OH NO my credit score is dropping what do I do? For far to many people this is a scary thing and begins to affect your everyday life. We understand why you are scared about your FICO score dropping. The banks and FICO have brainwashed us to “bow at the altar of the all mighty FICO god”. The problem is your FICO score has nothing to do with how financially secure you are. Your FICO score doesn’t even take into account how much money you make or even how much money you have in savings. Dave Ramsey reviewed how your FICO score is calculated and found out
- 35% of your score is based on your debt history
- 30% is based on your debt level
- 15% is based on the length of time you’ve been in debt
- 10% is based on new debt
- 10% is based on type of debt
What do all of these things have in common? It is all about DEBT!
Your credit score can drop for several reasons.
- If you begin to utilize too much credit it will adversely affect your credit score. So if you begin to accumulate a large amount of debt on your credit cards or take out loans you are increasing your debt utilization. Credit utilization is determined by dividing your total credit balance by your total credit limits.
- If you begin to show an inability to make your minimum payments, your credit score will drop significantly. Creditors want to know you are able to pay your debts. If you are late on payments that is a sign you are over extended.
- If you have filed for bankruptcies, have tax liens or negotiated slow pays (usually from debt settlements) a derogatory mark will be indicated on your credit and will result in a major drop in your credit score.
- If you apply for a large number of credit accounts which results in numerous credit inquiries your credit score will also drop. This is an indicator you are reaching out to a large number of people to find available credit.
- If your average age of open credit changes it will affect your credit score. This average can be changed by opening a lot of new credit accounts. Some agencies also remove credit from the calculation when you close a credit account. This will also reduce your average credit age.
- If you close all of credit and live a completely debt free life your credit score will go to ZERO because the credit bureaus’ credit score calculation is solely based on debt.
As many of you know, Tish and I paid off our house and become 100% DEBT FREE about a month ago. Today we received an email from Experian letting us know our credit score is dropping. We were excited to login and see how much it dropped. Not because we wanted to figure out how to stop it from dropping but to celebrate it dropping. As you can see in the image above we have ZERO Open Credit Cards, Retail Cards, Real Estate Loans and Installment Loans. We’ve also have ZERO accounts late, collections accounts and we have ZERO Total Credit. In about 4 more months we should have a credit score of ZERO, we can’t wait!