What’s Lowering My Credit Score?

Your credit score plays a crucial role when a lender qualifies you for a mortgage. Sometimes, it can either ‘make’ or ‘break’ the whole deal, and that’s why you should give it the most attention. It is commonly known that late payments drop your score; however, there a few other traps you may not know about.  

Using More than 50% of Your Credit Limit

When you spend most or all of your available credit, it warns credit scoring systems that you’re a higher-risk borrower due to high credit utilization. This is because maxing out credit cards suggests you’re either not managing credit wisely, or you’re under financial stress. Overall, credit systems prefer you to use a smaller portion of your available credit because once your credit balance surpasses 50% of its limit, it negatively affects your score.

Adding New Credit Accounts

Taking on additional credit means taking on more payment responsibility! It takes time for credit scoring systems to assess how effectively you’re managing your new credit account, so you might see a drop in your score at the beginning. Overtime, your score should recover/improve as you demonstrate responsible credit management with the new account.

Closing Old Credit Accounts

It's not widely known that closing credit accounts directly influences the length of your credit history and utilization ratio. For example, a closed account eliminates a lot of credit history depending on the age of your account. This leaves credit scoring systems with less information to assess your trustworthiness and responsibility on, resulting in a lower score. It’s best to leave your account open, or close younger accounts as opposed to older ones. Moreover, closing a credit account decreases your total available credit, which in turn increases your credit utilization ratio—the ratio of your current balances to your total available credit. So, the loss of credit history and increase in utilization ratio both lower your score after closing an account.

The Wrap Up

Overall, credit scores are less complicated than you think, and it’s important not to overthink it. Try your best to avoid the points mentioned above, stay on-time with your payments, and you’re as good as gold! Negative impacts are generally quite minimal and highly depending on your unique credit portfolio. I’m always here to discuss your credit score in more detail and offer you advice on increasing your overall score. Contact me, and worry less!

See you next time!

Roza Rodrigues 

Rosehill Mortgages

Mortgage Agent #M22001354