Why Did My Credit Score Drop 90 Points?

Seeing a significant drop in your credit score, especially one as substantial as 90 points, can be disconcerting. Your credit score functions as a financial report card, summarizing your creditworthiness to potential lenders and creditors. It influences your ability to secure loans, credit cards, and even housing, often determining the interest rates and terms you receive. Understanding the common reasons behind a credit score decrease is the first step in addressing the situation.

Payment Delinquencies

Your payment history is a primary determinant of your credit score, making up a significant portion of its calculation. Even a single late payment can substantially impact your score, with the severity increasing based on how overdue the payment becomes. Creditors typically report payments as late to the credit bureaus once they are at least 30 days past the due date. A payment marked 30 days late can cause a notable score drop, particularly for individuals with excellent credit, who might see a decline of 70 to 90 points.

The impact intensifies as the delinquency lengthens; a payment that is 60 days late can lead to a greater score reduction, and being 90 days late often results in an even larger decrease. Federal student loans are an exception, generally not reported as late until 90 days past due. If an account remains unpaid, it may eventually be charged off as a loss by the creditor and potentially sold to a collection agency. Such collection accounts can cause a significant drop, potentially ranging from 165 to 185 points. These negative marks can remain on your credit report for up to seven years from the original delinquency date, although their impact generally lessens over time.

Changes in Credit Utilization

Credit utilization, often referred to as the credit utilization ratio, represents the amount of revolving credit you are currently using compared to your total available revolving credit. This ratio is a major factor in credit scoring models, accounting for approximately 30% of your FICO score and a notable portion of your VantageScore. It is calculated by dividing your total outstanding revolving balances by your total credit limits. For instance, if you have $3,000 in balances across credit cards with a combined limit of $10,000, your utilization is 30%.

A sudden increase in this ratio, such as maxing out credit cards or carrying high balances, can lead to a significant score drop. Lenders prefer to see a low utilization rate, as it indicates responsible credit management and less reliance on borrowed funds. The general recommendation is to keep your overall credit utilization below 30%, and ideally even lower, with people who have excellent credit often maintaining single-digit utilization. Exceeding this threshold, especially by a large margin (e.g., 50%, 70%, or 90%), can signal increased financial risk to lenders and result in a substantial credit score reduction. This impact can be particularly pronounced if you have a short credit history or only a few credit accounts.

Opening New Credit Accounts

Applying for new credit can also lead to a temporary dip in your credit score, primarily due to the “hard inquiry” that occurs when a lender checks your credit report. A hard inquiry signals to lenders that you are actively seeking new credit, and while a single inquiry might only cause a small drop, typically around five points, multiple inquiries in a short period can have a more significant impact. These inquiries remain on your credit report for up to two years, though FICO scores generally only consider those from the past 12 months.

Beyond inquiries, opening new accounts can affect the average age of your credit history. The length of your credit history is a factor in credit scoring, accounting for about 15% of your FICO score and up to 21% of your VantageScore. Adding new accounts, which have no age, effectively lowers the average age of all your accounts. This reduction in average age can contribute to a score decrease, particularly if you do not have a long established credit history. Additionally, using new credit can increase your overall amounts owed, potentially impacting your credit utilization ratio if not managed carefully.

Closed Accounts and Credit Report Discrepancies

Closing an old credit account can sometimes negatively impact your credit score, even if the account was in good standing. When an account is closed, it reduces your total available credit, which can immediately increase your credit utilization ratio if you carry balances on other cards. For example, if you close a card with a high limit, your overall utilization percentage may rise significantly, potentially leading to a score drop. While a closed account typically remains on your credit report for up to 10 years and continues to contribute to your credit age, closing an older account can still affect the average age of your active accounts, especially if it was one of your oldest.

Credit report discrepancies or errors can also be a surprising cause for a credit score drop. Mistakes can occur due to incorrect identifying information, such as a misspelled name or an incorrect Social Security number, which might lead to your report being merged with someone else’s. Accounts that do not belong to you, incorrect payment histories, or inaccurate balances can appear on your report due to data entry errors by lenders or the credit bureaus themselves.

In some cases, these errors are a sign of identity theft, where a fraudster opens new accounts or makes unauthorized charges in your name, leading to delinquent accounts and hard inquiries. Such inaccuracies can significantly lower your score and make it harder to obtain credit. Regularly reviewing your credit reports from all three major bureaus is important to identify and address any potential errors.