Why Did My Credit Score Drop?
4 reasons why your credit score could drop and what you can do to help fix it
If your credit score has dropped, don’t panic. Small changes in your score—up or down—are normal. That’s because the information in your credit report is updated regularly. And these updates can impact your score.
It could also be because there’s no such thing as one definitive credit score. Credit scores tend to change a little depending on which credit reporting agency calculated them and which scoring model was used. But if you’re seeing a big drop in your credit score, there could be other reasons for that.
Reasons Why Credit Scores Drop
Credit scores are calculated using lots of information from your credit report about your finances. This includes factors like your payment history, the amount you currently owe, your credit utilization and how many accounts you have open. So when there’s a drop in your score, it’s likely that there’s been a change in one of these or one of the many other factors that go into credit scores.
Read on for some reasons your credit score might drop and what you can do about them.
1. New Credit Applications
A new credit application could have an impact on your credit score. That’s because a new credit application creates a “hard inquiry,” which can stay on your credit report for up to two years. And multiple credit applications in a short period of time may raise a red flag to lenders. Those applications could be seen as a sign your financial situation has changed, and it could put a dent in your score.
What you can do: Try to keep new credit applications to a minimum by only applying for the credit you need. And when you do apply for a new credit card, you could first check with the lender to see if they can tell you whether you may be pre-qualified or pre-approved for one of their cards. Pre-qualification and pre-approval use what’s known as a “soft inquiry” to check your credit, which won’t hurt your score.
2. High Credit Utilization
Credit utilization is a measure of how much of your available credit you’re using. It’s sometimes called a credit utilization ratio, but it’s often expressed as a percentage. The more of your available credit you use, the more likely it is to negatively affect your credit score.
What you can do: Keeping your credit utilization at 30% or less may help you maintain a good credit score. And keep in mind, closing a credit account will increase your credit utilization and could actually hurt your credit score. However, it’s also important to understand that issuers sometimes close accounts for reasons like nonuse.
3. Payment History
Anyone can miss a payment now and again. If you have a long and positive payment history, it might not matter as much. But if you’re late or miss payments multiple times, that’s likely to hurt your credit score.
What you can do: Consistently paying bills on time may help you improve your credit report’s payment history. If that feels easier said than done, you could consider setting up a budget, automatic payments or reminders. Capital One customers struggling to make payments can also contact Capital One directly to discuss potential options.
4. Derogatory Remarks on Your Credit Report
Late payments, overdrafts, bankruptcies and foreclosures are known as derogatory remarks or negative information. If these are listed on your credit report, they can hurt your score. And a record of them can stay on your report for years.
What you can do: First, you could make sure the information in your credit report is accurate. You should dispute any errors and report suspected identity fraud. But if the negative information is accurate, only time and responsible credit use will help you improve your score. If you’re looking for more help, you could also consider credit counseling.
Keep in mind: There are many factors that affect your credit score. And improving one factor may not increase your credit score if you’re not taking care of the other factors too.
For example, keeping new credit applications to a minimum is unlikely to improve your score much if you have a high credit utilization ratio, poor payment history and derogatory remarks on your credit report.
Monitor Score Changes With CreditWise From Capital One
Staying on top of the information in your credit report can help alert you to potential problems. But wait—doesn’t checking your credit report hurt your credit score?
Thankfully, that’s a myth. The Consumer Financial Protection Bureau confirms that requesting your credit report won’t hurt your credit score.
You could use a credit monitoring tool like CreditWise from Capital One. CreditWise is free and available to everyone—not just Capital One customers.
With CreditWise, you can access your free TransUnion® credit reports and weekly VantageScore® 3.0 credit score anytime, without hurting your score. You can even see the potential impacts of financial decisions on your credit score before you make them with the CreditWise Simulator.
You can also get free copies of your credit reports from all three major credit bureaus—Equifax®, Experian® and TransUnion. Just call 877-322-8228 or visit AnnualCreditReport.com to learn how.
Rebuilding Your Credit
Your credit score relies on many factors. And as the Federal Trade Commission explains, using credit responsibly by doing things like paying your bills on time, paying down outstanding balances and staying away from new debt can often help you improve your score.
So, if your credit score has taken a hit, don’t despair. It can take time, but it’s possible to get your score back to where it was—maybe even better than it was.
Government and private relief efforts vary by location and may have changed since this article was published. Consult a financial adviser or the relevant government agencies and private lenders for the most current information.
We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.
Your CreditWise score is calculated using the TransUnion® VantageScore® 3.0 model, which is one of many scoring models used by lenders. It likely won’t be the same model your lender uses, but it is an accurate measure of your credit health. The availability of the CreditWise tool depends on our ability to obtain your credit history from TransUnion. Alerts are based on changes to your TransUnion and Experian® credit reports and information we find on the dark web. The tool is not guaranteed to detect all identity theft.
The CreditWise Simulator provides an estimate of your score change and does not guarantee how your score may change.