Credit Cards

What Should You Do If Your Credit Score Tanks?

We go over what you should do if you notice your credit score took a nosedive. There is a range of possible actions you can take, each of which can have very different results – including restoring your credit score back to its former glory.

It's fairly easy nowadays to get your hands on a detailed report of your credit history. If you don’t have a credit card that offers this as a service to you, there are a number of free online options that can provide you with alternatives. While telling someone to check their credit score is simple enough advice, what they should do with that information could be more nuanced. You should expect your overall score to either sit at the same number or increase over time. What happens if your score suddenly drops? Don't panic -- it's not the end of the world. There are several steps you can take that will get you back on the right track, or even potentially bring your credit score back up immediately.

Identify the Source of the Problem

Credit scores aren’t arbitrary. They are powered by models built to take in various inputs from data centers that collect information about your finances. If you notice a drop on your credit score, you can rest assured that something concrete has lead to this happening. The question then becomes: “what is that something?” Use credit-monitoring services to view a summary of your report.

Most of the free reports allow you to see a breakdown of the major factors impacting your score – this includes things like the number of hard inquiries into your account, the average age of credit, and payment history. The report will, most of the time, highlight for you any recent changes. If your score dropped to a lower range, look at these new factors impacting it.

“I found the problem. How do I fix it?”

First, realize that there are certain things you cannot do anything about. For example, imagine that you just opened up a new line of credit. Your average age of credit will likely go down, and scores like Vantage and FICO 8 will be negatively impacted. This is unavoidable. Fortunately, in the long run, these small bumps will likely not matter much.

One of the most important thing you should look for are mistakes on your credit report. This isn’t as uncommon as you might think. In 2012, the FTC found that 5% of consumers found errors on one of their major credit reports. If that happens to you, know that you have the right to contest information you believe to be false. Once you file a report, the credit bureau, or the company responsible for supplying them data, is required to investigate. If they find they made an error, it will be stricken for your report allowing your credit score to bounce back. The credit bureaus are also required to contact any lenders that pulled your report within the last six months, notifying them of their mistake. If you got denied a loan as a result of the mistake, you can check if the lender is willing to reconsider their decision in light of the new information.

The final possibility is that your score went down due to your financial behavior. This is the scenario that gives you the most control. If your score went down because of something you did, take some time to reflect on your actions. You can follow two simple steps to deal with such problems.

  • Identify the actions that lead to the financial misstep. Sometimes it can feel as though a credit mistake blindsided us. However, examining the situation more closely can help identify the exact situation that led up to your financial misstep. Perhaps you didn’t stick to your budget, leaving no room for a credit card payment, or you maxed out all your credit cards during the holidays. All of these are common mistakes that will go unnoticed, unless you take the time to identify them.
  • Make an actionable plan to prevent the same situation from repeating. Assuming you were responsible for whatever caused your credit score to drop, your best course of action is to make it sure to never repeat what happened. Unfortunately, you cannot argue away bad marks on your credit report, if they aren’t a mistake. All you can do is make sure you learn from the past.
Joe Resendiz

Joe Resendiz is a former investment banking analyst for Goldman Sachs, where he covered public sector and infrastructure financing. During his time on Wall Street, Joe worked closely with the debt capital markets team, which allowed him to gain unique insights into the credit market. Joe is currently a research analyst who covers credit cards and the payments industry. He earned a bachelor’s degree from the University of Texas at Austin, where he majored in finance.

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