How to Find Out Why Your Credit Score Went Down
Has your credit score dropped unexpectedly? Learn how to investigate the precise cause and effectively address it to improve your financial health.
A credit score serves as a numerical representation of an individual’s creditworthiness, influencing access to financial products like loans, credit cards, and mortgages. Lenders and creditors rely on these scores to assess risk before extending credit. While a credit score typically fluctuates over time, a noticeable drop can signal changes in one’s financial profile. Understanding the specific reasons behind a score decrease is the first step toward effectively addressing the issue.
Accessing Your Credit Information
To understand why a credit score may have declined, the initial step involves obtaining accurate credit information. The three major nationwide credit reporting agencies are Experian, Equifax, and TransUnion. Consumers are entitled to a free copy of their credit report from each of these three agencies once every 12 months. The official and designated source for these free reports is AnnualCreditReport.com. This centralized website allows individuals to request their reports securely and directly from the bureaus.
Beyond the annual free reports, many financial institutions, such as banks and credit card providers, offer access to credit scores as a complimentary service to their customers. Additionally, various legitimate online services provide free credit scores, often updated monthly. While these services provide a numerical score, they may not always include the comprehensive details found in a full credit report.
Understanding Common Credit Score Influences
Several factors consistently influence credit scores, and changes in these areas can lead to a score decline. Payment history holds significant weight, as missed or late payments on any credit obligation can negatively impact a score. Even a single payment that is 30 days or more past due can cause a notable reduction.
Credit utilization, which is the amount of revolving credit currently being used compared to the total available credit, is another impactful factor. Maintaining high balances on credit cards, especially when they approach or exceed credit limits, often results in a lower score. The length of one’s credit history also plays a role, with a longer history of responsible credit use generally correlating with higher scores. Opening new accounts can temporarily reduce the average age of accounts, potentially causing a slight dip.
New credit inquiries, particularly hard inquiries made when applying for new loans or credit cards, can also lead to minor, temporary score reductions. These inquiries signal to lenders that an individual is seeking new credit. Finally, the credit mix, referring to the diversity of credit accounts such as installment loans and revolving credit, contributes to the overall score. A balanced mix, managed responsibly, can be viewed favorably.
Analyzing Your Credit Report for Specific Changes
Once you have obtained your credit reports, a meticulous review is necessary to pinpoint the exact reasons for a score drop. Begin by examining the payment history section, as this is often the most impactful area. Look for any recently reported late payments, especially those marked as 30, 60, or 90 days past due, or new collection accounts and charge-offs. Verify the dates of these reported events to align with the timeframe of your score decline.
Next, shift attention to the accounts section, specifically focusing on revolving credit accounts like credit cards. Calculate your credit utilization ratio by comparing the current reported balances to the credit limits for each card. A significant increase in this ratio, perhaps due to higher spending or a reduction in credit limits, can be a direct cause of a score decrease. Note any recently closed accounts, as this can also affect your utilization if it reduces your total available credit.
Review the inquiries section for any recent hard inquiries that you do not recognize or that correspond to applications you did not initiate. While individual inquiries have a minor impact, a sudden cluster of them within a short period, sometimes referred to as “credit seeking behavior,” can collectively affect your score. Finally, check the public records section for any new bankruptcies, foreclosures, or civil judgments. Although less common for sudden, unexplained drops, these events have a profound and lasting negative effect on credit scores.
Responding to Identified Credit Score Changes
After carefully analyzing your credit report and identifying the specific reason for a score decline, the next steps involve addressing either inaccuracies or legitimate financial activities. If you discover an error on your credit report, such as a payment incorrectly marked as late or an account you never opened, you have the right to dispute it. The dispute process typically involves contacting the credit bureau that reported the error, and it is often advisable to also contact the creditor directly.
When disputing an error, you should provide specific details, including the account number, the exact nature of the inaccuracy, and any supporting documentation you possess. Credit bureaus generally have 30 days, and sometimes up to 45 days, to investigate your dispute once they receive it. If the investigation confirms an error, the information must be corrected or removed from your report, which can lead to a score improvement.
For score drops resulting from legitimate financial activities, such as increased credit utilization or recent new accounts, a different approach is necessary. To mitigate the impact of high utilization, focus on reducing revolving credit balances; paying down credit card debt can quickly improve this ratio. For new accounts or inquiries, consistently making on-time payments on all accounts is paramount. Over time, a history of timely payments will help rebuild your score and demonstrate responsible credit management.