Why Does My Credit Score Keep Going Down?

A credit score is a numerical representation, typically ranging from 300 to 850, that estimates an individual’s likelihood of repaying a loan and making payments on time. Lenders use this score to assess creditworthiness to offer credit products like mortgages, auto loans, or credit cards. It also influences interest rates and credit limits. A credit score is dynamic and fluctuates based on information in your credit reports. An unexpected decline signals changes in underlying financial data. This article explores common reasons why a credit score might decrease, providing insights into the factors that influence this important metric.

Changes in Payment Behavior

Payment history holds significant weight in credit scoring models, accounting for about 35% of a FICO score. Consistently making payments on time is foundational to maintaining a favorable credit score. Even a single late payment can lead to a noticeable decrease in your score, especially if your credit history has been exemplary. Creditors typically report payments as late once they are 30 days past due.

The severity of the score drop increases with payment lateness. A 30-day late payment impacts your score, but falling 60 or 90 days behind results in a more substantial decrease. Each subsequent missed payment or longer delinquency further damages your score. Negative marks can remain on your credit report for up to seven years from the original delinquency date.

While a late payment’s initial impact is most pronounced, its effect diminishes over time with consistent, on-time payments. The late payment record itself persists on your report for the full seven-year period. Maintaining a diligent payment schedule across all credit obligations is fundamental to preserving and improving your credit standing.

Increased Credit Utilization

Credit utilization is another major factor influencing credit scores, accounting for about 30% of a FICO score. This metric represents the amount of revolving credit used compared to total available credit. For instance, a $3,000 balance on a $10,000 limit card is 30% utilization.

A high credit utilization ratio signals increased financial risk to lenders, potentially reducing your score. Keep overall credit utilization below 30% for a good score; below 10% often correlates with excellent scores. This applies to both overall and individual credit card utilization.

Maxing out credit cards or carrying high balances negatively affects your score, even with on-time minimum payments. Lenders may perceive borrowers using a large portion of available credit as overextended and likely to struggle with repayment. Managing balances well below credit limits is an effective strategy to prevent utilization-related score drops.

Recent Credit Applications and New Accounts

Applying for new credit can also temporarily cause a credit score decline due to a “hard inquiry.” A hard inquiry occurs when a lender requests your credit report to evaluate creditworthiness after you apply for a loan or new credit card. Each hard inquiry can lead to a small score decrease, typically a few points.

These inquiries remain on your credit report for up to two years, though their score impact usually fades after 12 months. While a single inquiry has a minimal effect, multiple hard inquiries within a short timeframe can signal to lenders you are seeking significant new debt, viewed as elevated risk. However, credit scoring models often account for “rate shopping,” where multiple inquiries for the same type of loan, such as a mortgage or auto loan, within a specific period (14 to 45 days), are counted as a single inquiry.

Opening new accounts affects the average age of your credit accounts. A shorter average age indicates less established credit history, potentially impacting your score, especially for those without a long credit history. Therefore, apply for new credit only when necessary and avoid opening too many accounts in a brief period.

Negative Information and Public Records

Severe negative financial events profoundly impact a credit score. Accounts sent to collections occur when debt goes unpaid for an extended period (typically 120 days), and the original creditor turns it over to a collection agency. A collection account significantly damages credit scores and remains on your credit report for seven years from the first missed payment that led to the action.

More drastic events, like bankruptcies, represent a significant financial setback. A Chapter 7 bankruptcy stays on your credit report for up to 10 years from filing, while Chapter 13 typically remains for seven years. These public records indicate severe financial distress and are viewed unfavorably by lenders.

Similarly, a foreclosure, where a lender takes possession of property due to missed mortgage payments, appears on your credit report. A foreclosure remains on your credit report for seven years from the first missed payment that initiated the process. These negative entries cause substantial score decreases and demonstrate high risk to potential creditors.

Credit Report Errors or Fraud

Sometimes, a declining credit score results from inaccuracies or fraudulent activity on your credit report. Errors include incorrect late payments, accounts not belonging to you, or outdated negative information. Such discrepancies unfairly lower your credit score.

Identity theft is another concern where fraudulent accounts or unauthorized charges appear on your report. These activities introduce negative entries or inflate debt levels, leading to an unexpected score drop. Regular review of credit reports identifies suspicious or erroneous information.

Consumers are entitled to a free annual credit report from each of the three major credit bureaus—Equifax, Experian, and TransUnion. Checking these reports helps spot potential errors or fraud contributing to a lower credit score without your knowledge. Identifying and addressing these issues is necessary when your score drops without an apparent reason.