Why Did My Credit Score Drop for No Reason?

Your credit score is calculated based off the information in your credit report. To create your credit score, the information is broken down into different categories or factors. These factors may be weighed differently based on their importance. For instance, your payment history and utilization tend to carry the most weight in calculating your score.

When information is updated in your credit report, your score may change as well. By how much depends on the nature of the updated information. Because information in your credit reports may be updated frequently, changes that cause your score to fluctuate may not be obvious.

There are also different scoring companies that provide credit scores and they have their own models. It’s common to see differences in scores from one model to the next. That said, if you see a big drop in your score, it’s usually triggered by something specific.

The important thing to know is that credit scores don’t change for anyreason. Changes in your credit report hold the key. Below are some common reasons why your credit score might have dropped:

You have a high balance on your credit cards

Your credit utilization, which is one of the most important credit score factors, measures how much of your available credit you’re using. Lenders like to see that the outstanding total balance on your credit cards is below 30% of what you have available. If your total credit limit across all your cards were $10,000, you’d want to keep your total balances below $3,000 to limit the negative impact on your score. Of course, getting at or close to 0% is best. Low utilization shows lenders that you are a responsible borrower and repay most or all of your purchases quickly.

Did you make a large purchase on a credit card recently? It’s easy to inflate your balance with big-ticket items like home appliances, furniture and home repairs. Even if you paid it off quickly, there is a chance your lender reported this higher balance before you paid it off. Once the balance is reported as being paid off your reported utilization should return to prior levels.

A late payment was reported

If you’ve recently missed a payment, it could cause a drop in your credit score. Your payment history is another important credit score factor. If you look at your credit reports, you should see your history of payments for each account listed. This is where you want to check if you see a sudden, significant drop in your score. Consider setting up reminders or turning on automatic payments, if possible, so you can keep up with the important payment dates for your accounts.

You closed a credit card account or paid off a loan

Closing a credit card account can affect your credit score in a couple ways. If you close one account, maybe one you haven’t used in a while, but still have a balance on other cards, it can increase your utilization.

Let’s say you have two credit cards, both with a $1,000 credit limit. One card has a $500 balance, and the other, a card you never use, has no balance. Your current utilization rate is 25% ($500/$2,000). That’s below the 30% threshold lenders like you to be at. But if you close the second card that has no balance on it, you’ll increase your utilization — up to 50%! You have to be mindful when closing credit cards for this reason.

Closing a credit card can also impact your score by changing the average age of all your accounts. Lenders like to see that you have active accounts with a long history of on-time payments. Generally speaking, the older the average age of your accounts is, the better your score will be. If you close an account that’s been open for a long time, it could bring down that average. Think carefully about closing old accounts, especially if you want to limit any negative impact to your score.

You paid off an installment loan

Did you recently pay off an installment loan? Those are loans with fixed terms and payment schedules — accounts like auto loans, mortgages and student loans. Sometimes, paying off these loans may cause a score to drop slightly, which may seem counterintuitive. Just like with credit cards, closing an installment loan account with a long, positive history can impact your score. Even though this is the case, if you pay off an installment loan, it’s a good thing for your finances and you should celebrate that achievement.

You recently applied for credit

If you applied for a credit card or are shopping around for a loan, a hard inquiry may appear on your credit report, which temporarily lower a score. Hard inquiries may happen when a lender or company reviews your report with the intent to make a lending decision. For example, applying for a credit card, mortgage or car loan can result in a hard inquiry. If you requested a credit line increase for one of your existing credit cards, it may also trigger a hard inquiry. This account would already be on your report, and because it’s a minor change, it could be easy to miss on a quick read-through.

Soft inquiries on your credit report do not impact your credit score. If you see a soft inquiry on your credit report, it means that you or a company checked your credit report.

You’re the victim of identity theft

Identity theft is more common than people may think and can impact your credit score. If fraudsters have important personal information, they may be able to open up credit accounts in your name, make charges, and then not pay the bills as they come due. Some of these past due accounts, if not caught early enough, may then go to collections. This is why reading through your credit reports on a regular basis is so important. Monitoring your credit on a regular basis can help you identity inaccuracies, if there are any, and signs of fraud. To see if you have been a victim of identity theft, check your credit report for irregularities or things you don’t recognize. To learn how to get on the path to recovery, read the blog What to Do if Your Identity Is Stolen: Steps to Take.

As you can see, there can be multiple answers to the question: Why did my credit score drop? There is a lot of information on a credit report. Remember, a changing score means changing information. Carefully read your credit reports again. You may have to dig for some clues to account for a fluctuating credit score.

If you’d like help reading through your credit report, we’ve created an interactive guide that explains each important section and how the information may impact your credit score.