Why Did My Credit Score Drop 30 Points?
Did your credit score drop? Learn the common reasons behind credit rating fluctuations and how to understand your financial standing.
Credit scores provide a numerical summary of an individual’s financial reliability. This number constantly shifts based on financial activities. Understanding these fluctuations, even relatively small ones like a 30-point drop, is important for maintaining sound financial health and securing favorable terms on future credit products.
Changes in Account Balances
An increase in outstanding balances on revolving credit accounts, most notably credit cards, frequently leads to a decrease in a credit score. This centers on the “credit utilization ratio,” which represents the amount of credit used compared to total available credit across all revolving accounts. For instance, if someone has a total credit limit of $10,000 and carries a balance of $3,000, their utilization ratio is 30%.
Lenders and credit scoring models view high credit utilization as an indicator of risk. Financial experts advise maintaining a credit utilization ratio below 30%, with ratios under 10% considered more favorable for credit scores. A significant jump in this ratio, even if all payments are made on time, can trigger a noticeable score reduction.
A 30-point drop could occur if utilization crosses a key threshold, such as moving from 10% to 40% or higher. This impact can be immediate, as credit utilization can change a score quickly upon being reported. Overall utilization across all accounts matters, but high utilization on a single card can also negatively influence scores.
New Credit Applications
Applying for new credit, such as a credit card, auto loan, or mortgage, can result in a temporary dip in a credit score. This occurs because lenders perform a “hard inquiry” to assess creditworthiness when an application is submitted. A hard inquiry signifies that an individual is actively seeking new debt.
Each hard inquiry can cause a small reduction in a credit score, often fewer than five points. While a single inquiry usually has a minimal, temporary effect, multiple hard inquiries within a short timeframe, particularly for different types of credit, can have a compounding negative impact. This signals to scoring models that an individual might be taking on too much debt rapidly.
Hard inquiries remain on a credit report for up to two years, though their direct influence on a credit score diminishes after about one year. An exception exists for “rate shopping” for loan types like mortgages, auto loans, or student loans; multiple inquiries for these within a concentrated period (often 14 to 45 days, depending on the scoring model) are treated as a single inquiry. Beyond hard inquiries, opening a new account also reduces the average age of credit accounts, which can contribute to a small initial score adjustment.
Missed Payments
Payment history is the most influential factor in calculating a credit score, accounting for approximately 35% of the score. Even a single late or missed payment can have a profound negative impact. A payment must be reported as 30 days or more overdue before it appears on a credit report and affects the score.
Once a payment is reported as 30 days late, it can cause a substantial credit score drop, potentially ranging from 50 to over 100 points, depending on the credit profile and starting score. Individuals with higher credit scores experience a more significant point reduction from a late payment compared to those with lower scores. A late payment on a credit report can remain for up to seven years from the date of the delinquency.
While a payment only a few days late might not be reported to credit bureaus, it can still result in late fees and higher penalty interest rates from the creditor. The severity of the score drop increases with the duration of the delinquency; a 60-day or 90-day late payment will have a more damaging effect than a 30-day late payment.
Reporting Errors
A credit score decline could stem from inaccuracies on a credit report or be a sign of identity theft. Such errors might include accounts that do not belong to the individual, payments mistakenly marked late, or fraudulent accounts opened under their name. These discrepancies can unfairly lower a credit score, impacting financial opportunities.
Regularly review credit reports from all three major credit bureaus—Equifax, Experian, and TransUnion—which can be accessed annually for free through annualcreditreport.com. Upon identifying an error, consumers can dispute the inaccurate information. The dispute process involves contacting both the credit bureau that reported the error and the creditor or furnisher that provided incorrect information.
Disputes can typically be submitted online, by mail, or over the phone. Under the Fair Credit Reporting Act (FCRA), credit bureaus are required to investigate the dispute within 30 days, though this period can extend to 45 days in certain circumstances. If the information cannot be verified by the furnisher during the investigation, it must be removed or corrected from the credit report.