Last week I opened my monthly statement from my Discover card account and made an interesting discovery. Those of you that have this card know that Discover now monitors your credit score monthly and prints the number on your statement.  So I looked at the credit score on my statement and immediately noticed that it had dropped thirty points from the previous month. 

I began to analyze why this happened and realized that I had recently leased a car.  So why did that have a major effect on my score?  There are three main reasons:

  1.  I took on additional debt

  2. The debt was new debt so I added an additional account to my credit profile.

  3. Since the debt was new and the first payment was not yet due, there is no track record of payments against the debt.

This immediately leads to the question – Will my credit score recover and how and how soon?

The answer is yes.  So if this happens to you don’t panic!!  Any time you take on additional debt it will lower score, at least temporarily.  If the new debt also involves adding an additional account to your credit profile, it will have an even greater effect.  Examples are opening a new credit card or charge card, taking on a mortgage, or taking out a personal loan or lease.

 So let’s say I can’t afford a drop in my score but adding this new account was something I just couldn’t avoid.  What can I do?  In the short term I can simultaneously pay down the balances in my other accounts, especially the credit cards, to lower my overall debt ratio. Further, I can pay down the balance in an account I don’t really need and then close it. 

If these actions are not realistic, then you will just have to be patient.  As you begin to make timely payments on the account and develop a track record, your score will gradually improve.  In the mean time you can lower your overall debt ratio by relying less on your credit or charge cards and making more cash purchases.

For more information on how all of this works you can purchase our publication “Reading Your Credit Report” available on Amazon.  Meanwhile I will continue to monitor my own score monthly and keep you informed as to how quickly it recovers.

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