Credit Scores! What Causes Them to Drop?
One of the biggest myths around credit scores is the idea that everytime you have your credit checked (or what some people refer to as a "hard check"), your credit score is negatively affected. I hear this all the time. Smart people that have been told things that simply are not true. And banks sometime promote this fear also (after they run your credit scores, not before they run your scores) so that you are afraid to go to another lender and have them also give you a competitive quote. Bankers and Brokers should know better; maybe they do and they are just tell you something that they know will keep you from talking to other brokers. Or maybe they don't know what causes credit score to drop--so they use this as a stick to scare you. Either way, they are really not telling the truth about what causes credit scores to drop.
One word sums it up and explains why credit scores drop--RISK. If you are doing risky things with your money or statistically doing things that look risky based on the thousands of financial profiles and actuary data of hundreds of thousands of individuals. The credit companies profile your risk of being able or willing to pay back your loan based on both your financial capcity, your financial behavior and your potential for future spending (i.e., your collective credit limit). Your credit risk is profiled and quantified and ultimately boiled down to a number.
So, what kind of behavior affects the number?
- Amassing credit cards increases your risk
- Increasing your credit limits
- Pushing your debt limits closer to your current income
- Applying for multiple credit cards at one time
- Not paying your bills on time
- Changing jobs or occupations often
My best to you and as always, if I can help you, your family or your friends, please do let me know.