Why Did My Credit Score Drop? Top 10 Causes

Your credit score could have dropped because you were late on a payment, you applied for a new credit card or loan, you closed an old credit account, or your credit utilization increased because you’re spending more than normal. You could also see a drop if there is an error on your credit report.

Credit scores rise and fall on a regular basis and for many reasons. The ability to accurately diagnose and treat any ailment that may befall your credit score is therefore quite important. One of the benefits of having access to free daily credit score updates through WalletHub is that you can more closely track how your score changes over time. Unlike most credit score sites, WalletHub will also explain what happened every time your credit score changes.

See Why Your Credit Score Changed

Below, we’ve analyzed the 10 biggest reasons why scores have been known to nosedive, as well as the actions you can take to stop the descent and take your rating to new heights.

1. You Recently Applied for Credit

Impact on your credit score: Low

Simply applying for credit can cause your credit score to dip for a short period of time. Applying for credit indicates that a new account is in the works, which figures to demand a portion of your disposable income, thus decreasing your capacity to take on more debt.

Mortgages, student loans, and auto loans, however, benefit from a so-called “rate-shopping period.” That means all inquiries made within a certain window – 14 to 45 days – are either considered as one or disregarded from scoring entirely. Credit card inquiries are considered individually, however, and can affect your score for up to two years.

What to Do: Careful planning is the best way to avoid application-related credit score damage. Doing your research about the types of products you can expect to qualify for, given your credit standing, will enable you to better target your applications, thereby minimizing how many you have to submit.

If you’ve already fallen victim to this particular pitfall, consistently abiding by the terms of your new account is the best way to quickly overcome the lingering effects of the hard inquiry that led to it – if you got approved, that is. If you were denied, reevaluate your options and perhaps apply for less ambitious terms. If credit building is your top priority, placing a deposit on a secured credit card is a fantastic fallback option.

2. An Old Account Was Closed

Impact on your credit score: Low 

The length of your credit history comprises around 15% of your credit score, and it’s typically calculated by simply averaging the age of your open loans and lines of credit. Sometimes the age of your oldest account is used as a proxy, however. It’s therefore obvious why closing one of your oldest accounts can work against your credit score.

What to Do: In general, you should keep a credit card with no annual fee open for as long as possible. Paying fixed costs to have a slightly more mature credit career probably isn’t worth it unless you plan to apply for a mortgage or auto loan in the next few months. If your account is already closed, there’s not much you can do besides manage your finances responsibly and be more thoughtful next time around.

3. Your Credit Utilization Increased

Impact on your credit score: Low to Medium

Potential lenders are interested in knowing how much of your available credit you actually use, and thus how much risk you pose given the context of your overall ability to pay. The metric used to track such performance is called credit utilization, and it is calculated for each of your credit cards individually as well as for all of them together.

Most experts recommend keeping utilization below the 30% mark. If your utilization rises too much (or perhaps even falls too far) relative to that benchmark or your previous performance, your credit score could certainly pay a price.

What to Do: Too-high utilization is likely to be most people’s concern, and the obvious way to reverse such a trend is to focus on budgeting, identifying luxury expenses that you can eliminate, and paying down debt, if applicable. Taking steps such as requesting a higher credit limit or paying your bill multiple times per month could help sway the math in your favor as well.

4. Your Credit Limit Was Reduced

Impact on your credit score: Low to Medium

If your credit card issuer lowered your credit limit, your credit utilization may have gone up since you have less total credit to work with. Closing a credit card account can also reduce your overall credit limit and increase your overall utilization ratio. High credit utilization will negatively impact your credit score. In addition, credit scores factor in your available credit, so a reduction in your credit limit will have a negative effect on your score.

What to Do: Avoid closing credit card accounts. You should also avoid doing things like missing payments or having long periods of account inactivity that may cause your issuer to reduce your credit limit or close your account entirely.

5. You Missed a Payment

Impact on your credit score: Medium to High 

Paying bills late is probably the easiest way to damage your credit. The good news is that most lenders won’t report you as tardy to the credit bureaus until you’ve missed two consecutive payments (making you at least 30 days late on the first). The bad news is that payment history accounts for roughly 35% of your credit score, making it the largest component of most scoring models. Some of the metrics included in your payment history are:

• On-time payment percentage
• The number of accounts you’re currently at least 30 days behind on
• The specific number of days your payment is behind
• The amount you owe on delinquent accounts.

What to Do: You can’t remove a late payment from your credit report, but you can stop the bleeding by making up what you’ve missed – at least the monthly minimums, in the case of credit cards. This will result in the status for the account in question changing from “past due” to “paid.”

Diluting the record of this delinquency by doubling down on your efforts to meet monthly due dates should be your next priority. Setting up payment reminders and automatic withdrawals from a bank account for at least the minimum required amount can be a great help to such efforts. For other ideas, check out our 8 tips for never missing a due date.

6. Your Account Diversity Took a Hit

Impact on your credit score: Low

A modest portion – roughly 10% – of most credit scores is reserved for evaluating the types of credit that you use, known as your credit mix. The thinking is that people with experience using a variety of different financial products – like credit cards, auto loans, and mortgages – responsibly are more trustworthy. So, if you recently paid off a loan and you only have credit cards, for example, that affects your credit mix and could be the reason your credit score dropped.

What to Do: Take out loans when needed, but never take on debt just to please credit-scoring algorithms. That rules out getting an auto loan or a mortgage just for the sake of having it listed on your credit report. You should, however, keep a credit card with no annual fee open. It doesn’t have to cost you anything and will benefit you even if you never use it to actually make purchases.

7. A Derogatory Mark Was Added to Your Credit Report

Impact on your credit score: High

In addition to delinquencies, derogatory marks include records of accounts sent to collections, charge-offs, repossessions,  foreclosures, and bankruptcies. Such records typically reflect significant financial difficulties and have a correspondingly substantial impact on your credit score.

What to Do: The only thing that you can do in this situation, assuming the derogatory mark was warranted, is attend to its underlying causes. That might mean paying amounts owed or seeing the bankruptcy process through to the end, for example. Other than that, time is your main ally. Negative information falls off your credit reports after seven to 10 years, in most cases.

8. There’s an Error on Your Credit Report

Impact on your credit score: Low to High

Credit bureaus can make mistakes. According to the Federal Trade Commission, around one in five people have an error on at least one of their three credit reports. So it’s entirely possible that inaccurate information was recently added to your credit report, thus explaining your score sliding.

What to Do: The extent of the problem depends on the type of error in question, but the only way to make that determination is to carefully review your credit report. Should you find any mistakes or records that you believe to be suspicious, you can dispute them directly with the credit bureau. Your score would then improve when the inaccurate records are removed from your file.

9. A Credit-Scoring Model Was Adjusted

Impact on your credit score: Low

Credit-scoring models change from time to time, so it is conceivable that an adjustment depressed your rating, though this is not as likely to be the culprit as other factors. For example, FICO, which features numerous iterations of its various scores, recently released FICO Score 10. Your score according to that model will likely differ from how you’re rated based on FICO Score 9 and older models, but it could be either higher or lower.

What to Do: There’s not much you really can do if your score falls due to a change in the evaluation criteria. But the best approach is to research how the credit-scoring formula changed, as this might offer some insight into why the new model doesn’t view you as favorably and what adjustments you can make to change that.

10. You Fell Victim to Identity Theft

Impact on your credit score: Low to High

Although the specter of identity theft probably looms larger than its practical impact, it does indeed happen and can wreak havoc on your credit in the process. Identity theft can manifest in many ways, such as hard inquiries into your credit history, delinquent accounts that you did not open, or changes to your listed address.

What to Do: There are defined protocols that you can follow if you believe your credit score is being dragged down by identity theft. Double-checking your credit reports and getting in touch with any related financial institutions are high on the list, but they’re not the only steps.

11. When to Worry About a Falling Credit Score

Most of the time, you shouldn’t worry about slight shifts in your credit score. In credit, nothing is permanent, and your credit score will go up and down often. Even the most serious credit score damage can be overcome eventually, and the most important thing is seeing an upward trajectory over time. With that being said, here are a few key points to remember regarding concerns over a sliding score.

Minor Fluctuations Are Normal

If you check your credit score every single day, as WalletHub gives you the option to do, you’ll invariably learn it’s not constant. Credit scores are calculated based on a variety of factors, and as these underlying components fluctuate, so too will your score.

If, for instance, you spend more or pay less than usual one month, your score might dip a bit. But just as it went down, it will recover as your habits return to normal. In short, it’s important to learn how to distinguish natural rhythms from red flags, and the best way to do that is to monitor your score over time.

When to Worry: It’s fair to say that your credit score falling 40 points should get your attention, while a 100-point drop is cause for serious concern. After all, a triple-digit decrease is emblematic of significant underlying issues and likely means you’ve dropped to a lower tier of the credit spectrum. Swings of a few points either way can be expected.

You Don’t Need It Until You Need It

One of the most important things to remember about credit scores, especially in relation to them falling, is that they don’t really matter until it actually comes time to apply for a mortgage, auto loan, or credit card. Until then, they’re merely instructive.

When to Worry: Make sure to monitor your credit like a hawk and manage your finances as responsibly as possible in the six months before you apply for credit or a loan. There is little room for error during this period, given how difficult it is to anticipate recovery times for credit-score damage and how much money is at stake – with mortgages in particular. Should you incur any damage – whether legitimately, fraudulently or erroneously caused – you must take immediate steps to clean up your credit report and quickly maximize your score.

Your Credit Report Is What Really Matters

All credit scores are based on the information in your major credit reports, so that should be your primary concern. As long as this information is accurate and you are taking all the necessary steps to manage your finances responsibly, you’ll be in good shape in the long run.

When to Worry: If each time you check your credit score it has fallen even farther than the last, worry is certainly warranted. Your main concern in such an instance should be the contents of your credit report. Erroneous or fraudulent records on your file not only stand to bring your credit score down, but they can also make it harder to find a job or an apartment. Plus, until you fix the problem at its source, there won’t be much you can do to fix your score. You can get your full TransUnion credit report for free from WalletHub.

You may be able to tell how serious an issue is by the number of points your credit score drops. For instance, a one- to five-point drop in your credit score could simply be the result of your balance increasing slightly or you applying for a new credit card. However, your credit score dropping 50 or 100 points could signal something much more troubling.

Why Your Credit Score Dropped a Certain Number of Points

You can click on a number in the table below to find out the possible reasons why your score dropped that many points.