Your credit scores are calculated using information in your credit reports, so it’s normal to see your score change as lenders provide updates to that information. A slight drop in your score may not be cause for worry, especially if you’re consistently practicing good credit health habits. Sometimes, you may not notice changes on your credit report that lead to a score drop. Your credit score can drop for many reasons, including some of the common reasons below.
Your payment history is one of the most important factors in your credit score. Missing even a single payment can have a significant impact on your score. That said, there’s no exact answer to how much a particular missed payment will affect your score. This depends on your unique individual credit profile.
Payment history is built month-by-month as lenders report your account status to one or more of the three national credit reporting agencies. Credit card, car loan, mortgage and retail account (like store credit cards) payments will appear in your payment history.
If you missed a payment by accident, set up automatic payments if you can. This is an easy way to keep this important credit score factor in check. If you see a big credit score drop and aren’t sure if you missed a payment, review the payment history on each account in your credit report. You’ll be able to find potential missed payments there. If you see a missed payment listed but don’t think it’s accurate, you can contact your lender for more information.
If you’ve made a big purchase and haven’t paid it off yet, or you keep high balances on your credit cards, your score could be affected too. Ideally, you want to keep your credit utilization rate lower than 30%. This means if you have a $10,000 credit limit, it’s a good idea to try keeping a balance of less than $3,000 each month. Because there are different scoring models, 30% isn’t a magic number. It's more of a recommended goal as you work to decrease your balances. Paying off your balances on time and in full each month is key to maintaining good credit health.
Some people like to use a balance transfer credit card to help lower their credit utilization rate and buy some time to pay down credit card debt. This isn’t necessarily a bad strategy. But applying for a new card can drop your credit score temporarily because of the resulting hard inquiry. Inquiries tend to have less of an impact than missed payments and credit utilization.
Using a balance transfer card or other approach can help ease debt burden in the short-term, but you should always focus on developing good credit habits. If habits don’t change, it’s easy to continue to add more debt, turning short-term fixes into a long-term problem.
Missed payments aren’t the only derogatory marks that can hurt your credit score. When foreclosures, bankruptcies and accounts in collections are reported, this negative information can also bring down your credit score. With some exceptions, most derogatory marks stay on your credit report for up to 7 years. Bankruptcy records stay on your report for up to 10 years. Negative information tends to have a less severe impact on your credit score as time goes on.
Time and consistent good habits are the keys to long-term credit health. One good habit is to monitor your credit consistently so you can manage and protect your information. TransUnion Credit Monitoring offers daily report updates, your VantageScore® 3.0 credit score and instant alerts of critical changes on your report. To simulate how specific future actions, such as a 30-day late payment, may affect your score, you can use the Credit Score Simulator.
As you continue on your path to healthy credit, your credit score sometimes may go down for one reason or another. Often, you may expect it, like when you apply for a new car loan or mortgage. Sometimes there are unexpected mistakes, like missing a payment. Either way, it’s normal that dips happen. If you keep building your credit knowledge and develop good habits, you can achieve the credit score you want so you can access the opportunities you deserve.