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Why did my credit score drop for no reason?
Credit scores usually update frequently, and it’s normal for them to fluctuate slightly over time. However, major drops are usually caused by changes in the information on your credit report, which the main credit scoring models (FICO and VantageScore) consider when calculating your score. For example, if you miss a payment on one of your credit accounts, your creditor will report that to the credit bureaus, which will damage your score.
Broadly speaking, there are four reasons your score might have dropped:
- You have negative marks on your credit report
- Your credit habits are lowering your score
- Your creditor has penalized you for something
- There are errors on your credit report
We’ll cover exactly how those issues may have caused your credit score to drop and what you can do to fix your score. While you may not see dramatic gains, like a quick score increase of 100 points, there’s no better time than now to get yourself back on track.
Negative marks on your credit report
If you have negative marks (also known as derogatory marks) on your credit report, they’re almost certainly hurting your score.
Common negative marks include:
Late or missed payments
The most important component of your credit score is your payment history, which accounts for 35% of your score in FICO’s model. When you miss a payment on one of your credit accounts, you have a 30-day grace period before your creditor reports it to the credit bureaus. Once they do, you’ll receive a negative mark on your credit report and your score will drop.
The penalties you’ll face for your delinquent account will become more and more severe the more overdue it gets. 1 If you go long enough without paying, your creditor will charge off your account and send it to a debt collection agency, which is even more damaging to your credit.
If you’ve missed a payment, quickly get in touch with your creditor to discuss your options and stop them from charging off your account. Some creditors have hardship programs and other debt-relief options that can help you get back on track. To avoid missing payments in the future, set up personal payment reminders or sign up for autopay.
If you’ve already paid off the account, you might be able to send a goodwill letter to your creditor to remove the late payment from your credit report. If you haven’t, consider negotiating pay for delete instead.
Bankruptcy
Since 2018, credit bureaus have been prohibited from including most public records on your credit report. Bankruptcy is the one exception. 2
Bankruptcy is devastating to your credit score, and depending on the type that you file for, it’ll stay on your credit report for 7 years (chapter 13) or 10 years (chapter 7). 3
Unfortunately, there’s no way to get a bankruptcy off your credit report early. However, the effect it has on your credit score will gradually diminish over time.
Foreclosure
If you took out a mortgage but you’re 120 days late on your payments, then your lender may pursue foreclosure. 4
Like bankruptcy, foreclosure damages your credit score. As with other negative marks, foreclosures also stay on your credit report for 7 years.
After a foreclosure, you’ll generally have to wait a while before you can take out another mortgage. For example, you won’t be able to get an FHA-backed mortgage for three years. 5 The good news is that, as with all other negative marks, the negative effects of foreclosure on your credit score will diminish over time.
Hard inquiries
If you recently applied for a credit card, loan (either secured or unsecured), or another new line of credit, then the lender probably conducted a credit check called a hard inquiry. This type of credit check temporarily lowers your score. 6
A single hard inquiry will usually affect your credit score by five points or less, which isn’t very much. However, if you trigger a lot of them in a short span of time, the damage to your score can add up.
The credit scoring models count multiple hard inquiries for the same type of loan as a single inquiry if you trigger them within a relatively short period (45 days in the FICO model and 14 days in the VantageScore model). 7 8 However, in FICO’s model, this only applies to certain types of installment loans—FICO always counts multiple hard pulls for credit card applications separately.
Hard inquiries stay on your credit report for two years, but they only affect your score for six months (VantageScore) to a year (FICO).
Habits that may be damaging your credit score
If you don’t have any negative marks on your credit report, it’s possible you’re using your credit in a suboptimal way. If this is the case, you’ll be able to fix your credit score very quickly by changing your habits.
Your credit might be suffering for the following reasons:
You’re spending too much on your credit cards
Your credit utilization rate, the percentage of your total available credit that you’re using, is the second most important factor that affects your credit score, accounting for 30% of your FICO score. A lower utilization rate is better; depending on your credit history, maxing out one of your credit cards could cause your credit score to drop by more than 120 points. 9
If you’ve started using credit more often or you recently made a large one-time purchase, your utilization rate might have risen. Thankfully, this is easy to recover from if you pay down your debts and adjust your spending habits.
It’s important to keep your utilization rate under 30%, but you should keep it even lower if you can. A single-digit utilization ratio is ideal. 10
The credit scoring models award more points to people who use less of their available credit because it indicates that they have a lower risk of not paying back their debts.
You have no installment loans
If you only have revolving credit accounts, your score will suffer. This is true even if you recently paid off an installment loan, such as a personal loan or a mortgage.
It’s a bit counterintuitive, but fully paying off a loan can actually hurt your credit score. This is because paying off a loan closes the account, and closed accounts aren’t given as much weight as open accounts in the credit scoring models. This means you won’t benefit as much from your positive payment history on that loan. 11
Additionally, FICO and VantageScore reward you for having a good credit mix of revolving and installment accounts. If you recently closed your only installment loan, your score will drop.
Fortunately, paying off a loan won’t completely erase its positive influence on your credit score—it will just diminish it a bit. Closed accounts in good standing stay on your credit report for up to 10 years, and usually continue to benefit your credit score. 12
Penalties imposed by your creditor
If you’ve been using your credit irresponsibly (or alternately if you haven’t been using it at all), your creditor might penalize you by lowering the amount of credit they’re willing to extend to you or by closing your accounts. If they do, it will affect your score.
The penalties that lenders sometimes impose include:
Lowering your credit limit
A decrease in your credit limit will increase your credit utilization rate, potentially causing your score to drop. If you’ve missed a payment or forgotten to pay the membership fee on your card, then it’s possible that your credit card issuer has decided to lower your spending limit, which they can do without warning. 13
If this has happened, contact your credit card issuer to find out whether they’re willing to restore your previous limit. Alternatively, you can increase your utilization rate by applying for a new credit card, although opening a new credit card will cause your credit score to drop temporarily due to the hard inquiry and decrease in the average age of your accounts.
Closing your credit card
Your creditor might close your credit account if you haven’t used it in a few months, although the exact amount of time they’ll wait before doing so depends on the company. They’ll also probably close your account if you become severely delinquent and they plan on charging it off and selling or transferring your debt to a collection agency.
In most cases, creditors can close your account without giving you any notice. 14
Closing a credit card can negatively impact your score in several ways:
- Increasing your credit utilization rate: Closing a credit card account increases your utilization rate by reducing the overall amount of credit you have available.
- Reducing your credit mix: If your issuer closes your only revolving account, your credit mix will drop, harming your score.
If your card issuer has canceled your account due to inactivity but you want to keep it open, contact them to discuss your options. It’s possible they’ll reactivate your account, but you may have to undergo a credit check (just as you would if you were opening a brand new account). 15
Mistakes on your credit report
If none of the reasons above explain the drop in your score, it’s possible there’s an error somewhere on one of your credit reports. Unfortunately, this is fairly common—credit reporting errors affect roughly 20% of Americans. 16
While most errors are minor, some are very damaging. They can cause a substantial drop in your credit score and make it hard for you to get credit.
The Consumer Financial Protection Bureau identifies four types of error that commonly show up on credit reports: 17
- Personal information errors: Your identifying information (such as your name, Social Security number, etc) may be listed incorrectly (for instance, if the credit bureau confused you with someone with a similar name).
- Account status errors: Your account status may be misrepresented, such as if an account in good standing is listed as delinquent or an account is listed multiple times.
- Balance errors: Your account balances or credit limits may be reported incorrectly, affecting your utilization rate.
- Data management errors: One of your accounts may be listed twice under different lenders. Corrections to previous errors can also accidentally be undone.
If you haven’t done so already, carefully check your credit reports for these errors. You can request copies of all of your reports from the three major credit bureaus (Equifax, Experian, and TransUnion) by visiting AnnualCreditReport.com (which is a safe website for requesting credit reports) or by calling 1-877-322-8228. You’re legally entitled to one free copy from each bureau every year (currently one per week due to the COVID-19 pandemic).
If you do find any errors on your credit report, file a dispute by sending a letter to your creditor and the credit bureau(s) reporting the incorrect information.
Some errors are the result of identity theft
If your score has plummeted for no apparent reason, then it could also be a sign that a fraudster has been using your credit or opening new accounts under your name.
To find out whether you’ve been targeted by identity thieves, get a copy of your credit report and check whether there are any errors in your personal information or accounts you didn’t open. If you believe your identity has been stolen, protect your credit by immediately setting up a credit freeze, notifying your creditors, changing your passwords, and filing a report at IdentityTheft.gov to set up a recovery plan.
To repair your credit, send the same report alongside a dispute letter to your lender and the relevant credit bureaus. Request corrections to your credit reports. They should complete the investigation and update your records within 30–45 days. 18 Be sure to check your credit reports to ensure that they’ve done so.
