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Decoding Credit Score Drops: Unraveling the Factors Behind Fluctuations

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Jun 30, 2023

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Maintaining a healthy credit score is crucial for achieving financial stability. It affects your ability to secure loans, obtain favorable interest rates, and even impacts your prospects for renting an apartment or landing a job. However, it can be disheartening to discover that your credit score has dropped. This article aims to shed light on the common reasons why credit scores decline, enabling you to navigate the intricacies of credit scoring with confidence.

Payment History:

One of the primary factors influencing your credit score is your payment history. Late payments, defaults, or delinquencies can have a significant negative impact. A single missed payment can lower your score, particularly if it's a recent occurrence. Multiple missed payments or serious delinquencies can result in a more substantial drop.

Credit Utilization:

Credit utilization refers to the percentage of your available credit that you're currently using. High credit card balances relative to your credit limits can adversely affect your score. A sudden increase in credit card balances or utilizing a significant portion of your available credit can cause your score to decline. Strive to keep your credit utilization ratio below 30% to maintain a healthy score.

New Credit Applications:

Whenever you apply for new credit, such as a credit card or loan, the lender conducts a hard inquiry on your credit report. Multiple hard inquiries within a short period can signal potential financial distress and negatively impact your credit score. If you've recently applied for several new lines of credit, it can cause a temporary dip in your score.

Negative Information:

Unfavorable events like bankruptcies, foreclosures, or accounts in collections can significantly damage your credit score. Even if you've resolved these issues, the negative information can persist on your credit report for a certain period, typically seven to ten years. Such information can result in a notable drop in your credit score.

Age of Credit History:

The length of your credit history is an essential factor in determining your creditworthiness. If you've recently opened a new credit account, it can lower your average account age, potentially impacting your score. Similarly, closing old credit accounts can also affect the length of your credit history, potentially leading to a decrease in your score.

Errors or Identity Theft:

Inaccuracies on your credit report or instances of identity theft can negatively impact your credit score. Monitoring your credit report regularly can help identify and rectify errors promptly. If you suspect fraudulent activity or notice unfamiliar accounts, take immediate action to minimize the damage and protect your credit score.

Understanding why your credit score has dropped is the first step towards rectifying the situation and improving your financial standing. By being aware of the common factors that contribute to credit score fluctuations, such as payment history, credit utilization, new credit applications, negative information, credit history age, errors, and identity theft, you can take appropriate measures to mitigate the impact. Regularly reviewing your credit report, making timely payments, and practicing responsible credit behavior can help maintain a favorable credit score and pave the way for a brighter financial future.

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1. Qualified applicants may borrow up to 95% of their home’s value. This does not apply to investment properties.2. HELOCs have a 10-year draw period. During the draw period, the borrower is required to make monthly minimum payments, which will equal the greater of (a) $100; or (b) the total of all accrued finance charges and other charges for the monthly billing cycle. During the draw period, the monthly minimum payments may not reduce the outstanding principal balance. During the repayment period, the borrower is required to make monthly minimum payments, which will equal the greater of (a) $100; or (b) 1/240th of the outstanding balance at the end of the draw period, plus all accrued finance charges and other fees, charges, and costs.The lender will calculate this amount by taking the outstanding Account Balance on the last day of the draw period and dividing it by 240 months and then adding any finance charge that accrues but remains unpaid during the monthly billing cycle plus any other fees, charges and costs to the fixed principal payment that is due. During the repayment period, the monthly minimum payments may not, to the extent permitted by law, fully repay the principal balance outstanding on the HELOC. At the end of the repayment period, the borrower must pay any remaining outstanding balance in one full payment.3. The time it takes to get cash is measured from the time the Lending Partner receives all documents requested from the applicant and assumes the applicant’s stated income, property and title information provided in the loan application matches the requested documents and any supporting information. Most borrowers get their cash on average in 21 days. The time period calculation to get cash is based on the first 4 months of 2024 loan funding's, assumes the funds are wired, excludes weekends, and excludes the government-mandated disclosure waiting period. The amount of time it takes to get cash will vary depending on the applicant’s respective financial circumstances and the Lending Partner’s current volume of applications. Closing costs can vary from 3.0 - 5.0%. An appraisal may be required to be completed on the property in some instances.4. Not all borrowers will meet the requirements necessary to qualify. Rates and terms are subject to change based on market conditions and borrower eligibility. This offer is subject to verification of borrower qualifications, property evaluations, income verification and credit approval. This is not a commitment to lend.5. The content provided is presented for information purposes only. This is not a The content provided is presented for information purposes only. This is not a commitment to lend or extend credit. Information and/or dates are subject to change without notice. All loans are subject to credit approval. Other restrictions may apply.