Why Did My Credit Score Go Down 20 Points?

A credit score is a numerical representation of creditworthiness, influencing access to financial products like loans and credit cards. These scores are dynamic and fluctuate based on various financial activities. A 20-point change in a credit score, while noticeable, often falls within the range of typical variations. Such a drop warrants investigation, as it can signal shifts in financial behavior or reported data.

Key Factors Affecting Your Score

Changes in several key elements can decrease a credit score.

Payment History

Payment history is a primary factor, accounting for about 35% of a FICO score. Missing a payment by 30 days or more can substantially lower a score. The impact diminishes over time but remains on a report for up to seven years. The more severe the lateness (e.g., 60 or 90 days), the greater the negative effect.

Credit Utilization

Credit utilization, the proportion of available credit used, accounts for 30% of a FICO score. A sudden increase in balances, particularly if it pushes utilization above 30% of the total credit limit, can lead to a score drop. Lenders prefer a lower ratio, suggesting responsible credit management.

Hard Inquiries

A “hard inquiry” occurs when a lender requests a credit report for a new credit application. Each hard inquiry can cause a small, temporary dip in a credit score, typically fewer than five points. It remains on a report for up to two years, though its direct impact on the score usually lasts for 12 months. Multiple inquiries in a short period, especially for different credit types, can signal higher risk and have a more significant combined effect.

New Accounts

Opening new credit accounts can cause a temporary score reduction. This lowers the average age of all credit accounts, a factor in score calculations. New accounts typically involve a hard inquiry, contributing to the initial dip. The length of credit history accounts for about 15% of a FICO score.

Closing Accounts

Closing old credit accounts can impact a score by reducing the overall available credit, thereby increasing the credit utilization ratio if balances remain on other cards. Closing an old account might also shorten the average length of credit history, negatively influencing the score. Accounts in good standing remain on a credit report for up to 10 years after closure, still contributing to credit history.

Derogatory Marks

Events like bankruptcy or foreclosure are reported as public records and can severely damage credit scores. While a 20-point drop is not indicative of these events alone, they represent significant financial distress. These derogatory marks can remain on a credit report for seven to ten years.

Identity Theft

Identity theft or fraud can lead to an unexpected score decrease. Unauthorized activity, such as new accounts opened in one’s name or fraudulent charges on existing accounts, can result in increased credit utilization and new hard inquiries. These activities can quickly accumulate and be reported to credit bureaus, negatively affecting the score.

Accessing Your Credit Information

Reviewing credit reports is essential to understand a credit score change.

Obtaining Reports

Federal law provides access to a free credit report every 12 months from each of the three major nationwide credit bureaus: Equifax, Experian, and TransUnion. AnnualCreditReport.com is the official website for obtaining these reports. While traditionally limited to once per year, consumers can currently access them weekly for free. When requesting reports online, individuals verify their identity through security questions. Request all three reports at once or space them out throughout the year for continuous monitoring.

Reviewing Reports

Once obtained, examine each report for recent changes that could explain a score drop. Review key information including unauthorized new accounts, recent hard inquiries, and reported late payments. Also check for collection accounts or unfamiliar activity since your last credit check. Compare all three reports, as information may be reported differently or to only one bureau. Identifying discrepancies, inaccuracies, or suspicious entries is crucial for pinpointing the cause of a score decrease.

Steps After a Score Change

Once credit report review identifies issues, specific actions can address the score change.

Disputing Errors

If errors or fraudulent entries are discovered, disputing them directly with credit bureaus is important. This involves explaining in writing what is incorrect, providing supporting documentation, and sending it to the bureau reporting the error. Credit bureaus are required to investigate disputes within 30 days, unless deemed frivolous.

Contacting Creditors

Contacting creditors directly can be beneficial. This might include requesting a goodwill adjustment for a minor late payment, especially if it is an isolated incident and only slightly overdue. Creditors may clarify account statuses or correct reporting errors more quickly. Maintaining open communication with lenders can prevent further negative reporting.

Monitoring Credit

Establishing credit monitoring alerts or regularly checking credit reports tracks future changes and prevents unexpected score fluctuations. Many financial institutions and credit services offer free or paid monitoring services that alert individuals to significant changes. Regularly pulling free credit reports helps stay informed about account activity.

Identity Theft Protection

If credit report review suggests identity theft, immediate protective steps are necessary. Placing a fraud alert on credit reports signals to lenders that extra verification is needed before new credit is extended. For more comprehensive protection, a security freeze can be placed on credit reports. This restricts access to the report and makes it more difficult for new accounts to be opened. Credit bureaus must place a freeze within one business day of a request.