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When Your Credit Drops From Good to Average

May 31, 2015
Credit Score
When Your Credit Drops From Good to Average
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No one is ever happy to see their credit slip from good to average. When your credit score drops from the 690-719 range to the lesser 630-689 bracket, it may signal financial strain ahead. But if you know what to expect when your credit score dips, it’ll be easier to respond and ultimately improve your score. Here are a few things you should anticipate if your credit moves from good average — and how to get back on track.

Getting approved for loans might be tougher

Lenders put heavy emphasis on a prospective borrower’s credit when considering a new loan, whether it’s a car, home, business or other loan. When your credit score drops, the interest rates you’ll pay on new loans usually go up — or you might be turned down for a loan altogether. How much your rate may change depends on the lender, the change in your score and other factors. But a higher credit score will usually get you a better deal.

If you’re denied for a loan or are approved at a high interest rate: First, evaluate how you’ve been paying off active lines of credit in the past. Consistently making payments on time is one of the most important steps in improving your credit score, as it shows that you’re capable of taking a loan and paying it off. When a lender sees you’ve paid off lines of credit on time in the past, it signals you’ll probably continue to do so in the future. The result: a higher chance of loan approval and usually lower interest rates.

Your credit card issuer could cancel your account

Issuers have the right to cancel your credit card at any time, for any reason, and most of them monitor cardholders’ credit. If an issuer sees repeated bouts of negative credit activity — such as not making payments on time, using too much credit, applying for many new lines of credit — it may lower your credit limit or cancel your account.

If your card is canceled or your credit limit is decreased: It’s important to find out why it happened and what you can do to prevent further actions. Here are a few tips:

  1. Call your issuer. Often, a simple call to the card issuer will provide some clarity on why the changes were made. In some instances, stating your case might help reverse the decision.
  2. Check your credit report. Viewing your credit report will show what areas are pulling down your score and what areas need improvement. You can view your credit report for free once a year from each of the three credit bureaus — Experian, Equifax and TransUnion. Get those free reports here.
  3. Don’t close your account. If your credit limit is lowered, you may be tempted to close your account because you’re angry or annoyed. But doing so could damage your credit further.

Insurance might become more expensive

Many types of insurers rely on an applicant’s credit information when determining rates on policies. If your credit score has dropped, your insurance premium could increase when it’s time for renewal. How much depends on a number of factors, but getting and maintaining a higher credit score will usually result in a more affordable policy.

Nerd Note: Some states prohibit insurers from using credit information when evaluating customers for insurance rates. California, Hawaii and Massachusetts ban credit checks for auto insurance, while Maryland and Hawaii do so for homeowner’s insurance.

If your insurance rates are affected by your credit: Your insurer is legally obligated to let you know about it. Insurers nationwide must inform people if any information from their credit report has resulted in adverse changes to their insurance policies, such as a rate increase. This information enables you to design an action plan for improving your score and reducing your insurance costs.

A dip in your credit score can be a nuisance. It can cost you money and sometimes limit your credit options. But if you find out why your credit score is changing, there are plenty of ways to get your credit back on track.

Kevin Cash is a staff writer covering credit cards and consumer credit for NerdWallet. Follow him on Google+.

Image via iStock.