Why Did My Credit Score Randomly Go Down?

A sudden drop in a credit score can be concerning. Credit scores are dynamic representations of an individual’s creditworthiness, constantly fluctuating based on financial activities. Understanding the factors that influence these scores is the first step toward identifying and addressing a decline. This article explains common reasons for unexpected score drops and outlines steps for investigation and resolution.

Understanding Common Causes of Score Declines

Credit scores can decrease for several reasons, with some factors having a more significant impact. A primary reason for a score reduction is a missed or late payment. Payment history is the most influential factor in credit scoring models, accounting for about 35% of a FICO® Score. Even a single payment reported as more than 30 days past due can negatively affect a score, with greater delays causing more severe drops.

Another common cause is increased credit utilization, the percentage of available credit being used. Maxing out credit cards or using a high proportion of available credit signals higher risk to lenders and can significantly lower a score. It is generally advised to keep credit utilization below 30% to maintain a positive impact on scores. Opening new credit accounts, especially multiple in a short timeframe, can also lead to a temporary dip due to associated hard inquiries and a potentially shorter average age of accounts.

Hard inquiries occur when a lender checks a credit report after a credit application. While one or two inquiries may have a minor effect, numerous inquiries within a short period can suggest a higher risk and impact the score. Public records, such as bankruptcies or foreclosures, represent significant financial distress and can cause substantial, long-lasting damage to a credit score, remaining on a report for up to seven years or more.

Identity theft or fraudulent activity can also unexpectedly lower a score if new, unauthorized accounts are opened or existing accounts are misused. Such activity can lead to unfamiliar accounts, charges, or delinquencies appearing on a credit report. Changes in credit scoring models or a reduction in a credit limit by a lender can also influence a score, potentially increasing the utilization ratio even if spending habits remain unchanged.

Accessing and Reviewing Your Credit Reports

To investigate an unexpected credit score drop, examine your credit reports. Federal law grants consumers the right to obtain one free copy of their credit report every 12 months from each of the three major nationwide credit reporting companies: Experian, Equifax, and TransUnion. AnnualCreditReport.com is the only authorized website for these free reports, allowing access online, by phone, or by mail. The three bureaus have also permanently extended weekly free access through this site.

It is advisable to check reports from all three bureaus, as information may vary between them. When reviewing reports, scrutinize several details:

Verify personal information, such as names, addresses, and dates of birth, for accuracy and completeness.
Examine all listed accounts for unfamiliar entries or those not recognized as your own.
Carefully check payment statuses, ensuring recorded payments are accurate, and that account balances and credit limits are correct.
Look for any duplicate accounts or entries, which can inflate reported debt or inquiries.
Identify unauthorized hard inquiries, which are credit checks initiated without your consent.
Note any discrepancies, from incorrect account details to suspicious activity, as these could indicate an error or identity theft.

Taking Action on Credit Report Issues

Once an issue is identified on a credit report, take swift action. If an error is found, such as an incorrect late payment or an account that does not belong to you, it can be disputed with the credit bureaus. Disputes can typically be filed online, by mail, or by phone directly with Experian, Equifax, or TransUnion. When initiating a dispute, provide clear details of the inaccurate item, explain why it is incorrect, and include copies of any supporting documentation.

The credit bureau must investigate the disputed item, typically within 30 days. It is also advisable to dispute the information directly with the company that provided it to the credit bureaus, such as your bank or credit card issuer. If the investigation confirms the information is inaccurate, it must be corrected or removed from your report.

If the review reveals unfamiliar accounts or activity pointing to identity theft, immediate steps should be taken. One can place a fraud alert on credit reports, which advises creditors to take extra steps to verify identity before processing new credit applications. An initial fraud alert lasts for one year, while an extended alert can last for seven years. A more robust measure is a credit freeze, which restricts access to your credit report, making it difficult for identity thieves to open new accounts in your name. A credit freeze must be placed with each of the three major credit bureaus individually and remains in effect until you lift it.

In cases of identity theft, it is also important to report the incident to the Federal Trade Commission (FTC) via IdentityTheft.gov. The FTC provides a personalized recovery plan and can assist with generating an Identity Theft Report, which is often needed for police reports and disputing fraudulent accounts. Additionally, contact creditors directly regarding any fraudulent accounts opened in your name. For valid negative information, such as legitimate late payments or high balances, improvement strategies involve consistently making on-time payments and actively reducing debt, as these actions demonstrate responsible credit management over time.