7 Common Reasons Why Your Credit Score Went Down (pt. 1)

Tiana Clewis: Hey Dreamers! Welcome back to my channel where we talk about key strategies for getting your money right at home and in business so that you can build a life worth living.

Now in this video, we're continuing in the vein of the bonus video that I dropped roughly two weeks ago because as many of you know, I was not able to post last week. If you follow me on social media, and more specifically on Facebook, you know that my brother passed away early last week and it threw my entire world into a tizzy. So while my family definitely is, was, continues to be devastated, we spent all of last week not just preparing for the memorial service, but we also spent the time reminiscing, loving on each other and just being together.

But now a week has passed and my mother has simply told me, "Okay, stop staying in my house first of all, and now go get back to work." So here I am getting back to work and trying to find this new normal without my brother in the world.

So I appreciate you guys' patience and understanding in me not getting a video done last week, but you know what? It is what it is. Life throws things at you, and sometimes you have to make adjustments. But I'm back now, so let's do what we gotta do.

In this video, we're specifically going to talk about something that comes up all the time. I'm talking to clients, I'm talking to people on the road, and they tell me, "Hey, I'm doing all the things right, but I don't know why, but my credit score just went down instead of going up. What is going on?"

So in this video, we're going to cover seven common reasons why your credit score went down, even though you might be doing everything right.

Before we once again jumped back into the world of credit scores and credit reports, let me introduce myself for those of you who are new to my channel. My name is Tiana B. Clewis and I'm a Financial Lifestyle Coach and Start-up Strategist with my labor of love, Selah Financial Coaching. What that means is I've made it my business to help women - and some men - escape the nine to five grind and use money as a tool to build a life that's absolutely worth living. You know, like I did.

Now that you know who I am, I would love it if you would take a moment just to like this video and to hit that big red button to subscribe to my channel. Don't forget to hit the bell so that you're notified every time I drop new videos with strategies on how to use that tool called money every Wednesday and Saturday.

Now that we've got all the YouTube growth stuff out the way, let's talk about what you're here for: Why did my credit score go down when I'm doing all the things? Okay, I'm doing the right things.

And yes, I know it can be extremely frustrating. Trust me, I've been there, I've done that, but I've also watched clients be there and do that. But the truth is there's a lot of different reasons why your credit score could be going down.

And yes, there could be a mistake on your credit report, but that didn't make these lists of seven because if there's a mistake on your credit report, that's just obvious. That's like the first thing you're going to look for. In fact, most of the time when I hear people saying my credit score went down, they're like, "Someone must've reported something that wasn't true. Maybe my identity got stolen." And yes, that's true. That could have potentially happened, but that's so obvious that I didn't even want to cover it on the list. So let's talk about seven other common reasons why your credit score could have gone down when you are doing the right things.

The first reason of why your credit score might have gone down could simply be because you made a large purchase on your credit card right when they pulled the snapshot of your credit account to report to the credit reporting bureaus.

Think of it this way - because I've seen this scenario happen - so something pops up all of a sudden you have to drop $900 like we did last week, and you know you're going to pay it off within a week or a couple of days. Or you could just be one of those people who you will buy everything on your credit card and then every week you paid off. Or you buy everything on your credit card and every month you paid off, or every time you get paid, you pay it off. There are plenty of people who use that strategy and you may not have even maxed out your credit card at all. You might not be anywhere close to the max credit limit.

However you made that large purchase right around the time that they were going to pull the snapshot for your credit account, and so now it just looks like your credit utilization has gone up. It's gotten higher. As a result, your overall credit score drops even though your behavior has not changed.

So that's one of the things that we have to be really careful of is minimizing how many times we put a very large purchase on a credit card. If you are trying to actively manage your credit card cause, or manage your credit score because maybe you want to go and buy a house in the next couple of years. Then maybe if you're going to be making a large purchase like that, do what you can to delay the large purchase until you can pay for it in cash. Because if you make a really large purchase on your credit card, even though you're nowhere near the max, your limit, that - it might very well drop your credit score just because of the timing of when they pulled the snapshot on your credit card account.

The second reason of why your credit score may have dropped is simply because you closed a debt account - which I know paying off debt is the right thing to do. You finally paid off their student loans. You finally paid off that car loan, that personal loan that you've had for six or seven years, you have finally gotten that knocked out. Or maybe you have finally pay down those credit cards and you decided to close that account so that you don't wrack that debt back up. Well, it sucks, but sometimes that will drop your credit score.

And it's for two different reasons.

One reason could be that it jacked up your credit mix. So let's say for example, that you originally had your car loan, your student loan, and your credit card right. Well, your mixed had like a nice variety of things in it. You had two installment debts with a car loan and the student loan, and then you had one revolving debt with the credit card. Well, maybe you paid off the car and then you paid off the student loan and they were in semi-quick succession.

Well now you've gone from having two installment that and one revolving that to no installment debt to just that one revolving debt, and typically credit reporting bureaus, the FICO score calculation does not like that sort of scenario. They want to see a mix of different kinds of debt. So even though paying off those student loans and paying off the car loans is perfect, the right thing to do for the long-term success, sometimes it can mess you up from your credit score, but don't worry, that ding is not - not going to last. It's, it's really not, and it's usually not very, very big. It's just because they didn't like the impact to your credit makes what remember that credit mix is a small percentage is either 10% or 15% I can't remember off the top of my head. But if you look at the video that I did talking about how credit scores are calculated, yeah, we can - you can get that a clarification there.

So it impacts your credit mix. It can also impact your credit utilization because if you had a - if you paid off that credit card, for example, and you had saved four credit cards, and between those four credit cards, you had a total credit limit of $20,000. And then you closed a card that had a $5,000 credit limit. Well, now your credit total credit limit is $15,000. If you still have a balance on those other credit cards, that will reduce your credit utilization, which of course looks riskier.

So that's the second reason why closing a debt account can decrease your credit score. You've jacked up your credit mix, which at the end of the day, I don't care because you're getting the debt paid off. Or it jacked up your credit utilization, which again, I don't care because now it just gives you an incentive to hurry up and pay those other credit cards off as fast as possible. So yeah, you did the right thing. Don't stop doing what you're doing, but just know that that might have a minor impact on your credit score.

The third reason of why your credit score may have dropped, even though you're doing the right things, is because you used a commonly, um, reported, talked about trick of calling your credit card company and requesting a decrease in your credit limit.

If you haven't heard this particular strategy, it's all about controlling your ability to spend. So if I have, say, a $20,000 credit limit on one card, and I have the bad habit of spending all the way up to that $20,000 and then having to pay it off. Well, what a trick that many people will recommend is that once you get it paid down to say $10,000,you call the credit card company and say, well, can you decrease my credit limit to only $11,000.

Now the problem here is that - even though it is a very effective trick for controlling your spending, which is great for your long-term ability to get rid of debt, which is therefore why I'm saying that you should still go ahead and do that if it works for you - the problem is that it again, messes up with your credit utilization. If you went from $20,000 to $11,000 and you had a $10,000 balance, well you went from a 50% credit utilization to like a, what's that? Like? 92% credit utilization? So that's the problem that you run into there, is that you've just jacked up your credit utilization score.

That being said, I am not going to say don't use this trick if it's going to be helpful for you. If you struggle with controlling your spending, still do it anyway. Just consider the way that it impacted your credit utilization as an incentive, as a motivation to pay off the rest of the balance on your credit card so you can get that credit utilization down and now that it's down, your credit score goes back up and you're all hunky Dory once again. So just use it as motivation, but that doesn't mean you don't use that trick.

Now that I think about it, I have a quick question: have any of you guys actually use the strategy yourself? I really want to know how many people have used it and if they found that strategy to be helpful. So if you have, drop it in the comment. And if you haven't used a strategy before, have you at least thought about it?

I think we have felt a really good stopping point on this list. We've gone through the first three criteria, and as you guys know, I like to split up the video so that I'm not leaving you sitting here for way too long.

Now, I understand you might be like, "But Sis, I want the whole thing" and if that is the case, I got you. Okay? Head over to the Dreamers Financial Playbook podcast on whatever device, whatever listener you like to use for listening to podcasts, and you can actually catch the entire list with episode 94. So I've got you covered. You're good to go. So if you're the impatient type and you need the entire list right now, head over to the Dreamers Financial Playboo. Podcast, listened to episode at 94 and you can get the whole shebang there.

If you're cool with waiting a few days for the rest of this list or simply found this information to be helpful, let me know by hitting the thumbs up below and subscribing to my channel. Also, don't forget to hit the bell so that you're notified when I drop the other four reasons this Saturday.

Finally, if you are looking for more strategies that's going to help you be able to take back control of your money so that you can then take back control of your credit score- or you just want to do both - go ahead and check out these two videos that are designed to help you do just that.

Now you get to video watching and I'll talk to you soon. Bye. Bye.

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