Why Did My Credit Score Drop?

April 3, 2020 | by Jacob Hamilton

why did my score drop

Your credit score could drop for lots of reasons. From missing a bill to charging too much on your card, plus many more things in between, a few points can get shaved off the top of your score. This can definitely cause anyone to worry, especially if you don’t know why your score is suddenly a few points off from what you thought it was.

Understanding what can raise or drop your score can help you make smarter decisions with your credit. For example, you probably don’t want to do anything that would tank your credit score when you’re apartment hunting. In this guide, we walk through the most common reasons why your credit score may have taken a dip, even when it seems like it came out of nowhere.

1. You Just Charged a Lot to Your Credit Card(s)

Credit cards are great when you need to make big purchases, like when you’re moving or working on a remodel project. It’s almost too easy to rack up charges, and it can be an unwelcome surprise when you see the impact.

Bumping up your credit card balances directly impacts your credit utilization, which is the amount of credit you’re using compared to the total credit you have. You can calculate your credit utilization ratio by dividing your total credit used by your total available balance and multiply the result by 100.

You should keep an eye on your total utilization because it impacts 30 percent of your credit score. Experts commonly recommend borrowers to keep their utilization under 30 percent, but you should keep your ratio as low as possible since high utilization sends red flags to lenders. A high utilization ratio tells lenders that you’re having a hard time managing your money.

Also keep in mind that lenders report to the three major credit bureaus (Equifax®, TransUnion® and Experian®) at different times of the month. This means that the credit bureaus might see that your balance is high even if you paid it down later in the month.

you just charged a lot to your credit card

How Can I Fix This?

If your credit card balances are high, focus first on paying them down to lower your utilization ratio. You can also ask your credit card issuer for a higher limit if you have a good relationship with them. This isn’t a guarantee, though, so it’s best to keep your ratio low to begin with.

You can pay more frequently throughout the month instead of all at once to help consistently keep your balances down. You can also ask your creditor when they report to the credit bureaus if you want to plan your payments around that time.

2. You Missed a Payment

Late payments hit your credit scores the hardest and account for 35 percent of your total score. Missing a payment makes you risky since you look like you can’t pay your debt and aren’t responsible enough to keep up with payments. It only takes a single missed payment to bring down your score. The negative impact of that late payment can snowball the longer you don’t pay it. It gets even worse if you start stacking multiple late payments.

How Can I Fix This?

If you’ve already missed one payment, you can ask your creditor if they can forgive the payment. This isn’t guaranteed, but you’ll have a higher chance of them agreeing if you have a good history with them. Just one more reason to stay on top of your payments.

If you can’t get it forgiven or if you have multiple missed payments, you should catch up on your bills and continue to make on-time payments afterwards to improve your credit score.

you missed a payment

Automatic payments or payment reminders can help you make sure you don’t miss a payment in the future. However, you should always double-check to make sure the payment went through — you’re responsible for the payment no matter what.

3. Your Credit Limit Dropped on a Card

Your credit utilization takes a hit when your credit limit drops since you have less credit available. Your credit card company can lower your limit at any time without warning if it’s in your card agreement.

Dropped limits can happen for a number of reasons. Credit card companies can lower your limit if you start making risky decisions like running a balance every month when you previously didn’t or you start maxing out your card. They can also lower your limit if you aren’t using your credit card enough.

How Can I Fix This?

Check your credit card agreement if you aren’t sure what your credit card company is allowed to do. If you find that they can lower your limit without letting you know, start checking your statements and accounts every once in a while to catch any potential changes.

Catch up with your payments and lower your balances if you’ve used your card a lot in the past few months. If you haven’t run the card in a while, pull it out for a few small purchases a month, just to keep it up to date. You can also use it for repeating charges like subscriptions or utility bills to make sure your card stays active.

If your balance was lowered, call your credit card company to ask for the reason and see if it’s possible to raise your credit limit back to what it was before.

reasons why your credit was reduced

4. You Closed an Account

Closing an account lowers your credit age. This is another factor that directly impacts your credit score. Credit age is the average time your accounts have been open and accounts for 10 percent of your credit score.

Closing a card lowers your average age and closing your oldest card will drastically lower your credit age. It also increases your credit utilization ratio since you have less available credit.

How Can I Fix This?

Don’t close old cards if possible. You can put small recurring charges on your card and set up autopay every month to keep it active without you actually using it.

Sometimes you need to close an account if annual fees are expensive or you can’t keep yourself from spending, which makes total sense. In this case, take a look at all of your accounts to understand how removing your card could affect your credit score. If you can help it, don’t close an account if you’re in the process of securing a loan or another credit card since the lowered score could hurt those applications.

5. You Paid Off a Loan

Paying off a loan is definitely something to celebrate! The downside is that it can eventually hurt your credit score. Once a loan is paid off and closed, it can stay on your credit report for up to 10 years from the date it was closed. This seems like a long time, but can be problematic later on when it falls off and your score drops right before buying a new car.

Once a positive account falls off, it directly affects your credit age and credit mix. Your credit age goes down since you lose the age of that account. Your credit mix is the different types of credit you have in your name, like credit cards and student loans. If you only had one loan on your account before it falls off, then you aren’t left with a great credit mix.

paid off a loan

How Can I Fix This?

Accounts will eventually fall off of your credit report, so the best thing to do is to practice good habits like keeping your balances low and keeping up with payments on your other accounts. Keep note of the date you pay off accounts so you have an idea of when it could fall off. You should also check your credit report every once in a while to see if it’s still there.

6. You Recently Applied for a Credit Card or Loan

Applying for new credit can give your credit score a small hit at first. When you apply for a new card or a loan, you trigger a hard inquiry, also known as a hard pull. A hard inquiry happens when you give someone permission to check your credit history.

Hard inquiries also directly impact your credit score and account for 10 percent of your score. One hard inquiry typically has a small impact on your score, but a lot of pulls in a short period of time can make you look risky. Experian says each inquiry averages a drop of about five to 10 points.

Lots of inquiries can make you seem desperate for credit. This doesn’t mean you should never apply for new credit, though! You’ll naturally get a few inquiries on your credit report over time and need to borrow for things like a new house. Inquiries also fall off your credit report after about two years, but can fall off sooner if you’re in good standing.

tips to minimize hard inquires

How Can I Fix This?

Try to only apply for credit when you need it to minimize your hard inquiries. When you do need to apply for a new card or loan, space out your applications when possible to minimize the dings to your score at one time.

You should also do your research before you apply to get an idea of a lender’s requirements. This way, you can give yourself a better shot at getting approved. For example, if you know that a credit card you want typically approves borrowers with a good credit score and your score is a little low, you’ll know that you need to either pick another card or work on improving your credit score.

7. You Opened a New Account

After you apply for an account, opening one typically comes next. Believe it or not, opening a new credit card or taking out another loan can also drop your score. A new account lowers your credit age since you’re adding an account that has an age of 0.

How Can I Fix This?

You can build your credit score up again by keeping a positive history on your new account with on-time payments and, if it’s a credit card, a low balance. Although a new account lowers your credit age, it also lowers your credit utilization ratio since you have more credit available.

8. You Had a Derogatory Mark Like Bankruptcy or a Foreclosure Added to Your Credit Report

Derogatory marks include events like bankruptcy, foreclosure and civil judgments. Instances like these are huge signs to lenders that you can’t manage your money. Each lender decides how they count things like this in their lending criteria, but most derogatory marks will likely tank your score. These marks can take up to seven years to fall off of your report.

derogatory marks on your credit score

How Can I Fix This?

You should look into a derogatory mark right away if you think it’s an error. Contact the credit bureaus and your creditors if you think something was reported by mistake. If you’re close to facing a bankruptcy, foreclosure or similar, look into the options you have available to see what you can do to catch up with payments or to get more time to pay off what you owe.

If it’s not avoidable at this point, understand how this is going to affect your credit score and future applications for loans and cards. The good news is that the effect of negative items lowers over time, so as long as you’re practicing good credit habits, you should eventually see your credit score climb back up.

9. An Account Was Sent to Collections

Your credit score is mainly impacted by credit cards or loans. Things like utility bills and cell phone bills don’t typically affect your account unless they are sent to collections. Any debt, including credit cards, loans and utilities, can be sold to a collections agency and reported on your credit report.

A collections account is also a derogatory mark and will stay on your credit report for up to seven years after it’s paid off, but will have less of an impact over time.

How Can I Fix This?

Like other derogatory marks, you should first speak to your creditors, credit bureaus and other entities involved if you think something has been mistakenly sent to collections. If you’ve been behind on payments and think an account is in danger of going to collections, talk to your creditor, lender or provider ahead of time to see what you can do.

For example, you can ask if they can give you an extension to catch up with payments, forgive a past late payment or other adjustments. Like other things we’ve mentioned, none of these options are guaranteed, but it never hurts to ask. You should also take a hard look at your budget and spending to see what changes you can make to catch up on your bills.

If your account is sent to collections and it’s corrected, continue practicing good habits with your other accounts and catch up on payments with your collections account. Before you pay it off, learn how paying off collections can affect your credit score.

10. Your Co-Signer On a Loan or Credit Card Fell Behind on Payments or Has a High Balance

Just co-signing on an account doesn’t directly hurt your credit, but your co-signer’s bad habits could bring both of your scores down. Any late payments, high balances or other activity on the account that your co-signer does reflects on your score.

How Can I Fix This?

Speak to your co-signer before agreeing to anything so you’re both on the same page about how you want to use the account and to establish any ground rules you’ll both follow. Get the statements sent to you and check the account regularly so you can get ahead of any potential problems.

establishing a good relationship with a cosigner

11. Your Identity Was Stolen

A drop in your credit score could mean that someone stole your identity and is wreaking havoc on your credit score. They could be applying for new accounts in your name, running up your balances and a number of other horrible things.

Some signs to look out for on your credit report include addresses that you don’t recognize and accounts that don’t belong to you. You can also check your account history to see if there are any transactions you don’t recognize.

How Can I Fix This?

You can visit IdentityTheft.gov to report it and get a plan to help you recover your identity. You can also contact your local authorities and an attorney. Report your identity theft to the credit bureaus and creditors to let them know that any weird activity is because of fraud.

While you’re working on getting your identity back, you can also place a credit freeze or fraud alert on your account. A credit freeze prevents lenders from getting a hold of your credit report. This stops fraudsters in their tracks from opening new accounts in your name.

On the other hand, a fraud alert lasts for a year and makes it more difficult for an identity thief to open an account in your name. With an alert, businesses have to verify your identity before issuing credit.

12. You Have an Error on Your Credit Report.

Mistakes pop up everywhere, even credit reports. The FTC found that one in five consumers had an error on at least one of their three credit reports. Things like late payments that were never late can unfairly drop your score.

How Can I Fix This?

Check your credit reports every once in a while to see if there are any errors. If you find anything wrong, gather any documents that prove it and dispute the information as soon as possible. Contact your lenders to inform them of the mistake. You should also contact the credit bureaus that had the error.

Credit repair is one route you can take if you want help going through the dispute process. Although you can dispute mistakes on your credit report by yourself, it may give you peace of mind to have experienced help on your side. Learn how credit repair works to understand the process, how a credit repair company can help and the benefits of having access to credit repair professionals.

Jacob Hamilton

Jacob Hamilton

GM of CreditRepair.com

With his master's degree from the University of Phoenix, Jacob has been working as the General Manager for CreditRepair.com for 2 years. Jacob is passionate about consumer finances and doing everything he can to make credit repair accessible....

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