The Fair Isaac Corporation is the company that created FICO, a commonly used credit score. The exact mathematical formula that calculates the three-digit number used in the score is a closely held secret. Although there is no way to know exactly how much something affects your credit score, it is possible to know what general criteria will make your credit score drop.
Too Many Inquiries
Every time a creditor looks at your credit file to determine if it wants to grant you credit, an entry is made in your credit report. If you have too many people looking into your credit report, your credit score will drop. The reason that you are less creditworthy because of these inquiries is that the potential creditor may think that you have been trying to obtain too much new credit and this could be a sign of financial problems.
Late Payments
One of the biggest things that can make your credit score drop is late payments. If you are paying one or more of your payments late, you have financial trouble. This is particularly true if you are late on multiple payments, as the credit score may view one payment past due as an oversight on your part. The more recent the late payments are, the more impact they will have on your score. Also, 60- and 90-day late payments will make your score drop more than 30-day late payments.
High Debt Ratio
If your balances on credit cards are too high in relationship to the available credit, the result will be a drop in your credit score. You should try to have balances on your credit cards that are no higher than 35 percent of your available credit. If you have a credit card with a $2,000 limit, you should carry a balance no higher than $700 to optimize your score. The credit card company usually reports statement-ending balances, but some cards may report your highest balance at any time during the month. If you are in doubt about how your credit card reports balances, check with your credit card company.
Fines
Many local and state governments are turning over unpaid fines for anything from parking tickets to overdue library books to collection agencies for collections. The $20 parking ticket or the $5 overdue library book fine can be a big problem when it goes to collections. If the collection agency lists the unpaid fine on your credit report as a collection account, you may see your credit score drop more than 100 points. Always pay you fines on time, and if you receive notice from a collector about a fine, take care of it as soon as possible, either by paying it or disputing it if the fine is not yours.
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