Your credit score may have gone down because you missed or paid a bill late, recently applied for new credit, ran up a big credit card balance, or closed a credit card account.
Your credit score can drop for a number of reasons, including a recent late or missed payment, an application for new credit or a change to your credit limit or usage. To understand why your credit may have gone down, its important to understand what affects your credit scores. Your payment history is the most important factor in determining your credit score. The amounts you owe on your debts and the length of your credit history are also important.
Your credit scores can also be affected by other things, like having wrong information on your credit report. Read on for seven common reasons for a credit score drop, plus how to improve your credit if it recently decreased.
Your credit score is a key factor that determines your ability to get approved for loans and credit cards It gives lenders an idea of how likely you are to repay debt So a big drop in your credit score can have significant consequences. But what exactly constitutes a big drop?
How Credit Scores Work
To understand what a big drop means, it’s helpful to know what makes up your credit score. The FICO score, which is between 300 and 850, is the most common way to rate credit. Higher scores indicate lower credit risk. FICO scores take into account five main factors:
- Payment history (35%): Whether you pay your bills on time.
- Credit utilization (30%): The amount of available credit you are using.
- Length of credit history (15%): How long you’ve had credit accounts.
- Credit mix (10%): The variety of credit types you have, such as credit cards, loans, etc.
- New credit (10%): How many new accounts you’ve opened and credit inquiries.
Payment history has the biggest impact on your score. Just one late payment can drop your score significantly Credit utilization also has a major influence. High balances relative to your limits will lower your score
What is a Big Drop in Credit Score?
Given how credit scores work, what constitutes a big drop? Credit experts generally agree that a decrease of more than 20-30 points should be considered large and potentially problematic.
For example, say your score is 780 and it drops to 750. That 30 point decrease shouldn’t raise major concerns. But if your score was 700 and fell to 670, that could prevent you from qualifying for the best rates and terms on credit and loans.
According to data from FICO, here are some common credit score drops:
- 30-day late payment: 17-37 point drop (fair credit), 63-83 point drop (very good/excellent credit)
- 90-day late payment: 27-47 point drop (fair), 113-133 point drop (very good/excellent)
- Foreclosure: Up to 110-130 point drop (very good/excellent)
- Bankruptcy: 130-150 point drop (very good/excellent)
You can see that if you start with a higher score, it tends to drop more when bad things happen. But even people with fair credit see significant declines.
Why Your Credit Score Might Drop
There are several things that could really hurt your credit score. The most common causes include:
Missed Payments
Missing even one payment can decrease your score. Once an account becomes 30 days past due, it will likely be reported to the credit bureaus. A 90-day late will have an even greater impact. Set up automatic payments so you never miss a bill.
High Credit Utilization
Maxing out cards or having high balances close to your limits will lower your score. Aim to keep utilization below 30%, and even lower is better. Pay off cards each month if you can.
Closing Credit Accounts
Closing a credit card or loan can decrease your credit history length and increase utilization, lowering your score. Leave accounts open unless they have an annual fee.
Opening Too Many New Accounts
A hard inquiry is made every time you apply for credit, which can lower your score by a few points. Apply for new credit only a few times a year, like once every six to twelve months.
Major Financial Events
Foreclosure, bankruptcy and other major derogatory events can severely damage your credit. It takes years to fully recover.
Inaccurate Information
Sometimes credit reports contain errors or fraudulent accounts that bring down your score. Dispute any inaccurate items with the credit bureaus.
How to Recover From a Big Credit Score Drop
Here are some tips for rebuilding your credit after a major drop:
- Review your credit reports and dispute any errors. This can help boost your score quickly.
- Pay all your bills on time going forward. Set up autopay if it helps.
- Pay down credit card and loan balances. Get balances well below 30% of limits.
- Hold off on new credit applications until your score recovers.
- Consider contacting creditors for goodwill deletions of negative marks if the drop was due to extenuating circumstances.
- Wait for the impact of financial events like bankruptcy and foreclosure to decrease over time.
With diligent credit management, your score will gradually improve. But full recovery takes time. Be patient and persistent.
The Bottom Line
Checking your credit score regularly is wise so you can address drops before they get too large. A decrease of 20-30 points or more is considered substantial and calls for action. While frustrating, even big dips in your credit can be overcome with prudent financial habits over time. Monitor your reports, manage debt wisely, and your score will eventually rebound.
What Is a Good or Bad Credit Score?
According to the FICO® Score, a good credit score is between 670 and 739. This is based on a scale from 300 to 850. Scores above 739 are considered very good or exceptional. Scores below 669 are considered fair or poor. In 2023, the average FICO® Score in the U. S. was 715, according to Experian data.
Many good things happen when you keep your credit score high, like possibly saving a lot of money and stress over time. Good scores will likely help you qualify for more credit products at lower interest rates. Bad scores, on the other hand, may prevent you from qualifying for certain types of credit or may result in getting approved for credit products at higher interest rates, since your profile presents a bigger risk to the lender.
One of Your Credit Limits Decreased
An issuer might lower your credit limit for a number of reasons, including if youve been using the card infrequently or repeatedly spending over the limit. If one of your credit limits decreases, it can increase your credit utilization ratio and negatively affect your credit scores.
For example, if your total credit limit was $10,000 and your balance was $3,000, your utilization ratio would be 100%. This means that if your credit card company lowered your limit to $6,000 but kept your balance the same, your utilization rate would go up to 150%. Even though you didnt charge up a higher balance, your overall credit utilization ratio increased. That, in turn, could cause your credit score to drop.
Credit card issuers set initial credit limits based on factors including:
- Income
- Debt-to-income ratio
- Credit history
- Credit score
You can request a credit limit increase from your current issuers or open a new credit card account if youre concerned that your credit limit is too low. But know that if your limit recently went down, an increase might be hard to come by, and it may be best to wait to request more credit until your score improves.
Learn more: What to Do if Your Credit Limit Decreases
Which Items Can Cause a Major Drop in Your Credit Score?
FAQ
What causes a decrease in a credit score?
Certain errors on your credit report or a late payment marked incorrectly could cause a decrease in your credit score. However, the size of the drop depends on your initial score: larger drops occur for those with high scores.
Why did my credit score drop 10 points?
Your credit score can drop 10 points or more—even if you haven’t missed any payments—because credit scores are dynamic. They change as the information on your credit report gets added and/or updated.
Can a 20-point drop in your credit score be ignored?
Brock concluded, “Regardless of the financial ramifications, a 20-point drop in your credit score should not be ignored. The first thing you should do is figure out what caused it, such as late payments, higher credit usage, mistakes on your credit report, etc.
Can a drop in credit score affect your credit score?
If you’re a victim of credit fraud, it’s possible, with time and patience, to clean up your credit history. In the meantime, however, a major drop in credit score could cause your credit score range to slip, from very good to good, or from good to fair, for example.
Why did my credit score drop if I paid off a debt?
Closed accounts and lower credit limits can also result in lower scores even if your payment behavior has not changed. However, if you are certain it is for no reason, check to be sure there is not a mistake in your credit reports or that you’re not a victim of identity theft. Why did my credit score drop when I paid off a debt?.
What happens if your credit score goes down?
When your credit score takes an unexpected dip, you may feel angry or frustrated. While a few points up or down is not a big deal, a downward trend or a big drop is concerning. Your credit scores fluctuate all the time because the data used to calculate your scores comes from your credit reports, and that information is always changing.
How much is a big drop in credit score?
The FICO score for a fair credit score can drop by 17 to 37 points after 30 days of late payments. For a very good or excellent credit score, it can drop by 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.
Is it normal for my credit score to drop 20 points?
It may seem as though your credit score dropped randomly, but there’s usually something behind a dip of 20 points or more — and it’s worth looking into. It could be a late payment, an error on your credit report, a sign of identity theft, or some other reason.
How rare is a 700 credit score?
A credit score of 700 is not rare, but it’s not exceptionally common either. It’s considered a “good” credit score, and roughly 60% of consumers in the US have a score of 700 or higher.
How to raise your credit score 200 points in 30 days?
Raising your credit score by 200 points in 30 days is an ambitious goal, but possible in some cases.