Why Did My Credit Score Go Down 5 Points?

Credit scores are numerical representations of creditworthiness that regularly experience minor fluctuations. A small decrease, such as five points, is common and generally not a cause for significant concern. These slight shifts are a normal part of how credit scores are calculated, reflecting the continuous flow of financial information.

Understanding Credit Score Dynamics

Credit scores are not static figures; they are designed to change based on a snapshot of your financial data at a specific moment. Lenders and creditors frequently report new activity, which updates the information used to calculate your score. A five-point drop often falls within the range of typical daily or weekly variations, suggesting it does not necessarily point to a major negative event.

Credit reporting agencies receive updated information from lenders, typically monthly, often around your statement closing date. Not all lenders report at the same time, and different credit bureaus may update their scores at varying speeds. This asynchronous reporting contributes to the natural ebb and flow of your score.

Common Causes of Minor Score Decreases

Several routine financial activities can lead to a slight dip in your credit score.

A common reason is a new credit inquiry, or hard inquiry. When applying for new credit, the lender performs a hard inquiry to assess risk. This can cause a temporary, small decrease in your score, often by fewer than five points. Hard inquiries remain on your credit report for up to two years, though their impact diminishes after 12 months.

Another cause for a minor score decrease is increased credit utilization. This is the percentage of available credit in use. If your credit card balance increases, your utilization ratio rises, triggering a small score reduction. A higher utilization ratio can signal increased risk to lenders. Experts recommend keeping overall credit utilization below 30%.

Opening a new credit account can also cause a small score dip. This is because a new account lowers the average age of your credit accounts, and credit history length is a factor. While a new account might temporarily decrease your score, it can improve your credit mix and utilization over time if managed responsibly.

The timing of lender reporting can also cause temporary fluctuations. If a payment is made just before a reporting cutoff, or balances update at different times, it can cause a minor, short-term shift.

An old account dropping off your credit report can also lead to a minor score change. Accounts in good standing remain on your report for up to 10 years after closing, positively influencing your credit history. When such an account falls off, it can subtly affect factors like average age or credit mix, leading to a small adjustment.

Finally, minor data reporting errors from a lender or credit bureau can result in small discrepancies that impact your score.

Reviewing Your Credit Report

To understand the specific reason behind a credit score change, reviewing your credit report is a proactive step. Federal law grants you the right to obtain a free copy of your credit report once every 12 months from each of the three major nationwide credit reporting companies: Experian, Equifax, and TransUnion. You can access these reports through AnnualCreditReport.com, which is the only website authorized by the federal government for this purpose. You have the option to request all three reports at once or space them out throughout the year to monitor your credit more frequently.

When examining your credit report, look for recent inquiries, changes in credit limits, or updated account balances that might correspond with the timing of your score drop. Pay close attention to any new accounts you don’t recognize or unfamiliar activity, as these could indicate identity theft or reporting errors. If you identify an error, you have the right to dispute it with the credit reporting company. This involves explaining in writing what is incorrect, providing supporting documents, and requesting a correction. The credit bureaus are required to investigate your dispute within 30 days.