Why Did My Credit Score Drop?

Watching your credit score go down can be a frustrating experience, and that's especially true if you've been actively working to improve it. That said, there are situations that could make your credit score fall that aren't in your control, as well as others you can fix if you identify the problem.

Why did my credit score drop? This valid question has at least 12 potential answers and just as many solutions to try. Read on to find out the reasons your credit score can go down and what you can do about it.

Key Takeaways

• Credit scores are determined using a whole host of factors, including your payment history, credit utilization ratio, average length of credit history, credit mix, and the amount of new credit you have. 
• With these factors in mind, it's not uncommon to see a FICO score drop when you had a late or missing payment, you owe too much money, or you opened or closed too many accounts. 
• Monitoring your credit score is the best way to find out if your credit score decreases so you can do something about it.

12 Reasons Why Your Credit Score Might Drop

Your credit score can fluctuate over time based on a range of factors that are only partly under your control. That said, you'll want to monitor your score to make sure it's not dropping for no reason or following a downward trend over time. 

If you do start to see your score drop, here are 12 situations to look out for plus tips on how to get your credit back on track.

Reason 1: You Had Late or Missing Payments

Whether we're talking about FICO credit scores or scores that use VantageScore, your payment history is the most important of the factors that make up your credit scores. In fact, whether you pay bills on time makes up 35% of your FICO score and 41% of credit scores that use the VantageScore 4.0 scoring model.

What late bills can hurt your credit the most? Any payment you make that is reported to the credit bureaus can have an impact, including credit card bills, your rent or mortgage payments, utility bills, loan payments and more. 

What to do about it:  

• Get up to date on all your bills as quickly as you can.
• Call your creditors to ask them to remove late payments from your reports as a one-time gesture. 
• Set up some bills for automatic payments if you're afraid you'll forget to pay on time.
• Mark the due dates for some of your bills on your calendar.

Reason 2: Your Credit Utilization is High

Credit utilization — or the amount of debt you owe in relation to your credit limits — is another major factor that determines your credit health, making up 30% of your FICO score and 20% of scores using the VantageScore 4.0 scoring model. Generally speaking, it's recommended to keep your debt levels below 30% of your available credit, or to owe less than $300 for every $1,000 in available credit you have on revolving accounts.

If your utilization ratio is higher than that, and especially if you have been maxing out credit card accounts, there's a good chance your score has taken a hit.

What to do about it:  

• Pay down debt to get your credit utilization below 30% of your available credit. 
• Avoid making purchases you can't afford to pay off.
• Use your credit card as a tool alongside a monthly budget or spending plan.
• Ask your creditors for a credit limit increase since this move can lower your credit utilization ratio overnight.

Reason 3: Your Credit Report Has Errors

It's easy to assume all the information on your credit reports is correct, but this isn't always the case. Errors on your credit reports can easily be hurting your credit score, and these errors may not be your fault. 

According to the Consumer Financial Protection Bureau (CFPB), common errors on credit reports that can damage your score include accounts belonging to another person with the same name, incorrect account balances, falsely reported late payments, the same debt listed more than once, and more. 

What to do about it:  

• Check your credit reports with all three credit bureaus — Experian, Equifax, and TransUnion — for free at AnnualCreditReport.com.
• Look over your reports for errors and accounts you don't recognize. 
• If you find any incorrect data on your credit reports, take steps to dispute the false information with the credit bureaus and the company that reported the information. 
• Look over your credit reports at least a few times per year going forward.

Reason 4: You Closed a Credit Card Account

The average length of your credit history makes up 15% of FICO scores and 20% of scores using the VantageScore 4.0 model, and both models prefer your credit history to be as long as possible. Not only that, but closing a credit card account also reduces the amount of your available credit, thus causing your credit utilization ratio to increase overnight.

Imagine a scenario where you had two credit cards with a $10,000 limit each and you owed $4,000 on one of the cards. If you closed the credit card with a $0 balance, your credit utilization would increase from 20% (because you owed $4,000 across total credit limits of $20,000) to 40% (because you now owe $4,000 across total credit limits of $10,000) in just a few days.

What to do about it:  

• In the future, consider keeping old credit card accounts open — even if you're not using them.
• If you don't want to pay the annual fee to keep an old card open, call your card issuer and ask them if you can downgrade to a no-fee version.
• Consider opening a new credit card to get back the available credit you had before.
• Conversely, you can inquire with one of your current creditors about getting a higher credit limit. 

Reason 5: You Paid Off a Loan

In some cases, a move you make that seems good for your credit can go horribly wrong. If you pay off a personal loan completely, for example, this can remove an account that previously counted toward your credit mix, and your monthly payments can no longer be used to bolster your score.

While paying off a loan can be a good thing for your finances, you'll want to keep the impact of paying off loans in mind as you work toward getting your credit score in the excellent range.

What to do about it:  

• Don't worry too much about how paying off loans impacts your credit — loans are meant to be paid off.
• Keep making on-time payments on all your other loans and bills.
• When it makes sense for your finances, take out another loan or open another credit card account.
• Make sure you have a healthy mix of different types of credit, including revolving accounts like credit cards, loans and more. 

Reason 6: You Applied for New Credit Accounts

New credit makes up 10% of FICO scores and 11% of VantageScore 4.0 credit scores, and both credit scoring models frown on opening new accounts overall. You'll get a new hard inquiry on your credit reports each time you apply for a new personal loan or credit card account, and applying for new credit automatically reduces the average length of your credit history to boot.

Fortunately, impacts to your credit caused by new accounts tend to be temporary. This means your credit score could easily rebound after you get new credit over the span of a few months.

What to do about it:  

• Only borrow money or apply for new credit when you have a reason for doing so.
• Don't let credit card signup bonuses and other incentives lure you into opening a bunch of new credit cards all at the same time.
• Refrain from opening several new accounts at once, or at least spread out applications a few months out from one another.
• Take steps to increase your score in other categories, such as making on-time payments to help with your payment history.

Reason 7: Your Credit Limit Decreased

Maybe your credit limit on a credit card decreased for some reason, perhaps because your income changed or your card issuer decided to lower it. In that case, your credit score may be taking a hit due to you having a higher credit utilization ratio caused by a lower limit, which may not be your fault. 

As an example, imagine you currently owe $4,000 on a credit card with a $10,000 limit, and your card issuer lowers your credit limit to $5,000. Practically overnight, your credit utilization ratio would go from 40% (which is already high) to 80% (which is astronomical). 

What to do about it:  

• Pay down debt in order to get your credit utilization ratio below 30% based on your new credit limit, even if it takes some time.
• Call your credit card issuer to ask how you can get your higher credit limit back.
• Apply for a new credit card in order to boost the total amount of available credit you have.
• Keep making on-time payments on your credit cards, and use credit responsibly in order to boost your credit in other categories. 

Reason 8: You Experienced a Major Financial Event

Maybe something "big" happened in your life that dramatically impacted your credit, and you're not sure what happened or what to do next. For example, circumstances like bankruptcy, foreclosure, having a lien placed on your assets, being sued, or having a loan go into default can impact your credit in a major way.

A Chapter 7 bankruptcy can stay on your credit reports for up to 10 years, whereas Chapter 13 bankruptcy stays on your reports for seven years. Meanwhile, Equifax says late or missed payments and accounts sent to collections can stay on your reports for seven years as well.

What to do about it:  

• You can't change the past, but you can create a better future by learning positive credit habits. 
• Pay your bills on time, keep debts at a minimum in the future, and consider all the other ways you can improve your credit over time.
• To get back in credit-building mode after a bankruptcy, consider getting a secured credit card, a credit builder loan, or a personal loan for bad credit.
• Promise yourself you won't repeat mistakes from the past, and stick to your plan.

Reason 9: You Made a Large Purchase

Making a large purchase won't impact your score at all if you pay with cash, but your credit score can take a hit if you charge a large purchase to a credit card. After all, a large purchase on a credit card will cause your credit utilization ratio to increase in a hurry, and your utilization will stay there unless you pay the balance down quickly.

Let's say you sign up for a 0% APR credit card that offers rewards and get approved for a $5,000 credit limit. If you used your card to buy new home appliances or new living room furniture for $3,000, you could benefit from rewards and the 0% intro APR offer. However, your credit utilization on that card would start out at 60%.

What to do about it:  

• Try to get the highest credit limit you can if you plan to make a large purchase with a credit card.
• If you have to make a large purchase that increases your utilization in a big way, try to pay down the debt as fast as you can.
• Make on-time payments on the card to show your creditworthiness.
• Stick with a payoff plan until you get your utilization ratio at 30% of your available credit or even lower than that.

Reason 10: Your Identity Has Been Compromised

If someone steals your identity, you may wind up with credit report issues that dramatically impact your score. In fact, the CFPB says that identity theft can show up in your credit reports in a few different ways, including accounts belonging to someone other than yourself and accounts you don't recognize because they are fraudulent.

If your identity has been compromised, you'll want to take steps to stop the fraud and protect yourself financially right away. Fortunately, you can easily check your credit reports for fraud and other errors at AnnualCreditReport.com.

What to do about it:  

• Report signs of identity theft and other fraud to the Federal Trade Commission (FTC) at IdentityTheft.gov or by calling 1-877-438-4338.
• Report the fraud to the three credit reporting agencies and ask them to set up fraud alerts.
• You can also freeze your credit reports with the three credit bureaus so no new accounts can be opened in your name.
• Consider investing in identity theft protection services that monitor your credit and protect against fraud over time.

Reason 11: Your Credit Card Has Unauthorized Charges

If you haven't done anything out of the ordinary but you have noticed that your credit score keeps going down, it makes sense to read over all your credit card statements to check for issues. You may even find that your credit card has unauthorized charges, and that these charges are causing your utilization to increase through no fault of your own.

Fortunately, the majority of credit cards have $0 fraud liability policies that mean you're never on the hook for unauthorized charges. On top of that, the Federal Trade Commission (FTC) points out that federal law limits your liability for unauthorized charges to $50.

What to do about it:  

• As soon as you notice unauthorized charges on your credit card account, notify your card issuer by calling the number on the back of your card.
• Your credit card issuer will credit your account and send you a new credit card with a new account number.
• Consider setting up purchase alerts so you're notified when a purchase is made with one of your cards.
• Monitor your credit card accounts regularly (a good rule of thumb is once per week) to look for fraud and unauthorized purchases. 

Reason 12: You Cosigned a Loan or Credit Card

If you cosigned on a loan or became a joint account holder on a credit card that allows joint accounts (like the Apple Card), you may be surprised to see your credit score take a hit. This is true even if you're not the one making payments or charges, or the one who is keeping track of the account details.

With any type of joint account, you are just as legally responsible for repayment as the other borrower on the account. This means issues like credit utilization and payment history can impact your score, and that problems like late payments can cause your credit score to plummet.

What to do about it:  

• Only open joint accounts with people you know well and trust.
• Monitor joint accounts you have to make sure they are being used responsibly and all payments are being made on time.
• Set up account alerts so you know when purchases are being made on a joint account.
• In the case of co-signed student loans, it may be possible to get a co-signer release at some point in the future.

What to Do If Your Credit Score Drops?

Why did my credit score take a hit? And, what caused my credit score to drop? These are both valid questions to have, but hopefully you now have a good idea of what is causing your issue.

For the most part, there's not much you can do if your credit score drops other than identifying the problem and taking steps to fix it going forward. The reasons your credit score goes down can vary, but here's what you can do about it:

• Make paying bills on-time a priority. Since your payment history is the most important factor that impacts your credit scores, this step is the most important one to take if you want to keep your credit in the best possible shape.
• Only borrow money when you need to. Avoid racking up unnecessary debt, and only borrow money when you have a plan to pay it back.
• Try to spend less than you earn. Create a lifestyle you can afford based on your income, and make sure you have money leftover after you pay bills each month.
• Build up some emergency savings. Build up some emergency savings you can use to pay bills and cover living expenses if you lose your job or face a loss in income.
• Monitor your credit score regularly. Keep track of your credit score over time so you know if it drops.
• Check your credit reports every three months at a minimum. Monitor your credit reports at AnnualCreditReport.com so you can spot issues and signs of identity theft as early as possible.

Final Word

Watching your FICO score drop is never any fun, but at least you know so you can take action. This is true in scenarios where your credit score falling isn't your fault, but it's also true when you've been a victim of identity theft, there are errors on your credit reports, or the actions of someone else are hurting your score without you even knowing it.

Whatever you do, don't bury your head in the sand when it comes to your credit. By monitoring your scores and reports, paying bills on-time, and keeping your debt levels in check, you can work toward the highest credit score possible.