Why Credit Score Is Getting Lower With No Debt?

how debt influences my credit scoreSome people, who paid off the debt, complain that their credit score has been reduced. The situation requires attention as a good credit score is so hard to reach and so easy to lose. That’s why even a couple of points can become an obstacle to your dream. Unfortunately, the situation is getting worse as a treasured three-digit number can reduce up to 50 points in several years! Young businessmen, who have paid off their installment loans for startups, informed us that their credit scores suffer for the unknown reason! This article reveals the answers to the most controversial issue.

Influence of Early Payments

Some borrowers tend to think erroneously that early payments help to increase the credit score. Early payments are optional and depend on your creditworthiness and sense of responsibility but the representatives of FICO don’t care about it. The obligation of every borrower lies in paying the monthly payments on time – that has an impact on your payment history and credit score. Still, it also doesn’t explain why your three-digit number reduced after paying off the debt. So, don’t think that your payment history has any influence on your credit score after closing the debt.

The Role of Utilization Rate

what are loan utilization ratesUtilization rate is something that card holders deal with but probably don’t know that they really deal with it. It’s the amount of money you have in the ratio to the amount you actually charge from the credit card. The lower your utilization rate is the higher is your credit score. It means that you should use no more than 20% of your card limit. For the unpredictable cases, it’s better to create an emergency fund. The card owners with a credit score higher than 750 use no more than 7% of the available credit card limit.

So, if your score has become to reduce, consider the history of the payments you made with your credit card. By the way, if you pay off the whole amount of the credit card on time, it doesn’t guarantee that your utilization rate will reduce. So, it’s better to charge less and use the other sources of the financial support (your salary, instance). Some people decide to apply for the second credit card and reduce the utilization rate by using two sources of credit card assistance. Though it might be a suitable solution, your credit score can suffer from it as applying for the additional loan or card always has an impact on your score.

If Everything Is Okay

If everything is okay, the only right thing would be to apply for the credit report to one of the three major financial agencies. Equifax and Experian launched an option that allows credit holders check out the factors that could negatively influence your credit score. If you think that aforementioned factors didn’t strike you, then it would be the only reasonable decision. Still, remember that frequent checks of your credit score can lower it up to 5-10 points annually.

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