Why Did My Credit Score Go Down?

If you’re like most Americans, you probably periodically check your credit score to make sure that nothing bad is impacting your credit score. But, one day, you check your credit score, and you find out that it has done down. What could cause your credit score to go down? This post will answer one of the most commonly asked questions that we get: Why did my credit score go down? We will answer this question in much detail below.

Why Did My Credit Score Go Down?

Your credit score may go down for a variety of reasons, such as: you missed a payment on one of your accounts, your utilization of credit increased, a collections account was reported to one of the credit bureaus, you closed an old account, or a credit inquiry was added to your credit report as a result of applying for a new credit card, home loan, or auto loan. To determine what’s causing your credit to go down, you should check your credit report to see what’s dragging it down.

That said, there is no need to panic if your credit score has gone down a few points as it’s common for your credit score to fluctuate and the fluctuation is not necessarily indicative of something serious. However, if your score dropped significantly (30+ points), this might be a sign that something serious is impacting your credit score, and you should take action to undo the damage that has been done to your credit score.

Normal Events that can Cause a Small Drop in Your Credit Score

Here is a list of events and things that can cause a small drop in your credit score.

1) An increase in your credit utilization

An increase in your total credit utilization can result in a slight drop in your credit score. Credit utilization is calculated by adding all of your credit card balances and dividing them by your total credit limits and then multiplying the number by 100. For example, if you have 2 credit cards: one card with a $6,000 credit limit and another credit card with a $4,000 credit limit, and you have used $1000 on each of the credit cards, your credit utilization can be calculated by adding your balances ($1,000 + $1,000 = $2,000) dividing this number by your credit limits ($6,000 + $4,000 = $10,000) = ($2000 / $10,000) = .20 x 100 = 20% Credit utilization.

If your credit utilization increases to let’s say 30%, this could cause your credit score to drop by a few points. However, if your credit utilization increases significantly, you may see a bigger drop in your credit score.

Experts recommend that people keep their credit utilization below 30%. Anything higher may adversely impact your credit score. That said, carrying a high balance on a credit card is not a huge problem because the moment you pay down your balance, your credit utilization will decrease, and your credit score will go back up.

2) You closed a credit card account

Closing a credit card account can and probably will hurt your credit score, especially if you have had this account for a long period of time. Closing such an account that has been open for a long period of time will hurt your credit score because it decreases the average age of your accounts, as well as decreases the total amount of available credit that you have. These are two things that are factored into your credit score. That said, even if your credit score decreases because you’ve closed a credit card, your credit score is likely to increase and go back up within a couple of months.

3) You paid off your car loan

Most people think that paying off their car loan should increase their credit score, but some are surprised when they see that their credit score has instead decreased. This often occurs because the credit bureaus like to see a mix of credit. Paying off a car loan may reduce the diversity of your credit accounts, thus causing a decrease in your credit score. You should not worry about such a decrease because it’s probably a small decrease and does not signify anything wrong with your credit.

4) You paid off your student loan

The same reasoning for paying off a car loan applies to pay off a student loan. Paying off a student loan may decrease your credit diversity, thus decreasing your overall credit score.

5) You recently applied for a new credit card

Typically, when a person applies for a new credit card, the financial institution at which you applied for a credit card will pull your credit report, this is commonly known as a hard pull or a hard inquiry. One hard pull is unlikely to cause a significant drop in your credit score, but applying for too many credit accounts within a short period of time may have a significant impact on your credit score because it shows that you’re desperate for credit and that’s not something credit bureaus like. That said, don’t panic as a hard pull typically results in a 5 point drop in your credit report and only remains on your credit report for 2 years, at which point it’s removed.

6) You recently purchased a new car that you’re leasing or financing

Purchasing a new car can have a slight negative impact on your credit score for two main reasons. The first reason is that when a person purchases a vehicle and wants to finance it, the dealership might go to a few banks for financing the car loan. This means that the banks will perform a hard pull on your credit report. A hard pull can decrease your credit score by as many as seven points. The second reason purchasing a car can slightly decrease your credit score is because it increases your total debt, which could cause a slight decrease in your credit score. However, as you make payments on your new car and decrease the amount of money you owe, your credit score will go back up, if you’re make all your payments on time, you might be left with a higher credit score than when you first purchased your vehicle.

Serious Events that can Cause a Significant Drop in Your Credit Score

1) You missed a payment on one of your credit accounts

Missing a payment on one of your credit accounts, such as a car payment or credit card payment Is one of the worst things that you can do for your credit score. That said If you’re a little late on making a payment, such as five to ten day, don’t worry too much because large credit card companies usually don’t report late payments unless they’re late for more than 30 days. That said, If you make a late payment, the lender may charge you late fees but your credit score should be fine so long as you make the payment within the 30 day window. A late payment on a credit account Is a big deal when It comes to your credit score. One late payment can reduce your credit score by up to 100 points. So, If you happen to miss a payment, make sure that you try your best to continue making payments so that your credit score slowly but steadily Improves.

2) Applying for several credit cards or loans at the same time

Applying for several credit cards can lower your score because each time you apply for a credit card, you are authorizing the lender to make a hard Inquiry, commonly known as a hard pull on your credit report. On average, a hard Inquiry decreases your credit score by approximately five points. So, If you apply for ten different credit cards within a short span of time, you could decrease your credit score by approximately 50 points. The best thing to do when looking for a credit card Is to fine one card that has the features you’re looking for and apply for just that one card. Also, If you happened to apply for a bunch of cards, don’t worry that your score has decreased as hard Inquiries will only be on your credit report for approximately two years, and you should see the Impact of hard Inquiries begin to disappear after approximately one year.

3) A collections account being reported to a credit bureau

Having a collections account appear on your credit report can hurt your credit score by a lot. Some accounts can hurt by 50 points while others can hurt up to 70 or 100 points. Also, the newer a collections account, the more It will hurt your credit score. Collections accounts will usually appear on your credit account for up to seven years from the date of your delinquency. The newest version of FICO scoring does not allow a paid collections account to hurt your credit score. So, If you have a collections account, the best thing you can do to negate the Impact of a collections account Is to pay the collections the sum you owe them. Also, you might want to try to negotiate the removal of the collection account from your credit report. It’s a smart decision to do this before paying them because you have leverage. They want money and you want the collections account off your credit report.

4) A charge-off on your credit report

A charge-off Is an event where a bank decides that a debt Is not collectively from the debtor. Bank typically charge off credit card debt after It has been delinquent for 180+ days (6 months of nonpayment). When a financial Institution charges off your debt, they report the charge-off to the major consumer credit reporting agencies. A charge off can have a significant Impact on a debtor’s credit score. A single charge off can drop a person’s credit score by 100+ points. So, If you have an account that Is bad standing and has been delinquent for a few months, It’s best to negotiate with the lender and attempt to pay off the debt before the bank charges It off.

5) Filing for Bankruptcy

Filing for bankruptcy Is probably the worst thing that a person can do to his or her credit score. It Is a significant event and credit reporting agencies will ding you for filing for bankruptcy. If you have a credit score that’s above 700, filing your bankruptcy could reduce your credit score by over 200 points.

6) Foreclosure of your home

Foreclosure of your home Is a big event that will have a huge Impact on your credit score. If you have a credit score of 700, a foreclosure on your home could cause an 80 to 100 point drop in your credit score.

Frequently Asked Questions at Credit Score Planet

1) Why Did My Credit Score Go Down Without Anything Changing?

Your credit score may go down for a variety of reasons. Each one of the credit reporting agencies uses a different scoring model. For example, If your credit utilization Increased, your score may decrease slightly even though nothing adverse Is showing on your credit report. Ensuring that you keep your credit utilization (total credit card balance) below 30% of your credit limits Is the best way to ensure little fluctuation of your credit score. Another reason for your lower score may be that you closed an account, which can Impact your credit score In two ways. First, It may have decreased the mix of credit accounts that you have. The second reason Is that It was an old account that had a lot of credit history and by closing the account you decreased the average age of you’re accounts. There are a variety of other reasons why your credit score fluctuates. See the Items above for more Information.

2) How Much Will My Credit Score Go Up If I Get a Collections Account Removed from my Credit Report?

The removal of a collections account will cause your credit score to significantly go up. From personal experience, I have recently removed a collections account that caused my credit score to go up by 80 points. Some have reported credit score Increases of 100+ points. So, It really depends on your own credit rating, but rest assured, removing a collections account from your credit report will have a dramatic Impact on your credit score.

3) Why Did My Credit Score Drop?

Again, your credit score can drop or go down for a variety of reasons that we have covered throughout this post. Some things can cause your credit score to drop slightly, whereas other things can cause a significant drop in your credit score. See the above-listed reasons for your credit score dropping.