Why Did My Credit Score Drop? 9 Possible Reasons

Heavy credit card use, a missed payment or a flurry of credit applications could account for a credit score drop.
Bev O'Shea
Amanda Barroso
By Amanda Barroso and  Bev O'Shea 
Edited by Sheri Gordon

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When your credit score takes an unexpected dip, you may feel angry or frustrated. While a few points up or down is not a big deal, a downward trend or a big drop is concerning.

Your credit scores fluctuate all the time because the data used to calculate your scores comes from your credit reports, and that information is always changing. Even if it feels like your score dropped randomly or for no reason, there is likely an underlying cause.

Scores are determined by formulas, and things like paying off a loan, having your credit limit reduced or closing an account can result in a lower score, as can a credit card balance that is higher than normal for you. There are only a few times when your score might drop for seemingly no reason, but you perhaps later determine there was an error on your credit report or you’ve been the victim of identity theft. (More about these two things, later.)

Your first step should be to check your credit reports and find the source of the problem. Here’s some issues that could be behind your credit score drop, and tips for fixing them.

1. You missed a payment

It happens. Maybe you have online statements and deleted an email notice, thinking it was one more ad. Or you set a bill aside and just didn't get back to it in time. If you pay just a couple of days or weeks late, expect a late fee and perhaps a penalty interest rate increase.

But if the account goes more than 30 days past the due date, the creditor could report you to the credit bureaus and your score could drop. The better your score, the worse the possible score damage.

The fix: Pay it. Once you’re sure the money has reached the creditor, call and ask if you can 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 that negative mark for seven years.

If you cannot pay, reach out to creditors to ask about a hardship program.

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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 limits you’re using. Generally, you want to use no more than 30% 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 that can be done without a “hard inquiry” on your credit because those also cost a few points (see more on that below).

3. There’s a mistake in your credit report

Your credit scores are 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 by mail, online or by phone, and you'll need to follow the process with each credit bureau individually.

Frequently asked questions

Using more of your credit card balance than usual — even if you pay on time — can reduce your score until a new, lower balance is reported the following month. Closed accounts and lower credit limits can also result in lower scores even if your payment behavior has not changed. However, if you are certain it is for no reason, check to be sure there is not a mistake in your credit reports or that you're not a victim of identity theft.

It seems counterintuitive that your score might drop once you hit a huge financial goal, like paying off a mortgage, car or student loan. But the dip in your score is likely temporary, reflecting your shifting credit file — maybe you now have a less diverse mix of accounts or a “younger” credit age, especially if you paid off a long-standing debt like a 30-year mortgage.

While the two most popular credit scoring companies consider the same set of factors when calculating your credit score, they weigh those factors differently. For example, payment history makes up 40% of your VantageScore but only 35% of your FICO score. These disparities can account for differences in your score based on which company is calculating it.

Credit scores fluctuate all the time. Credit scores are calculated using the data from your credit reports, which are constantly being updated to reflect your latest financial behaviors. Some slight movement up or down, or differences between your FICO and VantageScore, are nothing to worry about. However, larger drops of 10 or more points could signal a problem.

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. Those could indicate someone is opening fraudulent credit accounts in your name. 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 child pulled your credit card out of a desk drawer and set up an online game account or the person you trusted as an authorized user made a big purchase, 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. An authorized user or someone in your household using the card without your knowledge is more of a personal issue. Consider setting up alerts to notify you when the card is used and revoking access to any credit cards you provided the authorized user. They can still benefit from your credit but won't have a card in their wallet to make purchases.

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 severe 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 a hard inquiry — 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 can cause a pretty big dent.

The fix: Stop applying for credit and give your score time to rebound. From there, 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.

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8. You closed an old credit card

There are lots of reason for closing an old card: Maybe you got rid of crippling credit card debt and closed the card to prevent overspending in the future or the card’s benefits were no longer competitive. Or maybe you just never used it. However, losing that card’s credit limit means your overall available credit dropped and your credit utilization went up. That shift can cost you some points.

Closing one of your oldest credit cards could also ding your score because the age of your credit is a factor in credit score calculations. Although not nearly as big as paying on time or keeping your utilization low, it does have an impact.

The fix: Think very carefully before closing old cards. If your credit card issuer offers a better card, see if you can switch. You might consider putting a smaller, regular charge on the card (like a monthly streaming subscription or gym membership) to keep it active.

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.

What does having a lower score mean?

Keeping an eye on where your credit lands is important because it can make a big difference in your financial future. In general, a low credit score means less access to loans and credit cards, and, if you do get access, the interest rates and other terms will likely be less favorable.

Here are general guidelines for credit score ranges:

Once you diagnose the reason why your score dropped, you can work on bumping it back up through paying your bills on time each month and keeping your credit utilization under 30%. Progress might feel slow, but these financial habits are the best way to climb back up the credit ladder.