How to See Why Your Credit Score Went Down

A credit score is a numerical representation of your creditworthiness, typically a three-digit number, indicating the likelihood you will repay borrowed money on time. It serves as a snapshot of your financial reliability for lenders, influencing approvals for loans, mortgages, and credit cards, as well as the interest rates you are offered. Credit scores are dynamic and fluctuate, reflecting shifts in your financial behavior or credit report information.

Obtaining Your Credit Reports and Scores

Examining your credit reports is the first step to understanding why your credit score may have changed. Consumers can obtain free weekly credit reports from each of the three major nationwide credit bureaus—Experian, Equifax, and TransUnion—through AnnualCreditReport.com, or by phone or mail.

A credit report is a detailed record of your credit history, including bill payment history, loans, current debt, and public records like bankruptcies. In contrast, a credit score is a numerical summary derived from your credit report, estimating your credit risk at a specific moment. While credit reports do not include your credit score, you can often obtain your score through credit card companies, banks, or other financial services. Various scoring models exist, such as FICO and VantageScore, meaning you may have different scores depending on the model used.

Identifying Negative Factors on Your Reports

Once you have obtained your credit reports, you can identify specific items that might have caused a score decrease. Your payment history is a significant factor in credit scoring models, and even a single missed payment can negatively impact your score. Lenders report payments as late if they are 30 days or more past due, and these delinquencies can remain on your report for up to seven years. Review the payment history section for each account on your report.

High credit utilization, the amount of credit you are using compared to your total available credit, is another common reason for a score drop. A higher utilization ratio suggests increased risk to lenders and can lower your score. Keeping your overall credit utilization below 30% helps maintain a healthy score. Check the balances and credit limits on your revolving accounts, such as credit cards, to assess your utilization ratio.

Applying for new credit can also lead to a temporary score reduction due to “hard inquiries.” A hard inquiry occurs when a lender checks your credit report as part of a loan or credit card application. It remains on your report for two years, though its impact on your score usually lasts up to one year. While a single inquiry usually has a minimal effect, multiple inquiries in a short period can have a compounding impact. You can find a record of these inquiries in a dedicated section of your credit report.

Collection accounts and charge-offs indicate delinquent debts that have either been sold to a collection agency or written off by the original creditor. These negative marks can impact your credit score, remaining on your report for seven years. Look for these entries in the public records or collection accounts sections of your credit report. Public records, such as bankruptcies, foreclosures, or civil judgments, also affect credit scores and can remain on reports for many years. These items are listed near the end of your credit report.

A drop in your credit score may signal identity theft. Unauthorized accounts opened in your name or fraudulent activity on existing accounts can appear on your credit report. Review your report carefully for any unfamiliar accounts, addresses, or inquiries that you did not initiate.

Steps for Correcting Errors

If you identify inaccuracies or fraudulent activity on your credit report, dispute these errors. You can initiate a dispute directly with the credit bureau (Experian, Equifax, or TransUnion) reporting the incorrect information. Disputes can be submitted online, by mail, or over the phone.

When submitting a dispute, explain what is wrong and include copies of any supporting documentation. The credit bureau will investigate your dispute, often by contacting the company that provided the information. This investigation process takes around 30 to 45 days. After the investigation, the credit bureau will notify you of the results and update your report if an error is confirmed.

You can also dispute the information directly with the company that furnished it to the credit bureau, such as your bank or credit card issuer. If you believe your rights under the Fair Credit Reporting Act (FCRA) have been violated, or if you need further assistance with identity theft, you can contact the Federal Trade Commission (FTC) or the Consumer Financial Protection Bureau (CFPB) for guidance and support.