Why Did My Credit Score Drop?

It is always frustrating to see your score drop when you think you are doing everything right, and while there is always technically a reason for the drop, it can be difficult to pinpoint exactly what happened, especially when the drop is only a few points. In this post we will cover some of the common reasons for score drops and review what you can do to avoid or correct whatever happened that led to the drop.

Common Reasons for Small Score Drops

Your Spending Went Up a Bit

This is often the culprit behind small shifts up or down in your score. Because your total utilization is factored into your score, and higher utilization means a lower score, if you make a large purchase or even just a larger number of small purchases within a given month, your utilization will increase by a couple percentage points and your score will most likely drop a bit as a result. These changes are temporary and your score will come back up as soon as you pay your credit card bills (assuming you pay your balance in full of course).

One of Your Accounts Was Closed or Paid Off

If you or your lender close one of your credit card accounts for any reason, your total available credit will decrease due to the credit line from that account no longer being available to you. This will cause your utilization percentage to increase, thereby dropping your score by a few points. Also, once the account is closed, it can no longer accrue good history for you, and may eventually fall off your report. 

Another action that can impact your score is paying off an installment loan, such as a car loan or student loan. This may seem counterintuitive since paying off the loan is what you are supposed to do, but the reduction in the number of accounts in good standing on your current credit report can negatively impact your score just like when you close an account. 

There Was a Hard Pull on Your Credit Report

Credit card issuers and other lenders are constantly doing soft pulls on your credit report to see if they want to send you offers for credit cards, personal loans, balance transfers, and other financial products and services. These have no impact on your credit score. However, any time you actually apply for one of these items, the lender will do a hard pull in order to make an underwriting judgment on your application. This will cause a temporary drop in your score (usually no more than 20-30 points), and will have less and less of an impact as time goes on. 

Keep in mind that lenders aren’t the only ones who can do hard pulls on your report; it is fairly common for landlords to pull your credit when you apply to rent from them, and employers will also sometimes do hard-pull credit checks on you when you apply for a job with them. These hard pulls will have the same type of impact as those done by lenders.

Your Available Credit Went Down

Another possible driver of an unanticipated score drop could be a decrease in your available credit line on one of your accounts. Lenders are constantly managing risk in their card portfolios, and may adjust your line up or down depending on how you are using the account as well as in response to broader economic conditions. If you rarely use a card or only ever spend a few dollars on it, the issuer may reduce your credit line to fit your behavior. 

Alternatively, if lenders think that tough times may increase the likelihood of customers being unable to repay them, they may reduce credit lines broadly in order to limit their exposure. They are required to notify you any time they reduce your line, but it’s easy to miss an email or throw out the snail-mail notification because it looks like junk mail. If your score dropped and it wasn’t because of any of the other reasons listed above, this may be why.

Common Reasons for Larger Score Drops

Your Spending Went Up a Lot

Just as small increases in your monthly spending can cause a small drop in your score, large increases can result in a larger drop, especially if they cause one of your accounts to suddenly jump up in utilization percentage. 

The most common scenario here is that you paid for a large one-time expense like a home renovation or a major health care expense on one of your cards, but even a larger normal purchase like a vacation can have the same effect if you make it on a card with a relatively low limit. The higher your utilization percentage on the card in question, the larger the drop in your score. On the bright side, this drop will go away when you pay your balance down or off, and the temporary impact to your score is totally worth it if you’re bagging a ton of rewards points in the process. 

You can also choose to put large purchases on your highest-limit card to lessen the impact, but since the impact will disappear quickly anyway, it’s generally best to use the card that will give you the most rewards for the purchase (e.g. travel card for a vacation). Just remember to pay off the balance so that the rewards you earned don’t get eclipsed by interest charges!

You Missed a Payment

If you track your spending and payments on a regular basis, this is unlikely to occur, but everyone makes mistakes sometimes and it’s easy to forget about an account that you don’t use very often. You have a 30 day grace period after your payment is due to make your payment before missing it will impact your score, but once that elapses, your score will take a hit and will continue to take a larger hit for every additional 30 days that goes by without a payment being made. 

These impacts will be reduced over time, but any missed payment will cause a significant immediate drop in your score, and will continue to have some impact for months and possibly years thereafter (remember that most negative information stays on your report for 7 years!). 

This is why we strongly recommend setting up autopay on all of your credit accounts. It’s best if you can pay off your entire statement balance every month, but if that’s not possible, then you at least need to set autopay to make the minimum payment on time in order to avoid any missed payments. As long as you pay at least the minimum on time, your score will not be impacted.

You Are a Victim of Identity Theft

This scenario is less common than the other ones listed above, but identity theft is still a very real concern and is something you should take seriously. If criminals are able to obtain enough of your personal information to open credit card accounts in your name, they can rack up huge balances on those cards in a short period of time, driving your utilization percentage through the roof without you even knowing that it’s happening. 

What’s worse, when they don’t pay for those purchases, those accounts will start showing missed payments, which will further hurt your score. If you notice a large drop in your score that cannot be explained by any of your own accounts or behavior, you will want to pull your full credit report from one or more of the 3 bureaus in order to make sure that there aren’t any accounts on there that you don’t recognize. You can do this for free, once per year for each bureau, at: https://www.annualcreditreport.com/index.action. 

If you see something you don’t recognize, you will want to open up a dispute to get the account closed and its history removed from your report. You can do this directly with the bureau you got the report from, and you will also want to contact the issuer to let them know the account is fraudulent so that you won’t be held liable for any of the charges on it.

The other thing you will want to do here is make sure that none of your cards or card information have been lost or stolen. This may seem obvious, but you should make sure you have all of your physical cards in your possession at all times. If there are any you can’t find, you will want to notify the issuer that your card has been lost so they can send you a replacement with a new number. Once all your cards are accounted for, you will also want to log in to each of your accounts and make sure that there aren’t any purchases you don’t recognize. 

If you see anything that looks like it doesn’t belong, contact the issuer right away to let them know you have discovered fraudulent purchases on your account. They will work with you to get the fraudulent amount credited back to your account and issue you a new card and number to prevent any more unauthorized activity.

Let Us Know if You’re Stumped!

If you see anything we missed, or you experienced a score change not explained by any of the above, leave a comment below and we’ll look into it. The bureaus do update their models from time to time and a small change in their input weightings could affect scores across the board.