How to Check Why Your Credit Score Dropped

A credit score serves as a numerical representation of an individual’s creditworthiness, typically ranging from 300 to 850. This three-digit number indicates the likelihood that someone will repay a loan and make payments on time. Lenders, landlords, and even insurance providers use these scores to evaluate financial risk and determine eligibility for loans, housing, and various services. Credit scores are dynamic, meaning they can fluctuate, and experiencing a drop is a common financial concern for many individuals. Understanding the reasons behind such a change is the first step toward addressing it.

Accessing Your Credit Reports and Scores

A credit report is a detailed record of your credit history, including accounts, payment history, and inquiries, while a credit score is a numerical value derived from the information within that report. You can obtain your official credit reports for free from each of the three major credit bureaus—Equifax, Experian, and TransUnion—through AnnualCreditReport.com. Federal law allows for one free report from each bureau annually, though currently you can access them weekly. While your credit reports provide detailed information, they generally do not include your credit score. Credit scores are generated using various scoring models, such as FICO and VantageScore, which can lead to different scores depending on the model used and the specific data analyzed. Financial institutions or credit card companies sometimes provide a score as a complimentary service, or you can purchase scores directly from scoring model providers.

Analyzing Your Credit Report for Score Changes

Once you have obtained your credit reports, a thorough review is necessary to identify potential causes for a score drop. The report details various elements of your financial behavior that directly influence your credit score.

One of the most impactful factors is your payment history, which accounts for a significant portion of your score calculation. Even a single payment that is 30 days or more past due can cause a notable drop in your score and remains on your report for up to seven years from the original delinquency date. Check for any late payments, missed payments, or accounts that have been sent to collections, as these signal a higher risk to lenders.

Another critical element is credit utilization, which measures the amount of revolving credit you are currently using compared to your total available credit. This is typically expressed as a percentage and is calculated by dividing your total outstanding revolving balances by your total revolving credit limits. High utilization, generally considered above 30%, can negatively affect your score. Review the balances on your credit cards and other revolving accounts relative to their credit limits.

New credit activity can also influence your score. When you apply for new loans or credit cards, a “hard inquiry” is typically placed on your credit report. While a single hard inquiry usually has a small impact, often less than five points, multiple inquiries in a short period can suggest increased risk to lenders. Hard inquiries generally remain on your report for two years, although their effect on your score usually diminishes after 12 months.

The length of your credit history, including the age of your oldest account and the average age of all your accounts, plays a role in your score. Recently closing an old account, especially one with a long history, could reduce your average account age and potentially impact your score. Conversely, opening many new accounts simultaneously can also shorten your average account age.

Public records and derogatory marks, while less common, can severely impact your credit score. Historically, these included bankruptcies, foreclosures, and tax liens. As of 2018, bankruptcy is generally the only public record that appears on credit reports from the three major bureaus, remaining for up to 10 years depending on the type.

Scrutinize your report for any unfamiliar accounts, incorrect personal information, or unauthorized inquiries, which could indicate errors or identity theft. Inaccurate information can artificially lower your score, making it harder to obtain favorable credit terms. Identifying and addressing these discrepancies quickly is important for maintaining an accurate credit profile.

Taking Action on Discovered Issues

After pinpointing the specific issues on your credit report, taking proactive steps is essential to mitigate the negative impact on your score. The actions you take will depend on the nature of the identified problem, ranging from disputing inaccuracies to adjusting your financial habits.

If you discover errors or fraudulent activity on your credit report, you have the right to dispute them with the credit bureaus. Gather supporting documents, such as bank statements or police reports, to substantiate your claim. You can submit disputes online, by mail, or by phone to Equifax, Experian, and TransUnion. The bureaus generally have 30 to 45 days to investigate your dispute and must correct or remove information found to be inaccurate or unverifiable.

For issues related to high credit utilization, strategies focus on reducing your outstanding balances. Paying down revolving debt is the most direct way to lower your utilization ratio. Another approach can be requesting a credit limit increase on existing accounts; however, this should be done cautiously and only if you can avoid increasing your spending, as it expands your available credit without adding to your debt.

When a late payment has been reported, its impact is immediate and can be substantial. While a reported late payment stays on your report for seven years, its effect lessens over time. If you have made a recent late payment, contacting your creditor to discuss options, such as a payment plan or a goodwill adjustment, might be helpful, though they are not obligated to remove accurate information.

New accounts and hard inquiries typically have a temporary and relatively minor impact on your credit score. The effect usually subsides within a few months, and the inquiry itself falls off your report after two years. If you were rate shopping for a mortgage or auto loan, multiple inquiries within a short period (typically 14 to 45 days, depending on the scoring model) are often counted as a single inquiry, minimizing their collective impact.

Establishing Ongoing Credit Monitoring

Consider staggering your requests, perhaps obtaining one report every four months, to maintain a consistent overview of your credit activity throughout the year.

Beyond self-monitoring, various credit monitoring services are available, some free and others paid, offered by credit bureaus, banks, and other financial institutions. These services often provide alerts for significant changes on your credit report, such as new accounts opened, large balance increases, or late payments, allowing for quick action.

Consistently paying bills on time, keeping credit utilization low, and prudently managing new credit applications are ongoing practices that contribute to a strong credit profile.