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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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- Late or missed payment
- Derogatory mark on your credit reports
- Change in credit utilization rate
- Reduced credit limit
- You closed a credit card
- You paid off a loan
- You’ve recently opened, or applied for, multiple lines of credit
- Mistake on your credit reports
- 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.
Alternatively, you may be able to look at opening a balance transfer credit card. This might be helpful on two fronts: It may help increase your overall credit limit, which in turn helps to lower your credit utilization rate. Additionally, if you qualify for a 0% introductory rate, you may be able to pay off your balance faster.
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.
How’s your credit?Check My Equifax® and TransUnion® Scores Now
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.
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.
FAQs
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.
Why did my credit score drop when I did nothing wrong? ›
Even though nothing has changed yet, your credit score can go down a bit as a warning to other lenders that you are considering other lending options. If you feel that nothing has changed, you might be overlooking a hard inquiry from an account that is already on your report.
Why did my credit score drop over 100 points? ›
If your credit score has dropped 100 points, there are probably some major problems that have recently appeared in the report. For example, there could be an error on your report, you may have made a late payment, or you may have an outstanding collection due.
Why would my credit score drop 30 points for no reason? ›
Your credit score may have dropped by 30 points because a late payment was listed on your credit report or you became further delinquent on past-due bills. It's also possible that your credit score fell because your credit card balances increased, causing your credit utilization to rise.
Why did my credit score drop 40 points when nothing changed? ›
You recently applied for credit
If you applied for a credit card or are shopping around for a loan, a hard inquiry can appear on your credit report, which temporarily lower a score. Hard inquiries happen when a lender or company reviews your report with the intent to make a lending decision.
Why did my credit score go from 552 to 0? ›
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.
How do I dispute a credit drop? ›
You can send the credit reporting company a letter stating you don't agree with the outcome. The credit reporting company has to clearly note that the information has been disputed and provide your explanation on any future reports. You can also submit a complaint with the Bureau at consumerfinance.gov/complaint.
What is a significant drop in credit score? ›
According to FICO data, a 30-day missed payment can drop a fair credit score anywhere from 17 to 37 points and a very good or excellent credit score to drop 63 to 83 points. But a longer, 90-day missed payment drops the same fair score 27 to 47 points and drops the excellent score as much as 113 to 133 points.
Can my credit score be a mistake? ›
Mistakes on your credit report can be quite common – it could be incorrect personal information, defaults, credit enquiries and more listed on your credit report. Your credit score is calculated based on the information contained in your credit report.
Is 650 a good credit score? ›
A FICO® Score of 650 places you within a population of consumers whose credit may be seen as Fair. Your 650 FICO® Score is lower than the average U.S. credit score. Statistically speaking, 28% of consumers with credit scores in the Fair range are likely to become seriously delinquent in the future.
Why might my credit scores drop after paying off debts? Paying off debt might lower your credit scores if removing the debt affects certain factors such as your credit mix, the length of your credit history or your credit utilization ratio.
What would cause a 70 point drop in credit score? ›
Your credit score may have dropped by 70 points because negative information, like late payments, a collection account, a foreclosure or a repossession, was added to your credit report. Credit scores are based on the contents of your credit report and are adversely impacted by derogatory marks.
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.
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.
What could cause 80 point drop in credit score? ›
Your credit score may have dropped by 80 points because negative information, like late payments, a collection account, a foreclosure or a repossession, was added to your credit report. Credit scores are based on the contents of your credit report and are adversely impacted by derogatory marks.
Why did my credit score drop by 60 points? ›
Your credit score may have dropped by 60 points because negative information, like late payments, a collection account, a foreclosure or a repossession, was added to your credit report. Credit scores are based on the contents of your credit report and are adversely impacted by derogatory marks.
Can your credit score go up 50 points in a month? ›
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 many points is Credit Karma off? ›
In some cases, as seen in an example below, Credit Karma may be off by 20 to 25 points.
How fast can you get a 700 credit score from 0? ›
Depending on how well you utilize your credit, your credit score may get to anywhere from 500 to 700 within the first six months. Going forward, getting to an excellent credit score of over 800 generally takes years since the average age of credit factors into your score.
How long does it take to go from 0 to 800 credit score? ›
Depending on where you're starting from, It can take several years or more to build an 800 credit score. You need to have a few years of only positive payment history and a good mix of credit accounts showing you have experience managing different types of credit cards and loans.
Your score falls in the range of scores, from 800 to 850, that is considered Exceptional. Your FICO® Score and is well above the average credit score. Consumers with scores in this range may expect easy approvals when applying for new credit. 21% of all consumers have FICO® Scores in the Exceptional range.
Can you reverse a credit drop? ›
Bear in mind that correct information cannot be removed from your credit report for at least seven years. So, if your score is low due to down because of accurate negative information, you'll need to repair your credit over time by making payments on time and decreasing your overall amount of debt.
How do you build credit after it drops? ›
How to Rebuild Credit:
- Review your credit report.
- Catch up on past-due bills.
- Budget and build an emergency fund.
- Use a secured credit card responsibly to add positive credit history.
- Check your credit score regularly.
- Use different credit cards for different needs.
- Become an authorized user.
Does Filing a Dispute Hurt Your Credit? Filing a dispute has no impact on credit scores. But if certain information on your credit report changes as a result of your dispute, your credit score can change.
Why isn't Credit Karma accurate? ›
The credit scores and credit reports you see on Credit Karma come directly from TransUnion and Equifax, two of the three major consumer credit bureaus. They should accurately reflect your credit information as reported by those bureaus — but they may not match other reports and scores out there.
How can I raise my credit score 40 points fast? ›
Tips that can help raise your credit scores
- Check your credit reports on a regular basis to track your progress. ...
- Sign up for free credit monitoring. ...
- Figure out how much money you owe. ...
- Set up autopay, so you never forget to make a credit card payment. ...
- Pay twice a month. ...
- Negotiate a lower interest rate.
Generally speaking, negative information such as late or missed payments, accounts that have been sent to collection agencies, accounts not being paid as agreed, or bankruptcies stays on credit reports for approximately seven years.
How fast can I add 100 points to my credit score? ›
Here are 10 ways to increase your credit score by 100 points - most often this can be done within 45 days.
- Check your credit report. ...
- Pay your bills on time. ...
- Pay off any collections. ...
- Get caught up on past-due bills. ...
- Keep balances low on your credit cards. ...
- Pay off debt rather than continually transferring it.
If you identify an error on your credit report, you should start by disputing that information with the credit reporting company (Experian, Equifax, and/or Transunion). You should explain in writing what you think is wrong, why, and include copies of documents that support your dispute.
Can my credit score go up 200 points in a month? ›
There are several actions you may take that can provide you a quick boost to your credit score in a short length of time, even though there are no short cuts to developing a strong credit history and score. In fact, some individuals' credit scores may increase by as much as 200 points in just 30 days.
According to a report by FICO, only 23% of the scorable population has a credit score of 800 or above.
How rare is a 750 credit score? ›
You are one of the 46% of Americans who had a score of 750 or above in 2021, according to credit scoring company FICO. Here's how your 750 credit score can affect your financial life.
Is 850 credit score rare? ›
Only about 1.6% of the 232 million U.S. consumers with a credit score have a perfect 850, according to FICO's most recent statistics.
What is the average US credit score? ›
Credit scores help lenders decide whether to grant you credit. The average credit score in the United States is 698, based on VantageScore® data from February 2021. It's a myth that you only have one credit score.
Is paying credit a day late bad? ›
Even a single late or missed payment may impact credit reports and credit scores. But the short answer is: late payments generally won't end up on your credit reports for at least 30 days after the date you miss the payment, although you may still incur late fees.
Should I have 3 credit cards? ›
If your goal is to get or maintain a good credit score, two to three credit card accounts, in addition to other types of credit, are generally recommended. This combination may help you improve your credit mix. Lenders and creditors like to see a wide variety of credit types on your credit report.
What is an excellent TransUnion score? ›
A score of 661 – 720 is fair. And an excellent score is in the range of 781 – 850. Think of these rankings and ranges as guides, not hard-and-fast rules for what good credit is. Some people want to achieve a score of 850, the highest credit score possible.
How many points does credit go up after paying off credit card? ›
Your credit score could increase by 10 to 50 points after paying off your credit cards. Exactly how much your score will increase depends on factors such as the amounts of the balances you paid off and how you handle other credit accounts. Everyone's credit profile is different.
How many people have 850 credit score? ›
While achieving a perfect 850 credit score is rare, it's not impossible. About 1.3% of consumers have one, according to Experian's latest data. FICO scores can range anywhere from 300 to 850. The average score was 714, as of 2021.
Can u get a 900 credit score? ›
A 900 credit score may be the highest on some scoring models, but this number isn't always possible. Only 1% of the population can achieve a credit score of 850, so there's a certain point where trying to get the highest possible credit score isn't realistic at all.
I achieved a perfect 850 credit score, says finance coach: How I got there in 5 steps
- Pay all your bills on time. One of the easiest ways to boost your credit is to simply never miss a payment. ...
- Avoid excessive credit inquiries. ...
- Minimize how much debt you carry. ...
- Have a long credit history. ...
- Have a good mix of credit.
Under normal economic circ*mstances, when you can afford it and have enough disposable income to exceed your basic expenses, you should pay off your maxed-out card as soon as possible. That's because when you charge up to your credit limit, your credit utilization rate, or your debt-to-credit ratio, increases.
How much should I spend if my credit limit is $1000? ›
A good guideline is the 30% rule: Use no more than 30% of your credit limit to keep your debt-to-credit ratio strong. Staying under 10% is even better. In a real-life budget, the 30% rule works like this: If you have a card with a $1,000 credit limit, it's best not to have more than a $300 balance at any time.
Does making two payments a month help credit score? ›
When you make multiple payments in a month, you reduce the amount of credit you're using compared with your credit limits — a favorable factor in scores. Credit card information is usually reported to credit bureaus around your statement date.
How many points does a 30 day late take off? ›
Payments more than 30 days late
Once a late payment hits your credit reports, your credit score can drop as much as 180 points. Consumers with high credit scores may see a bigger drop than those with low scores.
Why did my credit score drop by 20 points? ›
Your credit score may have dropped by 20 points because your balances increased or you recently applied for credit or loan products. Higher balances on your credit cards or lines of credit can increase your utilization and consequently lower your score.
Why does my credit score go down when I pay off my credit card? ›
Paying off debt can lower your credit score when: It changes your credit utilization ratio. It lowers average credit account age. You have fewer kinds of credit accounts.
