Why did my credit score drop?

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.

There are many factors that can cause a change in your score. And there’s no such thing as one definitive credit score because there are multiple credit-scoring companies that use different scoring models. 

What you’ll learn:

• Credit scores can vary depending on the scoring model used to calculate them.

• Factors that can contribute to a credit score drop include late payments, a high credit utilization ratio and derogatory marks on a credit report. 

• Checking your credit reports regularly can help you monitor the effects of your credit use on your scores.

Credit scores are generally calculated using information from your credit report. Credit-scoring companies like FICO® and VantageScore® consider activity across categories, including but not limited to:

• Payment history 

• Credit utilization

• Credit mix

• Credit history

• New credit applications

So when there’s any change 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. 

There are many possible reasons your credit score might drop. Here are 10 of the most common.

New credit applications—like those for credit cards or auto loans—can have an impact on your credit scores. That’s because a new credit application generally creates a hard credit inquiry, which can cause your credit scores to drop by a few points. 

Multiple credit applications in a short period of time could also indicate that your financial situation has changed negatively—and they might cause your credit scores to drop.

Try to keep new credit applications to a minimum by only applying for the credit you need. Before you 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. For example, Capital One’s pre-approval tool uses what’s known as a soft inquiry to check your credit, which won’t hurt your scores. Keep in mind that pre-qualification or pre-approval doesn’t guarantee you’ll be approved for a card.

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. Carrying higher balances or using a large amount of your credit limit can raise your credit utilization and lower your credit score.

Experts recommend keeping your credit utilization at 30% or less to help you maintain a good credit score and show lenders you’re responsible with credit. So if you’re able to, it’s a good idea to pay off or pay down your credit balances.

Your payment history is an important part of your credit scores. Just one late or missed payment can have a negative impact on them.

The timing is an important factor to keep in mind. If you’re late making a required payment, your credit card issuer may charge a late fee and interest, depending on the issuer and card terms. After 30 days past the due date, the issuer may report the delinquency to the credit bureaus, which could have a negative impact on your credit scores.

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 automatic payments or reminders. With Capital One, you can set up AutoPay so payments are automatically made on the due date each month.

Negative information on your credit report is known as a derogatory mark. If a negative mark is listed on your credit reports, it can hurt your scores. 

Some common examples of derogatory marks include:

• Missed or late payments: Late payments typically appear on credit reports when an account is 30 days or more past due. They can stay on your credit report for up to seven years.

• Foreclosures: Foreclosure can happen after you’ve missed mortgage payments and your lender takes ownership of your home. A foreclosure, as well as the missed payments that led to it, might appear on your credit reports.

• Bankruptcies: Bankruptcy filings can affect credit scores differently, depending on the type. Typically, Chapter 13 bankruptcies—also known as reorganizational bankruptcies—can stay on credit reports for seven years. Chapter 7 bankruptcies—also known as liquidation bankruptcies—can stay on credit reports for 10 years. 

• Charge-offs: In most cases, when a credit card account goes 180 days—a full 6 months—past due, the credit card issuer must close and charge off the account. A charge-off will generally stay on your credit reports for up to 7 years. With most derogatory marks, the negative impact on your credit generally diminishes over time.

If you see derogatory marks on your credit report, make sure the information is accurate. You should dispute any potential errors with the credit bureau that provided your report and alert them and your card issuer of suspected fraud. But if the negative information is accurate, time and responsible credit use can help you improve your scores. Credit counseling organizations can also work with you and offer personalized recommendations to improve your credit.

It may be tempting to close a credit card you don’t use, but keep in mind that it may impact your credit. Once the account closes, the average age of your credit accounts could change. Because your credit scores are based partly on the length of your credit history, a shorter history can lower your credit scores.

Your credit utilization ratio may increase because the closed card’s credit limit is no longer included in your available credit. And a higher credit utilization ratio can lower your credit scores.

Instead of closing cards you don’t use, consider continuing to use credit responsibly by making on-time payments on your other accounts and keeping your credit utilization low. 

If you’ve added an authorized user to your credit card account, they’ll typically get a credit card linked to your account and can use it to make charges, but you’re still responsible for paying the balance. Just having an authorized user on your account won’t hurt your credit. But if they don’t use the account responsibly, it could hurt both parties’ credit scores. 

Before adding an authorized user to your account, you might want to talk with them about responsible credit card use. Potentially setting a spending limit with authorized users could help you avoid mistakes that could affect both your and the authorized user’s scores.

It doesn’t seem right that paying off debt could hurt your credit. But if you pay off an installment loan and it’s your only one, you could decrease the diversity of your credit mix, which can lower your credit scores. 

Once you pay off an installment loan, monitor your credit. Generally, the negative impact of closing a repaid loan account is temporary.

When you co-sign a loan, you agree to make payments if the borrower is unable to do so. The loan and payment history can appear on your credit reports as well as the borrower’s. If there’s a hard inquiry when you co-sign the loan, it could affect your credit scores. Any missed payments or misuse of the credit account can have the same effect. 

Before co-signing a loan, consider whether you have room in your budget for the monthly payments in case the borrower is unable to cover them. It’s also a good idea to establish expectations with the borrower and ask for access to the account so you can track payments. But if you don’t have money to make the loan payments or you need to apply for credit in the near future, you might also choose not to co-sign the loan.

You might notice mistakes in your credit reports. That’s why the Consumer Financial Protection Bureau recommends reviewing your credit reports at least once a year to make sure they’re accurate. Any mistakes in your accounts, such as incorrect balances or payment information, may cause your credit scores to drop. 

You can check your credit reports for free at AnnualCreditReport.com or by calling 877-322-8228. If you see something you believe is an error in your credit reports, you might want to dispute the information. You can also monitor your credit for free with CreditWise from Capital One.

Identity theft may impact your credit scores in a few different ways. For instance, a thief could open a new line of credit under your name, use the line of credit and fail to pay the bills. The credit utilization on the account could climb, and the payment history in your credit report could be affected. Because the information is listed under your name, your credit scores could drop. 

Remember to check your credit reports regularly and look for signs of potential identity theft. If you suspect fraud, contact your bank’s or credit card’s fraud departments to report it. You can also file a complaint with the Federal Trade Commission (FTC) at IdentityTheft.gov and activate a fraud alert with the three national credit bureaus, Experian®, Equifax® and TransUnion®. Capital One cardholders can lock their card if it’s been misplaced, lost or stolen and sign up for security alerts to get notified if Capital One notices potential suspicious activity.

Your credit score relies on many factors. And as the FTC explains, using credit responsibly over time 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.

Keeping tabs on your credit scores can also help you on your personal finance journey. You can monitor your credit score for free with CreditWise. With CreditWise, you can access your TransUnion credit report and VantageScore 3.0 credit score anytime without hurting your score. And it’s free to everyone, not just Capital One cardholders.