Tiana Clewis: Hey Dreamers and welcome back to my channel were we talk about all things money. Why? So you can use money as a tool to build a life that you actually want to live.
In this video, we're going to be continuing a, um, a list - yes, that's the word - a list that we actually started on Wednesday. And the list is all about seven common reasons of why your credit score dropped, even though you're doing all of the right things. And no, "there's a mistake in your credit report" did not make this list because it's so obvious that there was no point in even covering it. I'm just saying.
If you have not actually seen the first part of this video, I highly encourage you to go and check that out because it's a good video. Like seriously, it's a good video and it's information that you definitely want to know so that you can manage your expectations and manage your behaviors - so you're looking out for these things because you don't want to be like, "Why is my credit score dropping? I don't know what to do about it." Some of these things you can do something about, especially the things that we covered in the first video, so go check it out.
Now, if you're wondering who in the world I am, like why am I talking about this and why you're still listening to me - my name is Tiana B. Clewis and I'm a Financial Lifestyle Coach with my labor of love, Selah Financial Coaching. What that means is that I've dedicated my life to helping women entrepreneurs to use money as a tool to build a life they want to live.
So we're going to increase the money in your business. We're going to use the money from your business to, um, accomplish the things you want to accomplish in life. It's really that simple. So that's why we're here. That's what my goal is and we're going to do this by talking about credit scores and the reasons why your credit gore... credit score dropped in this very video.
How am I starting the video? Tongue-tied. Guys. Guys.
Now before we can dive into all the goodness of the rest of this list, I want you guys to go ahead and like this video because YouTube likes likes, and so do I, but I also want you to subscribe to this channel. Now - make sure you hit the bell, because if you don't hit the bill, you won't get notified when I drop new content every Wednesday and Saturday. And trust and believe, you want these tips, tricks, and strategies for how to use money. Okay? Because, well, I've done it. Let's just put it that way. I've done it. So you want these tips, these tricks, and these strategies. So hit that big red button. Hit the bell, and now... Okay, we can get back with the list. Let's go.
Let's move on to reason number four of why your credit score may have gone down when you're doing the right things. It could be as simple as a credit card company has closed an account that you're not using.
Let's say you're one of those people that you had three or four credit cards, you've been paying them off using a debt snowball, and you have one last credit card that you have open, or you have one last credit card that you decided you're going to keep, and that's the one that you're going to actively use.
Well, those other two, three, four credit cards that you previously were using are now inactive. You're not paying for debts on them. You're not doing anything with them. Like is just sitting there. Well, one of the things that actually can happen is that a credit card company might look and see that there's no activity on these cards and decide to close it.
Many of us don't realize that the credit card company has the right to increase the credit limit, decrease the credit limit, or straight up shut down the account for pretty much any reason that they want to. And if you're not using the card, that is definitely a reason of why they might decide they're going to completely close that credit card.
So here's the thing - that means you have to keep your eyes open and be paying attention for whatever mail that they send you. Because more often than not, they're not going to send you an email. You're not going to get a text message. You're not going to get some nice, easy to find notification, you're going to get a piece of mail, like snail mail. And that snail mail, you have to read it and understand what they're saying because they're going to tell you through the mail that they've closed the account.
But if you're like so many Americans nowadays who doesn't read their mail, they might glance at it, say, "Oh, Capital America. Toss. Bank of America. Throw it away". If you're one of those people, you run the risk of not getting vital information such as your card's been closed.
And the reason why this will drop your credit score in a lot of instances is because it's jacked with your credit utilization. You originally had, $15,000 available. Now was gone to $10,000 but you have a $5,000 balance. So your credit utilization went from 33% to 50% in one fell swoop.
If you're not reading your mail from your credit card companies, you don't even know they've closed the account. And so now you're functioning, thinking your credit utilization is low when it's actually gone up quite a bit?
So this is my recommendation to you. Read your mail. When you see your credit card companies send you something in the mail - I know most of the time they're trying to get you to buy something else - but make sure you at least read it quickly to understand what's going on.
That way, if something like that happens, you know that is going on and you know immediately how to start making some adjustments to account for the fact that they've now closed this account.
Now, reason number five is one of those ones that a lot of people have no clue about, and I find it rather fascinating.
So it's something called scorecard hopping, and you're like, "Okay, what's a scorecard and why are you happing them?" I got you. So a scorecard is basically how credit reporting bureaus group together people that have similar risks.
So a risk would be something like bankruptcy. That puts you in a certain kind of risk, so that's going to put you on - like, you know - one of those bankruptcy scorecards. Or if you're someone who tends to have a very high credit utilization, that's another set of scorecards. If you have, say, a mortgage, that might be another set of scorecards. So they have a bunch of different scorecards that they use the lumped together people that have similar types of risk.
But what happens is that as your life changes, as things change for you, you might jump from one scorecard to another. So let's say for example, that there was a, um, a derogatory account that you managed to get settled and it's over, like it's done with, and maybe you even gotten them to agree to completely remove it from your credit report. Well, once that's removed from your credit report, now you're going to hop to another scorecard.
Another prime example are people who are in bankruptcy. Typically, if you were in bankruptcy, once your bankruptcy is over, you've, you know, finished it out, you will hop from the bankruptcy scorecard to another scorecard.
Well, when you hop from one scorecard to another, you're being evaluated against other people in that scorecard. And because of that, it's going to mess with your credit score. So even though good things may have happened on your credit report, it actually can drop your credit score because now it's put you in a new score card, and frankly, it sucks, but there's nothing you can do about it.
So that's one of the things that could be going on. You may not have done a single thing. Like you might not have had added a single debt. You've continued to pay your debt like you normally have. You have not changed your behavior at all, but simply because something fell off of your credit report, you then hop from one scorecard to another. And because you're being compared to other people, now your credit - your credit score has gone down a little bit because you look a little different. I know, I'm sorry, but it is what it is.
All right, so we're down to the final two common reasons of why your credit score may have changed even though you're doing all the right things. Number six is that the credit reporting agency may have simply changed the FICO formula that they're using to calculate credit scores.
If you remember from the last video, the last episode, you heard - we talked about the fact that, um, that there's different formulas for the credit score. I know I'm getting really tongue tied all of a sudden. I don't know what's going on. But there are different formulas for the FICO score.
So right now they've recently released FICO 10 but these different institutions, these credit reporting agencies, they get to choose which formula they get to use. And so one might be on a FICO 7, another might be on FICO 4 and one might be on FICO 9. But then they might've made the decision, you know what, we're going to change from FICO 7 and we're going to make that jump all the way to FICO 10. Well, FICO 10 is calculated differently from FICO 7.
For example, FICO 10 adds in a new, um, a new bit of the formula around how you are behaving. Like they actually are taking into account your behavior trends. So like if you're a person who you put everything on a credit card and then you paid off every month, that's actually a different trend. And that trend is going to be treated a little differently in the calculation than people who just - you know - they paid up and then like once a year they pay the whole thing off with their taxes. That's actually different trends and those are going to be approached and viewed in different ways.
So if they change from FICO 7 to FICO 10 your credit score might have changed simply because they've added in this trending data as part of the new formula.
Again, that's something that you cannot control, but it's something that you have to be cognizant of. So your credit score may not have - your credit report may not have changed at all, but simply because they have changed the formula that they're using to calculate your credit score can mean that your credit score will go down.
Okay. I have one more thing, and again, it's something that you can't really control, but it is a common reason as to why someone's credit score can go down when they're doing all the right things. So there may have been an account on your credit report that was a very positive account. Like you always paid it on time.You never had any many miss payments and no late payments, and you paid it as agreed. You might've even paid it off a little bit early. So it was marked as - you know - "Paid in full", it was marked as - you know - "Paid as Agreed" or whatever. One of those really, really good indicators.
Well, after a certain amount of time, once an account has been closed, it only stays on your credit report for anywhere from 7 to 10 years. Typically it's 7 years with some things might fluctuate, so it can be 7 to 10 years that it will stay on your credit report. Well, it may have been 8 years since you paid that thing off and now it's fallen off of your credit report.
Well, if there was a time where, say there was like this two year period where you were struggling really badly between the time that account was closed and now and you were missing payments, you had late payments - well, you no longer have that positive account to offset those miss payments, those late payments during that temporary season. So because you've now lost that really positive account on your credit report, it ends up making your credit score and go a little lower because you don't have that to offset the bad things.
Again, that's something you can't really control. There's not anything that you can do about it. It's just something you have to be cognizant of. So just understand - look at your credit report.
So maybe you might have to see your credit report now and you compare it to a credit report that you pulled like two years ago, and you'll see that there's a, an account missing that used to be really, really good. And that's how you know that, "Okay, part of the reason why my credit score changed is simply because this really positive, really good looking account fell off of my credit report and is no longer offsetting the bad things that happened during that temporary season."
So again, I know it sucks. There's nothing you can really do about it. It's just how the formula works and it's just something that we have to understand and know can potentially happen.
Okay, so there you go. You have these 7 common reasons for why your credit score may have dropped even though you are doing all of the things right. Which of those items really stood out to you? Are there any that you've experienced? Any that's ever kicked your butt?
I know that you can really suck when you consider the items that you have absolutely no control over, like changes in the formula or things falling off because they've aged out. I know it's not fun, especially when it drops your score, but you know what? It is what it is. Like, we just have to work within the system that currently exists.
Now that being said, remember that the vast majority of your credit score is still determined by your actions. It's still determined by the things that you are able to accomplish. So what I want you to do is I want you to look and see what are the things that I'm doing that's contributing to a drop of my credit score. Some of the things, again, are beyond your control, but make sure that you take control of the things that you can control.
And if you're one of those people who is finding it really difficult to get your men... your finances, managed to get things organized so that you actually can take back control over how your credit score is flowing and functioning and rising and falling - well, don't worry, I got you.
Most of the things that I teach when it comes to budgeting and being able to pay your bills on time and being able to pay things off and to get rid of that and to be able to reduce your car utilization - the things that I teach will help you do that. And if you are absolutely struggling right now, then the thing that I want you to do is I want you to hop on a Rapid Strategy Consult with me.
30 minutes on a video chat and we're going to walk through what's going on in your life and how we can create some very simple, actionable steps that will help you to get your finances back under your control so that now you can get that credit score under control. The beautiful thing about the Rapid Strategy Consult is that it's free. Oh yeah, it's on me. I'm paying for it.
So to get access to your Rapid Strategy Consult, all you have to do is go to TianaBClewis.com/bookonline, scroll down to where it says "Rapid Strategy Consult" and click that "Book Now" button.
Okay. The link of course is going to be in the description, but it's really easy. TianaBClewis.com/bookonline.
And if you're ever having trouble finding it from my homepage, just simply click on "Coaching" and it'll be really easy to get to.
Now that you have my strategies in mind and a way to link up for more, one on one help, let's get connected on social media. You can find me on Instagram and Twitter with the handle TianaBClewis or on Facebook under SelahFinancialCoaching because Facebook is difficult and won't let me change it. It's okay though.
Also, let me know that you found this video useful by hitting that like button and subscribing to my channel. Don't forget to hit the bell so that you're notified whenever I drop new content every Wednesday and Saturday.
Finally, if you're looking for more strategies on how to take back control of your finances so you can boost that credit score, I have two videos here that when you use those strategies together, it will help you do just that.
So click on a video, get to watching it, and I'll talk to you soon. Bye. Bye.
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