It’s a good idea to get an idea of what your credit score looks like anytime. The higher this number, the more likely you are to be approved for a new credit card or ready. And if you pull out a big Personal loan or a mortgage, a good credit score could be the difference between being offered a favorable interest rate and one that is more expensive.
Sometimes you may notice that your credit score has taken a hit, even though you haven’t done anything negligent, like skipping a bill or paying it very late. But there’s a good reason you might notice a five-point drop in your credit score. And for the most part, there’s really nothing to worry about.
What causes a minor drop in credit rating?
If you’re late on a bill or have a very high balance on your credit cards, you could see your credit score drop a little. However, if you’re only seeing a five-point drop, chances are it’s because of a difficult investigation on your credit report.
Each time you apply for a new loan or credit card, the lender or company in question will check your credit report to make sure you are not an overly risky borrower. When this happens, it is considered a difficult investigation.
Usually, a thorough investigation will drop your credit score by around five to seven points, sometimes a little more. And so, if you see that your score has dropped slightly, chances are it’s because you’ve recently applied for a new credit card, car financing, refinance a mortgageor borrow money in some other way.
Should you be worried about a five point drop in your credit score?
In most situations, a five point drop in your credit score will have no impact on you. Let’s say your credit score is 815 and it takes a hit of five points. A score of 810 is still considered outstanding, so it’s no reason to lose sleep.
Also, let’s say your credit score is 680, which is considered good but not great. If your score drops to 675, you are still in that same category. With a good credit rating, you are likely to be approved for a loan. However, you may not qualify for the lowest interest rate offered by a given lender. But chances are five points won’t make a difference there.
Now in certain situations, a five point drop in your score could to have an impact. A minimum credit score of 620 is required to qualify for a conventional mortgage. If your score is 620 and it drops five points, you may need to wait to apply for a home loan and work to increase that number. But most of the time, a five point drop is nothing to stress about, especially if you have great credit to begin with.
How to Avoid a Modest Credit Rating Drop
If you don’t want to see your credit score stay the same any damage, make sure you don’t apply for new loans or credit cards for a while. But rather than focusing on avoiding a move that could result in a five-point drop, it’s better to work on boost your credit if he clearly needs work.
This could involve paying off some of the existing debt to reduce your credit utilization rate and pay incoming invoices on time to establish a more favorable payment history. If you’re able to raise your credit score by 100 points, you’ll give yourself more leeway to withstand a five-point drop without worry.
Alert: The highest cash back card we’ve seen now has 0% introductory APR through 2023
If you use the wrong credit or debit card, it could cost you dearly. Our expert likes this first choicewhich includes a 0% introductory APR until 2023, an insane reimbursement rate of up to 5%, and all without annual fees.
In fact, this map is so good that our expert even uses it personally. Click here to read our full review for free and apply in just 2 minutes.
We are firm believers in the Golden Rule, which is why editorial opinions are our own and have not been previously reviewed, approved or endorsed by the advertisers included. The Ascent does not cover all offers on the market. The editorial content of The Ascent is separate from the editorial content of The Motley Fool and is created by a different team of analysts. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.