How to Figure Out Why My Credit Score Dropped

A credit score serves as a numerical representation of an individual’s financial behavior and creditworthiness. It fluctuates based on various financial activities. An unexpected drop signals a change in underlying financial data. Understanding the reasons is important for managing personal finances. This article guides readers through identifying why their credit score declined.

Accessing Your Credit Information

Obtaining detailed credit reports is the foundational step to understanding a credit score drop. Federal law allows a free credit report annually from each of the three major credit bureaus: Equifax, Experian, and TransUnion. Access these reports via AnnualCreditReport.com, the only authorized website. Reviewing reports from all three bureaus is advisable, as information may vary.

While traditionally annual, a program now allows weekly free reports from each bureau via AnnualCreditReport.com. This increased frequency allows regular monitoring and immediate online access.

Credit scores are also available through credit card companies, banking apps, or monitoring services. Distinguish between “educational scores” and FICO scores. Educational scores offer a general indication of credit health but may not be the exact scores lenders use. FICO scores are widely used by lenders and calculated using credit report information. Obtaining the detailed credit report is the most important initial action, providing account-level data to investigate any score reduction.

Identifying Common Causes of a Credit Score Drop

A credit score decline stems from changes in financial activity or reported data. Payment history is a primary factor. Late payments, missed payments, or defaults significantly lower a score. Even a single payment 30 days past due can negatively affect a score, with more severe delinquencies causing larger reductions.

Credit utilization, the amount of revolving credit used compared to total available credit, is another common cause. High balances, especially exceeding 30% of the credit limit, signal higher risk and can trigger a score drop. Maxing out credit cards indicates heavy reliance on borrowed funds and leads to a substantial score decrease.

New credit activity can also influence a score short-term. Opening new accounts, like credit cards or loans, temporarily lowers a score due to decreased average account age and hard inquiries. A hard inquiry occurs when a lender pulls a credit report for an application. Multiple hard inquiries suggest greater risk. However, this impact is usually temporary and less severe than payment delinquencies or high utilization.

Public records entries, such as bankruptcies, foreclosures, or collection accounts, represent severe financial events that drastically reduce a credit score. These events indicate an inability to meet financial obligations and remain on a credit report for several years, profoundly affecting credit standing during that time. A collection account signals an unpaid debt transferred to a collection agency.

Closing older credit accounts can also unintentionally contribute to a score decrease. This reduces overall available credit, increasing the credit utilization ratio on remaining accounts. It can also shorten the average age of a credit history, a factor in credit scoring models, potentially leading to a score reduction.

Investigating Your Credit Report for Discrepancies

After obtaining credit reports, thoroughly review them to pinpoint entries explaining a score decline. Examine the “Recent Activity” section for new accounts, hard inquiries, or status changes. For example, an account previously “current” might now show “30 days late” or “default,” correlating with a score drop.

Scrutinize balance information on all revolving accounts, like credit cards. A sudden increase in reported balances, even if later paid, could indicate high credit utilization. Compare reported balances against your records for accuracy.

Identify any unfamiliar accounts or inquiries. Unrecognized accounts or credit applications could signal identity theft. Inquiries from unapplied-to lenders warrant immediate investigation.

Check for new public record entries, including collection accounts, bankruptcies, or judgments. These damaging entries might appear without direct notification. Systematically review each report section against your financial history to find discrepancies or unexpected changes. This process connects a score reduction to specific data points.

Disputing Inaccurate Information

Once an inaccuracy or unfamiliar entry is identified, initiating a dispute is the next step. Consumers can dispute inaccurate or incomplete information directly with Equifax, Experian, and TransUnion online, by mail, or by phone. When disputing, clearly identify the item, explain its inaccuracy, and provide supporting documentation like payment records or canceled checks.

Credit bureaus must investigate disputed information, typically within 30 days, extending to 45 days with additional consumer information. During investigation, the bureau contacts the data furnisher (creditor or lender) to verify accuracy. If inaccurate, incomplete, or unverifiable, the credit bureau must remove or correct it.

Consumers can also dispute information directly with the data furnisher. This approach may resolve issues more quickly, as the furnisher has direct access to account records. Data furnishers receiving a direct dispute must investigate and report the outcome.

Regardless of where the dispute is initiated, maintain detailed records of all communications, including dates, names, and document copies. If resolved in your favor, corrected information will reflect on your credit report, improving your score. If not resolved to your satisfaction, you can add a statement to your credit report explaining your side.