If Your Credit Score Goes Down, How Can You Fix It?

A credit score summarizes an individual’s creditworthiness, influencing access to financial products like loans and credit cards. It helps lenders assess risk. While a credit score can fluctuate, a decline is often fixable. This article outlines steps to understand factors affecting your score, identify reasons for a drop, and implement improvement strategies.

Understanding Your Credit Report and Score Factors

A credit report details an individual’s financial history, including bill payment records, outstanding loans, and public records. Three major nationwide credit reporting companies—Equifax, Experian, and TransUnion—compile these reports. Consumers are entitled to a free copy from each bureau once every 12 months through AnnualCreditReport.com.

The information in these reports directly influences a credit score, with the FICO score being a widely used model. This score ranges from 300 to 850 points and is shaped by five factors:
Payment history (35%): consistency of on-time payments.
Amounts owed (30%): proportion of available credit used.
Length of credit history (15%): how long accounts have been open and active.
New credit (10%): recent applications and newly opened accounts.
Credit mix (10%): diversity of credit types, such as revolving credit and installment loans.

Strategic Credit Management Actions

Improving a credit score involves consistent financial habits. Timely payments are the most impactful action. Paying all bills, including credit card statements, loan installments, and utility bills, on or before their due dates is paramount, as payment history accounts for a significant portion of the credit score. Automating payments can help ensure consistency and prevent missed deadlines.

Managing credit utilization effectively is another crucial step. Keep outstanding balances low relative to available credit limits. Financial guidelines suggest maintaining a credit utilization ratio below 30% on revolving accounts. For instance, if you have a credit card with a $1,000 limit, keeping the balance below $300 is advisable.

Maintaining older credit accounts in good standing contributes positively to the length of credit history. Closing old accounts, even if unused, can inadvertently shorten the average age of accounts and potentially lower a score. Applying for multiple new accounts in a short period can trigger hard inquiries, temporarily lowering the score. A diverse credit mix, including revolving credit and installment loans, can also contribute positively to a score.

Addressing Negative Information

Identifying and addressing inaccurate information on a credit report is important. Consumers have the right to dispute errors found on their reports with the credit bureaus—Equifax, Experian, and TransUnion. The dispute process involves contacting the bureau, explaining the error, and providing supporting documentation.

Upon receiving a dispute, the credit bureau is generally required to investigate the item within 30 days. If the investigation confirms the information is inaccurate or cannot be verified, the item must be corrected or removed from the report. For legitimate negative items, such as late payments or collection accounts, direct negotiation with the creditor or collection agency may be an option. While a “pay-for-delete” agreement, where a negative item is removed in exchange for payment, is sometimes attempted, its success is not guaranteed and it is not a standard practice among all creditors. It is important to understand that many legitimate negative marks, such as late payments or collection accounts, can remain on a credit report for up to seven years, while bankruptcies may stay for up to ten years.

Rebuilding and Ongoing Credit Monitoring

For individuals needing to establish or rebuild their credit history, specific financial tools can be highly effective. Secured credit cards require an upfront cash deposit, which typically serves as the credit limit, acting as collateral for the issuer. These cards function like traditional credit cards, with payments reported to credit bureaus, allowing users to demonstrate responsible credit behavior and build a positive payment history.

A credit-builder loan is another useful tool. Unlike traditional loans, the loan amount is often held by the lender in a savings account or certificate of deposit while the borrower makes regular payments. These payments are reported to the credit bureaus, and once the loan is fully repaid, the funds are released to the borrower. Both secured credit cards and credit-builder loans provide a structured way to create a consistent record of on-time payments. Continuous credit monitoring is also important to track progress, ensure report accuracy, and promptly identify any new issues. While minor credit score improvements can be seen within 30 to 45 days, significant recovery from negative events can take several months to a few years, underscoring the importance of consistent effort and patience.