Why Did My Credit Score Drop?

You Missed a Payment

This is a very common reason for your credit score to drop. Missing a payment happens to even the most reliable borrowers, but the good news is that there are ways to fix this mistake. Once you realize that you missed a payment, pay the bill right away. Once you know that your payment has reached the creditor, call and ask if your late payment could be forgiven. There is no absolute guarantee that this will work, but it can’t hurt to inquire with the credit company. If the creditor agrees to not report your late payment to the credit bureaus, your credit reports will not show this late payment for seven years. If you are unable to pay the missed payment, reach out to the creditors and explain your situation.

High Credit Balance

If you put unexpected expenses on a credit card, your credit score may drop. This is because a major factor in credit scoring is “credit utilization,” which is how much of your credit limit you are using. The experts will say that you want to use 30% or less of the credit limit on any card. The lower the better for your credit score. If your credit utilization went up, your score could drop. To help combat this problem, pay down the high balances as soon as possible and return to only using a small portion of your available credit.

There is a Mistake in Your Credit Report

There are times when your credit report may show a mistake in the data. A payment that was reported to the wrong account or an incorrect late payment may cause your score to go down. Check your score for mistakes and gather documentation to dispute the errors. If the errors are proven to be truthful mistakes, this will raise your score back up.

Identity Theft

An unexplained drop in your credit score could be caused by identity theft. When checking your report, look for warning signs such as addresses where you have never lived or accounts that look unfamiliar. Once you discover the issue, go to identitytheft.gov and file a report. Consider freezing your financial accounts to ensure your credit cards will not be used as well.

You Co-signed a Loan or Credit Card Application

If you co-signed a loan or credit application for a family member or friend, this may hurt your credit if the person has late payments or runs up a large balance on the account. To help with this issue, have statements sent to you so you have full access to the accounts. You can then watch for missed payments and address it early before it becomes a bigger problem.

You Closed an Old Credit Card

If you recently closed an old credit card because of lack of use, this could be the cause of a decrease in your credit score. The age of the credit card and the limit on the card are all factors in how much your credit score will decrease. Think carefully before you close old cards as this can be detrimental to your credit score.

You Paid off a Loan

It is a big achievement to pay off a loan, but this can also leave you with a lower credit score. When you pay off a loan, you have one less credit account. The solution to this issue is to keep your other accounts active, keep your credit usage low, and pay your bills on time. Overtime, this will boost your credit score.