What Causes the Credit Score to Go Down

Increasingly, lenders place a significant weight on credit scores when consumers apply for a loan. According to the Federal Trade Commission, a growing number of insurance providers also utilize the information in credit histories to determine who may be too risky to insure. Knowing what contributes to a quality credit score and what causes the credit score to go down can facilitate building a solid credit history, resulting in offers of better interest rates and lower insurance premiums.

Payment History

According to the experts, the most substantial factor in calculating a credit score is payment history. Delinquency or late payments have a major negative impact. For example, the most commonly used credit score, the FICO, (a registered trademark of the Fair Isaac Corporation), assesses credit risk based on a weighted percentage of factors. Payment history contributes to more than one-third of a FICO credit score. Other major factors that can drastically reduce a credit score are foreclosures, liens, garnishments and, especially, bankruptcies, which remain on the record for up to 10 years.

Types of Credit

The types of credit accounts an individual maintains affect the credit score. The more diverse types of credit accounts -- including credit cards, store cards, installment loans, personal loans from a finance company, as well as debit card usage -- the higher the score. Conversely, the less diverse the accounts, the more the score will go down. Having too many credit accounts negatively affects the FICO score, just as having too few lines of credit does. On the other hand, opening several new credit accounts to diversify lines of credit, can have negative consequences, because the longer credit accounts have been established, the higher the score.

Total Amount Owed

Total debt liability plays a significant role in the calculation of credit scores. For consumers who carry large balances, overall credit scores are lower. Thus, large amounts of debt make the credit score go down. Having a large line of credit, but not using it all has the opposite effect. Lenders think a consumer can afford debt if it is available but not maxed out.

Number of Inquiries

Numerous inquiries into a credit record can cause the overall score to go down. Credit card companies and other lenders look at credit histories to prescreen candidates for new offers. The number of inquiries of this type does not affect credit scores. Frequent monitoring by lenders with which the consumer has an established loan doesn't affect a score either. In addition, looking at your own credit scores do not cause them to go down. Montana State University Extension Service advises people who intend to apply for a large loan in the near future to check their credit scores six to 12 months prior to applying in order to have time to raise the score before dealing with a lender.