Why Did My Credit Score Drop After Making a Payment?

It can be confusing to see your credit score decrease after making a payment on an account. This outcome often seems counter-intuitive. However, several common factors can explain why a credit score might temporarily drop even after a payment has been made.

Credit Reporting Timing

Creditors typically report account activity to credit bureaus once a month. This reporting usually occurs around your statement closing date, which is the end of your billing cycle. The balance reported to the credit bureaus is generally the amount owed on that specific date.

If you make a payment shortly after your statement closes, or if your payment processes but isn’t reflected by the time the creditor sends its monthly update to the credit bureaus, the reported balance might still show the higher amount from before your payment. This can temporarily impact your credit utilization ratio, potentially leading to a score drop. Credit scores are essentially snapshots based on the data reported at a given time, not instantaneous updates reflecting every transaction.

For instance, if your credit card statement closes on the 15th and you make a large payment on the 16th, the balance reported for that month might still be the full amount from before your payment. It could take another billing cycle for the lower balance to be officially reported and reflected in your credit score. This temporal lag between your payment and its appearance on your credit report is a frequent cause of temporary score fluctuations.

Changes in Credit Utilization

Credit utilization is a significant factor in credit scoring, representing the amount of revolving credit you are using compared to your total available revolving credit. This ratio is calculated for each individual credit account and across all your revolving accounts combined. A lower utilization ratio generally indicates responsible credit management and is viewed favorably by credit scoring models.

Even after making a payment, your overall credit utilization ratio might not improve enough to positively impact your score, or it could worsen. This can happen if the payment was small relative to your outstanding balance. For example, if you owe $900 on a $1,000 credit limit and pay $100, your utilization remains high at 80%.

If other credit accounts saw increased balances, your aggregate utilization across all accounts could have risen, offsetting any positive effect from your payment. A lender might also have lowered your credit limit, reducing your total available credit and increasing your utilization ratio even if your balance remained the same or decreased slightly.

Other Credit Account Activity

A credit score reflects your entire credit profile, not just activity on a single account. A score drop could be due to other credit activities that occurred around the same time as your payment. Applying for new credit, such as a new credit card or a loan, results in a “hard inquiry” on your credit report. Each hard inquiry can cause a small, temporary dip in your score.

Opening a new credit account can also affect your score by lowering the average age of your credit accounts, which is another factor in credit scoring models. A younger average age of accounts can signal less established credit history, potentially leading to a slight score reduction.

Negative marks on other accounts, such as a late payment, a collection, or a public record like a bankruptcy, can significantly impact your credit score, overshadowing any positive effect from a single payment. A missed payment on another account reported to the bureaus could cause a substantial score drop. Closing an old, established account can also negatively affect your score by reducing your total available credit and shortening your average account age.

Data Errors and Discrepancies

Sometimes, a credit score drop after a payment is due to incorrect information appearing on your credit report. Consumers are entitled to a free copy of their credit report from each of the three major credit bureaus—Equifax, Experian, and TransUnion—once every 12 months. These reports can be accessed through AnnualCreditReport.com.

Reviewing your credit reports can help you identify errors that could negatively impact your score. These errors might include incorrect account balances that do not reflect your recent payment, accounts that you do not recognize or that do not belong to you, duplicate accounts, or incorrect payment statuses, such as an account being reported as late when it was paid on time.

Discovering such discrepancies is important because they can unfairly lower your credit score. If you find an error, you have the right to dispute it with the credit bureau and the information provider.