Why Did My Credit Score Drop? (2024)

When you check your credit score and notice a small drop, it’s usually nothing to worry about. It’s common for credit scores to fluctuate in small increments. However, if you see a large drop of at least 15 to 20 points, you should find out the cause. This can help you determine whether it fell based on your actions, a credit reporting error or possibly identity theft.

To help you answer this question, we’ve compiled a list of potential reasons you may have seen your score dip. You’ll also learn some tips on how to solve each issue so you can improve your credit score.

6 Reasons Your Credit Score Went Down

If you want to understand why your credit score has dropped, here are six reasons to consider.

1. Derogatory Remarks on Your Credit Reports

Since your credit score is calculated based on information in your credit reports, negative information can drag your score down. For example, if you have a bankruptcy listed on your reports, it can have a negative effect on your score for a long time. A Chapter 7 bankruptcy remains on your credit report for up to 10 years while a Chapter 13 bankruptcy remains on your report for up to seven years.

Some other examples of derogatory remarks that can lower your credit score include collection accounts and foreclosures. An original debt creditor usually sends your account to collections after failing to collect a debt from you. A foreclosure happens when you default on your mortgage. These negative remarks remain on your credit reports for up to seven years.

Although a derogatory remark can stay on your credit report for up to ten years, its impact lessens over time. Also, practicing good credit habits can help you rebuild your credit faster.

2. Inaccurate Information on Your Credit Reports

Sometimes creditors make credit reporting errors. Because of this, it’s a good idea to review each one of your reports from the three major credit bureaus—Equifax, Experian and TransUnion. You can view all three of your reports for free weekly through April 20, 2022 by visiting AnnualCreditReport.com.

While reviewing your reports, check to make sure your accounts and personal information are correct. If you spot an error, dispute it with each credit bureau that lists it online, by mail or phone. Also, keep in mind that if you see an account that you never opened, it could be a sign you are a victim of identity theft.

If you believe someone has stolen your identity, file a report with the Federal Trade Commission (FTC) through IdentityTheft.gov and freeze your credit with all three credit bureaus as soon as possible .

3. You Missed a Payment

Your payment history is the most important credit score factor—it accounts for 35% of your FICO score. If one of your bills becomes 30 days past due, a creditor can report it to one or more of the three major credit bureaus. As a result, your credit score can suffer major damage, and the late payment can remain on your reports for up to seven years.

To avoid further damage to your score, you should pay the overdue bill as soon as possible. Also, consider contacting your creditor to see if you can identify a repayment plan and get them to stop reporting your late payment to the credit bureau.

If you want to reduce the chances of your score dropping due to late payments, enroll in autopay or use a spreadsheet to keep track of your due dates.

4. Your Credit Utilization Ratio Has Increased

If you’ve made a large purchase recently using credit, this can cause your credit score to fall. That’s because it can increase your credit utilization ratio, which accounts for 30% of your FICO score. In general, the lower your credit ratio utilization, the better your credit score.

Your credit utilization ratio measures how much credit you use versus how much you have available. For example, if you have a $5,000 balance and your total credit limit is $20,000, your ratio is 25% ($5,000/$20,000).

Although it’s often recommended to keep your credit utilization ratio at or below 30%, keeping it closer to 0% could help you improve your score or build credit.

5. One of Your Credit Limits Decreased

When a lender or credit card issuer decreases your credit limit, this could also increase your credit utilization ratio and lower your credit score. To illustrate how this works, let’s say your current credit balance is $3,000 and your total credit limit is $10,000. Based on those numbers, your credit utilization ratio would be 30% ($3,000/$10,000).

However, if one of your creditors decided to decrease one of your credit limits by $2,000 and your balance remained at $3,000, it would increase your credit utilization ratio to 37.5% ($3,000/$8,000).

In this situation, you could ask the lender to raise your credit limit to lower your utilization ratio. If that doesn’t work, an alternative solution would be to pay down your current balance.

6. You Applied for Multiple Credit Products

When you apply for credit, a lender usually performs a hard credit check to review your creditworthiness. Each credit inquiry can temporarily drop your credit score by up to five points for one year, according to FICO. So if you’ve applied for multiple credit products over a long period of time, this can cause your credit score to experience a pitfall.

However, if you’re rate shopping for a mortgage, student loan or auto loan within a 14- to 45-day window, FICO only counts it as one hard inquiry.

To reduce the impact on your credit score, apply for credit only when needed.

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