An Explanation for Lowered Credit Scores From the Past Few Years

Your credit score gives potential creditors a quick impression of how likely you are to pay your loan back on time. During poor economic times, many people may have lower credit scores because of loss of income and other financial crises. Always contact your creditors to make payment arrangements if you cannot pay your bills on time and use credit wisely to keep your credit score healthy regardless of economic conditions.

Lower Income

FICO bases your credit score in part on your debt-to-income ratio: how much debt you have in comparison to how much income you earn. If you lost your job or earned less money from a business than in the past due to poorer economic conditions,your debt-to-income ratio will rise because of the loss of income. Thus, even if you are paying all your debts on time your credit score will fall.

Financial Crisis

If you have a financial crisis due to an unexpected emergency such as a medical problem or an ongoing crisis such as job loss, you may find yourself with an overwhelming amount of debt that you cannot afford to pay back. Late payments, missed payments and collections activities can all contribute to lower credit scores. Contact your creditors immediately if you have financial problems that make it difficult to pay your bills.

Late Payments

Paying your bills on time is the single most important factor in your credit score. Even if you eventually pay your bills in full, paying them late can seriously impact your credit score. Occasional lateness will not affect your credit score much, as long as you pay your bills on time most of the time. However, if you are habitually 30 days or more late, your credit score will drop. Payment history accounts for about 35 percent of your credit scores.

Bankruptcy

If you file for bankruptcy due to your overwhelming debt, the bankruptcy stays on your credit for seven to 10 years, depending on the type of bankruptcy you file. You must rebuild your credit after bankruptcy so that the bankruptcy affects your credit less. It takes about two years after filing for bankruptcy for your credit scores to rise if you pay all your bills on time and use credit sparingly.