Why Did My Credit Score Drop 8 Points?
Understand the common, often subtle reasons behind a small credit score drop. Learn why minor fluctuations are normal and not a cause for alarm.
A slight dip in your credit score, such as an 8-point reduction, can be perplexing. Credit scores are not static; they frequently adjust as new information is reported. This dynamic nature means minor fluctuations are common and typically do not signal a significant financial issue. Understanding factors that influence these shifts can provide clarity and reassurance. This article explores common reasons for minor score adjustments.
Higher Reported Balances
One common reason for a small credit score decrease is an increase in your reported credit card balances. Credit utilization, the amount of revolving credit used compared to total available credit, is a significant factor in credit scoring models. It can account for approximately 30% of a FICO score. Lenders prefer to see a credit utilization ratio below 30%, with lower percentages often correlating with higher scores.
Even if you pay your credit card balance in full each month, the balance reported to credit bureaus is the one from your statement closing date. If your spending was slightly higher than usual leading up to this date, the reported balance will be elevated, temporarily increasing your utilization ratio. This increase, even if you pay it off before the due date, can result in a minor score dip until a lower balance is reported in the subsequent cycle.
New Credit Inquiries
Applying for new credit can also lead to a small, temporary reduction in your credit score. When a lender checks your credit report for a loan or credit card application, it results in a “hard inquiry.” This inquiry indicates to other lenders that you are seeking new credit, which can be seen as a slight increase in risk.
A single hard inquiry causes a minimal score drop, around 5 points or less, though some reports indicate it could be up to 8-10 points. This impact is brief, affecting your score for about 12 months, even though the inquiry remains on your credit report for up to two years. It is important to distinguish hard inquiries from “soft inquiries,” such as checking your own credit score or pre-qualification offers, which do not impact your score.
Minor Data Updates
Credit scores fluctuate from month to month due to various routine updates. Sometimes, small score changes can occur because creditors report updated information to the credit bureaus, or due to minor internal adjustments within the credit scoring algorithms.
Factors such as slight changes in the average age of your credit accounts, from a very old account falling off your report or opening a new, relatively young account, can also contribute to minor score movements. While payment history and utilization are more influential, credit mix also plays a role. An 8-point drop is considered a minor fluctuation and is not indicative of a major problem like identity theft or significant errors, though reviewing your credit report for accuracy is always a prudent practice.