Just as the numbers on your bathroom scale can fluctuate, it's common to see movement in your credit score. Yet, if there are big shifts in your credit score — and if that movement is downward — there could be reason for concern.
Below, you'll discover four common reasons your credit score might drop. You'll also learn how to differentiate between credit score declines that are probably nothing to worry about and more troublesome score decreases.
4 reasons your credit score might drop
It's a good habit to monitor your credit scores and your credit reports. However, it can be concerning if you notice a drop in your credit score or receive a notice that your credit report has changed negatively.
There are many reasons why your credit score might suddenly decline, and some are more obvious than others. Below are four common actions that might trigger a drop in your credit score.
The relationship between your credit card limits and balances (i.e., your credit utilization rate) can have a meaningful impact on your credit score. If your credit card balances increase on your credit report, your credit utilization rate could also increase. This will often trigger a drop in your credit score until you can pay down your credit card debt again.
New negative information
When new negative details, like late payments or collection accounts, show up on your credit report, it's common for your credit score to decline. Payment history makes up 35% of your FICO® score. Negative information can also stay on your credit report for seven to 10 years. However, if any of the details on your report seem questionable or inaccurate, you can dispute credit errors and ask the credit bureaus to fix those mistakes.
New recent applications
When you apply for financing, like a new credit card or loan, a hard inquiry appears on your credit report. Most new hard inquiries only have a slight negative impact on your credit score. But if you apply for new credit excessively, the impact on your credit score could be more significant.
A positive account disappears
A less apparent cause of a potential credit score drop can occur when a positive account falls off your credit report. This action could cause you to lose the positive payment history associated with the account plus the age of the account, which might have been helping you in the "Length of Credit History" category of your credit report (worth 15% of your FICO Score).
Related: Hidden ways credit card debt can cost you money
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3 times to worry about a drop in your credit score
Seeing a drop in your credit score is never a pleasant experience. Yet there are times when a credit score decline could be more concerning than others, including when:
There was a significant decline in your credit score: When your credit score drops by a meaningful amount, it could indicate that serious derogatory information has appeared on your credit report.
You're preparing to apply for a new credit card or other type of financing: Your credit score can influence your ability to qualify for financing and the price you pay to borrow money. Even a slight credit score drop might impact your credit risk level and could hurt you when you apply for a credit card or loan.
There's evidence of fraud or identity theft on your credit report: If a credit score drop results from identity theft or fraud, it's important to take action immediately to resolve those issues and protect your credit from additional damage.
When a credit score drop might not be as troublesome
On a happier note, small declines in your credit score aren't something to get upset about in many cases. It's normal for your credit score to fluctuate up and down as the information on your credit report changes.
For example, the credit utilization rate on your credit report may shift each month even if you follow TPG's 10 commandments of credit card rewards and always pay off your full statement balance. This is because the credit card balance that appears on your credit report is your account balance at the time your credit card company issues your statement each month.
If you want a zero balance to show up on your credit report, pay off your credit card before the statement closing date on your credit card account.
In general, you don't have to worry about slight credit score fluctuations that occur due to submitting new credit applications every so often. For most people, one additional hard credit inquiry results in a credit score drop of fewer than five points in your FICO Scores, according to FICO. FICO Scores only consider hard inquiries that have occurred in the last 12 months when calculating your score (even though they remain on your credit report for two years).
Related: Why paying off credit card balances is more important than ever
Bottom line
Of course, it's important to work to keep your credit history and your credit score in the best shape possible at all times. But it's also wise to understand that your credit score will probably change over time.
If you create a good habit of monitoring your credit scores and credit reports from all three credit bureaus, you'll notice periodic shifts. So, it's a good idea to educate yourself about when a credit score drop isn't a big deal — and when it's something to look into.
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.
It's normal for credit scores to fluctuate somewhat, but a major score drop can be cause for concern. If you can't associate a steep score drop with actions you've taken in the past few months, it's possible criminals have taken out credit in your name, and their activity is causing problems with your credit score.
If you have a bad credit score, you'll generally pay higher interest rates on loans and credit cards—and may have trouble getting them at all. A bad credit score can also raise your insurance premiums and even hamper your ability to rent an apartment or get a job.
According to FICO data, a 30-day missed payment can drop a fair credit score anywhere from 17 to 37 points and a very good or excellent credit score to drop 63 to 83 points. But a longer, 90-day missed payment drops the same fair score 27 to 47 points and drops the excellent score as much as 113 to 133 points.
Things like new credit applications and missed payments may impact your credit score. You may be able to improve your credit score in a number of ways, including making sure you're on the electoral register, managing accounts well and limiting new credit applications.
Your FICO® Score falls within a range, from 740 to 799, that may be considered Very Good. A 780 FICO® Score is above the average credit score. Borrowers with scores in the Very Good range typically qualify for lenders' better interest rates and product offers.
Making debt payments on time every month benefits your credit scores more than any other single factor—and just one payment made 30 days late can do significant harm to your scores. An account sent to collections, a foreclosure or a bankruptcy can have even deeper, longer-lasting consequences.
A credit score is usually a three-digit number that lenders use to help them decide whether you get a mortgage, a credit card or some other line of credit, and the interest rate you are charged for this credit. The score is a picture of you as a credit risk to the lender at the time of your application.
Your payment history on loan and credit accounts can play a prominent role in calculating credit scores; depending on the scoring model used, even one late payment on a credit card account or loan can result in a decrease.
Highlights: While older models of credit scores used to go as high as 900, you can no longer achieve a 900 credit score. The highest score you can receive today is 850. Anything above 800 is considered an excellent credit score.
Similarly, if you pay off a credit card debt and close the account entirely, your scores could drop. This is because your total available credit is lowered when you close a line of credit, which could result in a higher credit utilization ratio.
As someone with a 650 credit score, you are firmly in the “fair” territory of credit. You can usually qualify for financial products like a mortgage or car loan, but you will likely pay higher interest rates than someone with a better credit score. The "good" credit range starts at 690.
Because payment history is the biggest factor in your credit score, even one late payment can have a big impact. Some 35% of your FICO® Score☉ (used by 90% of top lenders) is based on payment history.
Credit scores can drop due to a variety of reasons, including late or missed payments, changes to your credit utilization rate, a change in your credit mix, closing older accounts (which may shorten your length of credit history overall), or applying for new credit accounts.
Closed accounts and lower credit limits can also result in lower scores even if your payment behavior has not changed. However, if you are certain it is for no reason, check to be sure there is not a mistake in your credit reports or that you're not a victim of identity theft.
A “perfect” score — an 850 on the most commonly used scale — requires a credit history spanning many years and having few or no credit missteps. And, as far as lenders are concerned, someone with a 780 or so is every bit as likely to repay borrowed money as someone with an 850.
A bad credit score is a FICO score below 580, meaning it falls in the poor credit range. Along the same lines, a bad score in the VantageScore model is one below 601, which would belong in the poor or very poor credit ranges.
A poor VantageScore credit score falls between 500 and 600, while a very poor score falls between 300 and 499, according to Experian—one of the three nationwide credit bureaus.
If you've recently noticed a drop in one or more of your credit scores, take a deep breath. This is a fairly common experience, and it doesn't necessarily mean you did something wrong. It's important to know that many factors contribute to your credit scores, and any one — or a combination of them — may prompt a drop.
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