This post is sponsored by Lexington Law.
We’ve all heard of someone’s credit score dropping a few points. You’ve probably even experienced it yourself at some point. If your credit score dropped, there’s mostly one of a few things that could be the culprit.
When I heard about my friend Alex’s* experience a few years ago when his credit score dropped by 250 point in three months, I wanted to share his story with you as an example of why it’s so important to pay attention to your credit report and score.
How My Credit Score Dropped 250 Points In 3 Months
This story starts around four years ago. Alex was in the military, going to school part time, and providing for his family. After a few reckless years of overspending, he was beginning to take his credit and financial goals more seriously. Alex’s credit wasn’t yet in the excellent range, but he was working towards it by paying off his credit card debt.
While preparing for an upcoming deployment, he spent a few months getting his accounts and payments in order. Because he had taken a semester off before his deployment, the grace period for one of his student loans was ending. This meant his payments would begin while he was abroad.
He thought, “I can manage this.”
While there are options available to members of the military, in his case, he was unable to defer his loans due to a deployment. Because of this, he put a positive spin on the situation. His thinking was that since he wasn’t at home, the family’s expenses would be reduced so they could afford to make the payments now. This would help him get ahead on his debt repayment and put him in a better position when he returned.
As many in his situation do, he set up the account and left it to someone to manage stateside. Due to where he was going, he wouldn’t be able to access the payment portal himself. However, because he was leaving it with someone he thought he could trust, this solution seemed like it would work for his six months away.
Unfortunately, there were some issues processing the payments. The person managing his account did not make him aware of these issues for several weeks. He was only notified because he got an email from the lender after the second missed payment. Unable to access the portal himself, it was also too late for him to contact the lender and make other arrangements. Being abroad and working, it was a sticky situation for him to try to navigate given his location and hours.
In the end, he ended up missing three payments in a row. Additionally, there was credit card payment that was overlooked and that went into default. After three months, his credit score dropped 250 points. He went from having good credit to bad credit in a matter of weeks. He was eventually able to get sort out the situation, but the damage was done.
Good Intentions, Bad Results
Even though Alex set out on this plan with the best intentions, the results were devastating to his credit. Years later, he is still trying to financial recover from three months of missed payments. While there are things you can do to begin improving your credit score, it’s not always so straightforward.
Unless you’re notified in some way, you might not even realize that your credit dropped at all. According to a survey by Lexington Law, fewer than 65% of people who report knowing their credit score have actually checked it in the last six months. If you haven’t checked your score or report, there could be potential issues like identity theft or missed payments you aren’t aware of.
Something I strongly recommend to everyone, no matter what your financial situation, is to sign up for an identity monitoring service. I’ve had my identity stolen in the past and while I caught that situation early and was able to remedy it, it was all due to good timing. An identity monitoring service like Lex OnTrack will notify you of changes on your credit report, your FICO score, credit score analysis, credit repair as needed, and $1,000,000 in identity insurance.
Actively monitoring your credit means you’ll be alerted sooner to changes and potentially devastating problems like Alex’s. Your credit is important for so many reasons, and it’s something you should be taking seriously.
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What To Do If Your Credit Score Dropped
If you notice your credit score has dropped, it should be a financial priority to remedy the situation. Having poor credit can mean that you’ll end up with high interest rates that will cost you thousands in additional payments. It means you can be denied employment and it can delay big life milestones like buying a home.
Why Did Your Credit Score Drop?
There are many reasons this might have happened. No matter how you find out that your credit score dropped, there are a few steps you can take as soon as possible to get ahead of the situation.
1) First things first, check your credit report.
If you notice a drop in your credit score, check your credit report. You can get one for free once per year from each of the three credit bureaus at annualcreditreport.com.
Review your report for any errors or inaccurate information. What stands out as incorrect or something you weren’t aware of?
You can contact your lenders on your own behalf and discuss with them your payments and circumstances. In some cases, they may be willing to work with you, and in other cases they may push back. It depends on a variety of factors (more on this in #3).
2) Get the 5 factors that make up your credit score in line.
If you didn’t know, there are five contributing factors that make up your FICO credit score. They are:
- Payment history — 35%
- Utilization ratio — 30%
- Length of credit history — 15%
- New credit or inquiries (this hurts!) — 10%
- Types of credit/Credit Mix — 10%
Even if there are errors or inaccuracies on your credit report, working to maximize these factors will likely have a favorable impact on your score.
Based on these factors, I’ve previously created an in-depth guide to start improving your credit score in the next six months. Not all of these things may work for you given your individual situation, but they are important all the same in the overall calculation of your score.
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3) Work with a credit repair company.
There are legal ways to go about fixing your credit report and score. There are many types of negative items on a credit report that can leave lasting damage. That said, you do have options for remedying the situation.
As an average consumer, it’s nearly impossible for us to know all the credit rights and statutes we have available to us. While you know your credit history best, your knowledge and understanding of what options there are for you can be unclear.
Even if you think your situation might be hopeless, the credit repair consultants at Lexington Law will discuss your situation with you. Each situation is unique and there is no one-size-fits-all plan to fix your credit. They will advocate for you on your behalf within your legal rights to put you on the path to a better life.
Our credit is an extremely important part of our financial life. It’s important for us to be mindful of it, especially in more complex situations like my friend’s. Be aware and take action. Not doing so can affect you for years to come.
*Name has been changed.