Why did my credit score drop? (2024)

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It’s never a good feeling to see that your credit scores have dropped since you last checked. But being able to quickly identify the cause can help you take the right steps to get them back on track.

Credit scores can drop due to a variety of reasons, including late or missed payments, changes to your credit utilization rate, a change in your credit mix, closing older accounts (which may shorten your length of credit history overall), or applying for new credit accounts. And don’t forget that credit report inaccuracies due to mistakes or identity theft can also cause a dip.

Let’s look at the nine main reasons why your credit scores might have dropped, and how you can address each of them.

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  1. Late or missed payment
  2. Derogatory mark on your credit reports
  3. Change in credit utilization rate
  4. Reduced credit limit
  5. You closed a credit card
  6. You paid off a loan
  7. You’ve recently opened, or applied for, multiple lines of credit
  8. Mistake on your credit reports
  9. You were the victim of identity theft

1. Late or missed payment

Payment history is a critical component of credit scores. In fact, FICO® says that it’s the most important factor in its scoring model, accounting for 35% of it.

If you were only a few days late on a payment, it’s unlikely to show up on your credit reports. But once payments are more than 30 days late, card issuers will report them as delinquent to the credit bureaus. If this happens to you, you can expect your credit scores to take a hit. And if the payment is reported as being 60 or 90 days late, your credit scores could fall even further.

Keeping track of payments can be difficult, especially if you have multiple credit cards and loans. If you’re worried about bills getting lost in the mail pile, enrolling in automatic payments could be a smart move.

2. Derogatory mark on your credit reports

Derogatory marks on your credit reports indicate that you didn’t pay a loan as agreed in some way. Here are a few reasons why your bank or credit issuer may have placed a derogatory item on your credit report.

  • Late payment
  • An account in collections (or charge-off)
  • Bankruptcy
  • Lawsuit
  • Judgment
  • Foreclosure
  • Tax lien

Unlike hard credit inquiries, derogatory marks don’t fall off your credit reports in two years. Instead, they’ll typically remain on your reports for seven to 10 years.

That means your credit scores could be negatively affected by a derogatory mark for close to a decade. But the good news is that the effect of a derogatory mark goes down over time.

Additionally, you may be able to get certain derogatory remarks taken off your credit reports. If you see a derogatory remark on a report, first verify that it’s legitimate. If it’s not, contact the credit bureaus to dispute it. If you’re a Credit Karma member, you can use our free Direct Dispute™ feature to help dispute the error.

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3. Change in credit utilization rate

Your credit utilization rate (how much of your available credit you use) is another important factor in determining credit scores. VantageScore says that it’s “extremely influential,” and FICO® says that it accounts for 30% of your overall score.

If you spent more than usual last month (because of a large purchase, family vacation or other reason), it will increase your credit utilization rate. How far will your scores drop because of it? The effect will vary, depending on how much your ratio of credit used versus available credit went up. To keep your credit scores steady, the Consumer Financial Protection Bureau, or CFPB, recommends that consumers keep their credit utilization rate below 30%.

Imagine that you have a $10,000 credit limit, of which you typically only use $1,500 (15% credit utilization rate). If your spending one month increases to $2,500, your utilization ratio will still be solid overall at 25%. But if your spending suddenly increased to $5,000 (50% credit utilization rate), your scores could start showing a decline.

4. Reduced credit limit

Why can a lower credit limit cause your credit scores to drop? Because your credit utilization rate will go up even if your spending stays exactly the same.

Consider this example. You typically spend $1,500 of your $7,000 credit limit for about a 20% credit utilization rate. That’s good. But then imagine that your credit limit is reduced to $5,000. In that case, your credit utilization rate would instantly jump to 30%.

If your credit scores take a hit after a credit limit reduction, take a close look at your utilization rate. You may need to reduce your credit card spending to improve your scores.

5. You closed a credit card

There are multiple reasons why closing a credit card can cause your credit scores to drop. First, when you eliminate a credit card, it reduces your available credit. So, if you don’t reduce your spending in kind, your credit utilization ratio will go up.

The second reason closing a credit card could hurt your credit scores would be if it hurts the average length of your credit history. The older an account, the more it could affect your average account age when you close it. Before you close your oldest credit accounts, consider whether it’s absolutely necessary.

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6. You paid off a loan

Wait — paying something off can cause your credit scores to drop? While it may seem illogical, the answer is yes.

One reason that paying off a loan can have a negative effect on your credit scores is that it could change your credit mix. In general, having a healthy mix of revolving credit (like credit cards) and installment loans (like mortgages and auto loans) is good for your credit scores.

But this doesn’t mean that you should avoid paying off your loans only for the sake of your credit scores. You can still build strong scores without having one of each type of credit.

7. You’ve recently opened, or applied for, multiple lines of credit

When you open several credit accounts in a short period of time, you represent more of a risk to lenders. For this reason, your credit scores may drop if you’ve had several hard credit inquiries placed on your credit reports recently.

It’s important to point out that checking or monitoring your credit with tools like Credit Karma doesn’t affect your scores because it only results in a soft credit inquiry.

If you’re rate shopping, FICO® recommends that you do so in a short period of time. For example, if you’re shopping for a mortgage or auto loan within a 30-day period, the credit bureaus will typically group the inquiries together. But if you’re considering applying for a credit card, keep in mind that you’ll get a ding on your credit reports for each credit card you apply for, no matter how close those hard inquiries are over a matter of days. So be sure to only apply for credit cards that you truly need.

8. Mistake on your credit reports

So far we’ve assumed that your credit scores dropped because of accurate information on your credit reports. But what if that’s not the case?

Lenders can make mistakes too. That’s why it’s important to check your credit reports to keep an eye out for errors. The CFPB says that credit report inaccuracies are one of the most common issues it deals with each day.

If you find a mistake on your credit reports, you have the right to dispute it with the credit bureaus and with the reporting lender. Companies are required to investigate the dispute free of charge and promptly correct errors that are confirmed.

9. You were the victim of identity theft

Finally, let’s address what might be the most frightening reason for a drop in credit scores: Someone could have stolen your identity and applied for (and opened) credit accounts in your name.

If you discover that an impostor is using your identity, don’t panic. There are actions you can take to help reverse the damage it may have caused to your credit scores.

But how do you spot identity theft in the first place? One step to consider is credit monitoring. Keeping a close eye on your credit scores and credit reports may help you catch suspicious activity faster than if you’re not regularly monitoring your accounts. You’re entitled to one free credit report periodically from each of the three major consumer credit bureaus at annualcreditreport.com.

If you’ve been a victim of identity theft, you’ll likely want to make a recovery plan. Placing a fraud alert on your credit file could be a good place to begin. You only need to place the alert with one of the national credit bureaus. The other two bureaus will be automatically notified.

After you’ve added your fraud alert to your credit profile, you may want to fill out an identity theft report with the FTC. Then you can begin the process of disputing inquiries on your report if necessary.

If you find that a fraud alert isn’t doing enough to slow down the identity thieves, you may want to consider freezing your credit. A credit freeze restricts access to your credit file, making it much more difficult for fraudsters to open accounts in your name. Learn how to freeze your credit.

Next steps

Seeing your credit scores drop may cause you some anxiety. But if you take the steps necessary to identify the factors that led to the decrease, you’ll often find that you can take action to get your scores back up.

Whether it’s setting up auto pay so you don’t miss a payment, disputing a derogatory remark or correcting a mistake on your credit reports, these drops can be temporary if you put the right plan in motion.

Looking to build your credit? Consider a credit builder loan.

Taking out a credit builder loan can help you build your credit by giving you the opportunity to show you can make regular on-time payments, which is an important part of your credit scores.

When you get a credit builder loan, the lender typically puts the money you’ve borrowed into a reserve account it controls. You then make regular payments toward the loan, building a positive payment history that’s reported to the credit bureaus. When the loan is paid off (or you reach a certain threshold), the lender gives you access to the funds.

Loan fees, interest and repayment terms vary among lenders, so you’ll want to compare your options before applying.

You might also want to consider Credit Karma’s Credit Builder plan, which can help you build low credit while you save.

How’s your credit?Check My Equifax® and TransUnion® Scores Now

About the author: Clint Proctor is a freelance writer and founder of WalletWiseGuy.com, where he writes about how students and millennials can win with money. When he’s away from his keyboard, he enjoys drinking coffee, traveling, obse… Read more.

Why did my credit score drop? (2024)


Why did my credit score suddenly drop for no reason? ›

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.

Why is my credit score going down if I pay everything on time? ›

It's possible that you could see your credit scores drop after fulfilling your payment obligations on a loan or credit card debt. Paying off debt might lower your credit scores if removing the debt affects certain factors like your credit mix, the length of your credit history or your credit utilization ratio.

Why has my credit score gone down when nothing has changed? ›

A forgotten account

Another thing that could be pulling down your score is a long-forgotten account. Is there a card somewhere you no longer use, stuck down the back of the sofa, perhaps? If it's in arrears, even by a small amount, this could be hurting you. Take a moment to ensure you're on top of all your accounts.

Why did my credit score drop 40 points? ›

The most likely reasons are: your balances increased, you recently closed accounts, you applied for new lines of credit, or there is inaccurate or fraudulent information on your account. If your credit score dropped by 40 points, this is likely due to late payments that continue to compound on past-due bills.

Should I be worried if my credit score dropped? ›

If you've recently noticed a drop in one or more of your credit scores, take a deep breath. This is a fairly common experience, and it doesn't necessarily mean you did something wrong. It's important to know that many factors contribute to your credit scores, and any one — or a combination of them — may prompt a drop.

How do I fix my credit score drop? ›

Here are some actions you can take to improve your credit score: Pay your bills on time. Improving your payment history is a key part of getting your score in shape, and a long history of on-time payments can help you achieve excellent scores. Aim to always pay every bill on time.

How can I raise my credit score 100 points in 30 days? ›

For most people, increasing a credit score by 100 points in a month isn't going to happen. But if you pay your bills on time, eliminate your consumer debt, don't run large balances on your cards and maintain a mix of both consumer and secured borrowing, an increase in your credit could happen within months.

How can I raise my credit score 200 points in 30 days? ›

Try paying debts and maintaining your credit utilisation ratio of 30% or below. There are two ways through which you can pay off your debts, which are as follows: Start paying off older accounts from lowest to highest outstanding balances. Start paying off based on the highest to lowest rate of interest.

How can I raise my credit score 50 points fast? ›

4 tips to boost your credit score fast
  1. Pay down your revolving credit balances. If you have the funds to pay more than your minimum payment each month, you should do so. ...
  2. Increase your credit limit. ...
  3. Check your credit report for errors. ...
  4. Ask to have negative entries that are paid off removed from your credit report.

Why did my credit score go from 524 to 0? ›

Reasons why your credit score could have dropped include a missing or late payment, a recent application for new credit, running up a large credit card balance or closing a credit card.

How to bump up credit score? ›

How to Build Good Credit
  1. Review your credit reports.
  2. Get a handle on bill payments.
  3. Use 30% or less of your available credit.
  4. Limit requests for new credit.
  5. Pad out a thin credit file.
  6. Keep your old accounts open and deal with delinquencies.
  7. Consider consolidating your debt.
  8. Track your progress with credit monitoring.

Why is my credit score so low and I don't know why? ›

A low credit score may limit your borrowing options, or make it harder to access credit at all. Many factors contribute to a low credit score, including little or no credit history, missed payments, past financial difficulties, and even moving home regularly.

Should I pay off my credit card in full or leave a small balance? ›

It's a good idea to pay off your credit card balance in full whenever you're able. Carrying a monthly credit card balance can cost you in interest and increase your credit utilization rate, which is one factor used to calculate your credit scores.

Is 700 a good credit score? ›

For a score with a range between 300 and 850, a credit score of 700 or above is generally considered good. A score of 800 or above on the same range is considered to be excellent. Most consumers have credit scores that fall between 600 and 750. In 2022, the average FICO® Score in the U.S. reached 714.

Will paying off debt improve credit? ›

Consistently paying off your credit card on time every month is one step toward improving your credit scores. However, credit scores are calculated at different times, so if your score is calculated on a day you have a high balance, this could affect your score even if you pay off the balance in full the next day.

Why did my credit score drop by 100 points? ›

For your credit score to drop 100 points at once, you're most likely talking about being 90 days late or more on a loan or credit card payment you're on the hook for. Believe it or not, a single late payment could cause damage in that ballpark, especially if your credit score is higher to begin with.

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