What Causes Credit Reports to Decline?

A credit score is a three-digit number used to evaluate your creditworthiness. A credit score is determined based on information included in a credit report. Each of the major credit reporting agencies uses a unique proprietary formula for converting the raw data in your report into a credit score, but they are all based on the FICO score so the same factors are generally used. In other words, certain activities or situations in your credit report will make all your credit scores go down.

Late Payments

The single most important factor that will cause the quality of your credit report to decline is late payments. Credit card companies and most lenders report a late payment once it is 30 days delinquent. Payments that are 60 days or 90 days delinquent or more have an even greater negative impact. Any lender can report a late or overdue payment to a credit reporting agency, which may choose to include it on your credit report. If there is an error in your report, you can dispute it. The agency must investigate the charge by law.

Adverse Public Records

Credit reporting agencies also get items for your credit report from public records. If you declare bankruptcy or have a judgment awarded against you by a court, this will produce a public record that will eventually be reported on your credit report. Other adverse records that will lower your credit score include wage garnishments, bank levies and the filing of a lien.

Amount Owed

Even if you're making all your payments on time, the total amount of debt you have will impact your credit rating. This is because the purpose of a credit report and credit score is to indicate your worthiness for a new loan. While you are burdened with other debt, your attractiveness to other lenders may decline. Of course, the amount owed is not always viewed as an absolute, but takes into account comparison with your total income and ability to carry debt. In other words, a $50,000 loan will have less impact on a billionaire's credit than on most other people.

New Applications

Requesting a new loan or line of credit can lower your credit score. Generally, though, this only happens if you make several requests within a short period, such as a few weeks. To a credit lender, frequent and repeated credit requests indicate a heightened likelihood that you are unable to meet your current debt obligations and are looking for additional credit as a means of making minimum payments. Your credit score also reflects the types of credit you have out, with a diverse portfolio that includes long-term debts such as a car or house being the most stable and attractive.