How to Check Why Your Credit Score Dropped

A credit score is a three-digit number that reflects an individual’s credit risk, indicating the likelihood of timely bill payments. Ranging from 300 to 850, this score is a key factor creditors and lenders consider when evaluating applications for new accounts, loans, or mortgages. A higher score generally leads to more favorable terms, such as lower interest rates and reduced borrowing costs over time. Understanding fluctuations in your credit score, especially a decline, is important for maintaining financial health and making informed decisions.

Accessing Your Credit Reports

To understand why your credit score may have dropped, the initial step involves obtaining your credit reports. These reports contain detailed information about your credit history, which directly influences your credit score. There are three major credit bureaus in the United States: Equifax, Experian, and TransUnion. Each bureau collects and maintains its own set of data, meaning the information can vary slightly between them.

You are entitled to a free copy of your credit report from each of these three bureaus once every 12 months. The official source for obtaining these reports is AnnualCreditReport.com. This centralized website ensures you receive your reports as mandated by federal law. While credit reports list the data that affects your score, they do not always include the score itself; credit scores are separate calculations derived from the report data.

Common Reasons for Credit Score Declines

Several factors can contribute to a decrease in your credit score. Payment history is the most influential component. A single late payment, especially if it is 30 days or more past due, can significantly impact your score and remain on your credit report for up to seven years. The later a payment becomes, such as 60 or 90 days past due, the more severe the negative effect on your overall credit standing.

Another common reason for a score decline is high credit utilization. This refers to the percentage of your available revolving credit that you are currently using. Maintaining a credit utilization ratio above 30% can signal financial stress to lenders and negatively affect your score, even if all payments are made on time. The amounts owed on your accounts, particularly credit card balances, play a substantial role in this calculation.

Opening new credit accounts can also cause a temporary dip in your score. When you apply for new credit, a “hard inquiry” is typically placed on your credit report, which can slightly lower your score for a short period. Opening multiple new accounts in a short timeframe can be viewed as a higher risk by lenders, further impacting your score.

Closing older accounts might reduce your overall available credit and shorten the average age of your credit history. This can also influence your score negatively, as lenders often prefer a longer, established credit history.

Public records, such as bankruptcies, can severely affect your credit score and remain on your report for up to 10 years, depending on the type. While certain public records like tax liens and civil judgments were largely removed from credit reports after 2017, bankruptcies continue to be reported. Identity theft or fraudulent activity can also lead to a sudden and unexpected drop in your credit score. Unauthorized accounts opened in your name or fraudulent charges can quickly accrue debt and negatively impact your credit profile.

Analyzing Your Credit Report for Changes

Once you have obtained your credit reports from all three major bureaus, a detailed review is essential to pinpoint the cause of a score drop. Begin by focusing on recent activity, specifically changes that occurred within the last 30 to 90 days, as these are most likely to correlate with a recent score decline. Look for any new entries or alterations that you do not recognize or that seem inconsistent with your financial activity.

Carefully examine your payment history for any newly reported late or missed payments. Even if you believe all your payments were on time, an error could lead to a reported delinquency. Verify the reported payment status for all accounts, noting if any have been marked as 30, 60, or 90 days late.

Your credit report will also detail account balances and credit limits for revolving accounts like credit cards. Calculate your credit utilization ratio for each card and overall by dividing your total outstanding balances by your total credit limits. An unexpected increase in this ratio, perhaps due to higher spending or a reduced credit limit, could be the reason for a score drop.

Scrutinize the section detailing new accounts and inquiries. Look for any credit accounts you did not open or “hard inquiries” that you did not authorize. Multiple unauthorized inquiries can signal potential identity theft. Also, check the public records section for any new entries, such as bankruptcies, that may have been filed. Finally, confirm the accuracy of all personal information, including your name, address, and employment details, as inaccuracies could indicate a mix-up with another consumer’s file.

Rectifying Inaccuracies

If your analysis reveals inaccuracies or fraudulent activity on your credit report, immediate action is necessary to rectify these errors. The first step involves disputing incorrect information directly with the credit bureaus reporting it. You can typically initiate a dispute online, by mail, or over the phone. When disputing, clearly explain what you believe is wrong, provide any supporting documentation, and keep detailed records of all communications. The credit bureaus are generally required to investigate your dispute within 30 days.

In addition to contacting the credit bureaus, it is advisable to reach out to the original creditor or the company that provided the inaccurate information. Inform them of the error and provide any evidence you have to support your claim. Both the credit bureau and the information furnisher have responsibilities under the Fair Credit Reporting Act (FCRA) to correct inaccurate or incomplete information.

If you suspect identity theft, report it to the Federal Trade Commission (FTC) through their website, IdentityTheft.gov. The FTC provides a personalized recovery plan and an Identity Theft Report, which is crucial for proving to businesses that your identity was stolen. You should also place a fraud alert or a credit freeze on your credit reports with all three major credit bureaus. A fraud alert requires lenders to take extra steps to verify your identity before opening new credit, while a credit freeze restricts access to your credit report, preventing new accounts from being opened in your name.