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When your credit score takes an unexpected turn downward, you may feel angry or frustrated. Credit scores do fluctuate, and a couple of points up or down is not a big deal — but a downward trend or a big drop is.
Here’s a list of things that might be behind your credit score drop, and tips for fixing them:
1. You missed a payment
It happens. Maybe you have online statements and you deleted the email notice, thinking it was one more ad. Or it was a new credit card and the first bill got tucked inside a flyer in your mail; you weren’t accustomed to paying that bill so you didn’t notice its absence. And you paid late.
The fix: Pay it. Once you’re sure the money has reached the creditor, call and ask if you could be forgiven just this once. There's no guarantee it will work, but it can’t hurt to ask. If the creditor agrees not to report your late payment to the credit bureaus, your credit reports won't carry a negative mark for seven years.
If you cannot pay, reach out to creditors.
2. Your credit card balance is higher than usual
If you had unexpected expenses and you put them on a credit card or cards, your credit score could drop. That’s because a major factor in credit scoring is “credit utilization,” or how much of your credit limit you’re using. Generally, you want to use 30% or less of the credit limit on any card, and the lower the better for your score. If your credit utilization went up — even if it’s still below 30% — your score could drop.
The fix: Pay down the high balances as soon as you can and return to using a small portion of your available credit. Or, you could consider asking for a higher credit limit. Ask your issuer if it can be done without a “hard inquiry” on your credit because those also cost a few points (see more on that below).
Here's a snapshot of the factors that determine your credit score, in order of importance.
3. There’s a mistake in your credit report
Your credit score is based on the data in your credit reports. Credit report mistakes like a transposed number, a payment reported to the wrong account or a payment reported late when it wasn’t can hurt your score.
The fix: Check your credit reports for mistakes and gather the documentation you need to dispute the errors. You can dispute online or by mail, and you will need to follow the process with each credit bureau individually.
4. You’re a victim of identity theft
A big, unexplained drop in your credit score can be the first sign of identity theft. When checking your credit reports, look for warning signs like addresses where you’ve never lived or accounts that look unfamiliar. You can clean up the mess, but the sooner you discover it’s there, the simpler the job.
The fix: Go to identitytheft.gov and file a report. You’ll need that report to dispute the information on your credit reports. Follow up by checking your credit reports again in 30 days to be sure corrections have been made. Consider freezing your credit or at least adding a fraud alert to protect yourself in the future.
5. Someone else used your credit card account
Whether your 10-year-old pulled it out of a desk drawer and set up an online game account or your credit card was cloned and used by a stranger, someone ran up a big balance and you had no idea.
The fix: Call your credit card issuer. In the case of a stranger using your card, you’ll get a new card and won’t be responsible for charges. Someone in your household using the card without your knowledge is more of a family issue. Consider setting up alerts to notify you when the card is used.
6. You co-signed a loan or credit card application
A friend or relative needed to use your good credit, and you agreed. Just signing does not hurt your credit. But if the person you co-signed for has a late payment or runs up a large balance on the credit card, your score could take a hit.
The fix: Have statements sent to your home or be sure you have access to the account online so you can watch for trouble and address it early. You are on the hook for the full amount, so it may be worth the trouble of making a payment yourself to avoid a negative mark on your credit. If it’s a credit card, you can pay it off and close the card to preserve your credit score, but first, you may want to talk to your friend or relative and see if a less draconian approach would work.
7. You applied for a lot of credit
Getting approved for a loan or credit card, especially if it’s your first, feels pretty good. And so it can seem logical to go ahead and use your good credit to get other credit products. But “hard inquiries” — when a lender or card issuer looks at your credit for purposes of making a decision about approving you — can cause a small, temporary dip in your credit. Several within a short window, say, six months, can cause a pretty big dent.
The fix: Time. Stop applying for credit until your score rebounds. Then space out applications every six months or so. Research the best credit card offerings for your needs, and apply only for things you're likely to be approved for — so you don't lose a few points for the application only to be turned down.
8. You closed an old credit card
We get it. Once you got rid of crippling credit card debt, you vowed “never again” and closed those credit cards. Or maybe a card’s benefits were no longer competitive or you just never used it, so you closed it. But losing that card’s credit limit means your overall credit limit went down, so your credit utilization went up. That can cost you some points.
And if it was one of your older cards, you took another hit, because the age of your credit also affects your score. It’s not nearly as big a factor as paying on time or credit utilization, though.
The fix: Think very carefully before closing old cards. If your credit card issuer offers a better card, see if you can switch.
9. You paid off a loan
Paying off a loan is an achievement, but can also leave you with a lower credit score. That’s because when you pay off a loan, you have one less credit account.
The fix: Keep your other accounts active, keep your credit usage low and pay on time. Your credit will continue to benefit as your track record with credit grows longer and is filled with positive information.