Building your credit score is a careful balance of actions, some of which might unexpectedly lower your score. Remember that these dips are usually temporary and recoverable. While paying off a loan or getting a new credit card may lower your score, these actions can improve it over time.

Knowing these five everyday activities that could cause sudden decreases in your credit score can help you make smarter decisions and maintain a healthy credit profile.

New Credit Card Applications on Credit Score

When you apply for a new credit card, the issuer reviews your credit history to assess your financial reliability. This process involves a 'hard inquiry,' which might slightly lower your credit score. Typically, a hard inquiry can reduce your score by a few points. Such inquiries are recorded on your credit report for two years. However, regarding influencing your credit score, FICO, a standard model used by lenders, only considers these inquiries for the first 12 months.

A hard inquiry is not always detrimental. In moderation, it reflects your active engagement in building or managing your credit. For instance, responsibly using a credit card – charging expenses and paying them off – can enhance your credit score.

This approach is efficient for those with an average credit score, aiming to progress within the credit score range. Cards like the Petal® 2 “Cash Back, No Fees” Visa® Credit Card or the Capital One Platinum Credit Card cater to such needs.

To minimize unnecessary hard inquiries, utilize preapproval or prequalification offers from issuers. These checks give you an insight into your eligibility without affecting your credit score. When you do apply for new credit, space out your applications. Waiting a period, say three months or more, especially for those with lower scores, is advisable.

Closing a Credit Card on Your Credit Score

Closing a credit card can significantly influence your credit score. This effect is particularly pronounced when you complete an older account. Why does this happen? Your total credit limit decreases, which can raise your credit utilization ratio – a key factor in calculating your score. Remember, a lower credit utilization (how much credit you use compared to what's available) is preferable for a healthy credit score range.

The average age of your credit accounts is another critical component, contributing about 15% to your FICO score. Older accounts demonstrate a more extended credit management history, positively impacting your average credit score. Hence, closing an older card might reduce this middle age, potentially lowering your score.

When considering closing a card with high fees, like a premium travel card with a hefty annual cost, it's worth discussing alternatives with your card issuer. Options include switching to a card with no annual fee or transitioning from a secured to an unsecured card. This way, you can retain your credit line and history, preserving your credit score.

Paying Off a Loan on Your Credit Score

Contrary to what one might expect, paying off a loan can temporarily decrease your credit score. This phenomenon is particularly noticeable with installment debts like mortgages or student loans.

This relates to the credit mix, constituting 10% of your FICO score. Lenders prefer to see various credit types in your history as it demonstrates your ability to responsibly handle different forms of debt.

For instance, clearing a car loan removes one type of credit from your profile, potentially leading to a slight drop in your credit score. However, it's crucial to prioritize financial freedom over credit score implications.

Paying off loans alleviates debt and saves you from accruing interest over time. Ultimately, debt-free enhances your overall financial health, and the temporary impact on your credit score should not deter you from settling your debts.

Missing a Credit Card Payment on Your Credit Score

When you miss a credit card payment, it can significantly affect your credit score. Your payment history is crucial, comprising 35% of your FICO score. Data from FICO reveals that if you have a fair average credit score, a single 30-day missed payment could drop your score by 17 to 37 points.

The impact is even more substantial for those with good or excellent credit scores, with a potential drop of 63 to 83 points. A 90-day delay in payment is even more severe. It can reduce a fair score by 27 to 47 points and a high score by a startling 113 to 133 points. This data highlights that the better your average credit score, the more it can lose from such lapses.

Recovering from a missed payment is possible but requires disciplined financial behavior. Resuming regular and timely payments is the first step towards recovery. Maintaining consistency in on-time payments and paying off the balance is essential to staying within a good credit score range. The key is demonstrating reliability and financial responsibility to lenders, which can help repair and improve your credit score.

Large Purchases on Credit Utilization

The use of credit cards for making large purchases is common, but you should be aware of how these transactions affect your credit score. A credit score is impacted by your credit utilization rate (CUR), which is typically the ratio of the amount of debt you have that is still outstanding to the entire credit limit you have available. Your CUR should be kept below 30%, and you should strive for 10% or lower to not seem strained to lenders.

If the billing cycle is nearing to conclude, you should consider the effect that making a significant purchase with your credit card will have on your CUR before you make the transaction. Your CUR will rise due to a large balance, which may result in significant interest costs.

The ability to effectively manage your credit card balance is of the utmost importance, mainly if you are working toward raising or keeping a decent credit score. You may protect your financial health and credit score by carefully planning necessary expenditures and understanding how those purchases affect your credit utilization ratio (CUR).