Why Would My Credit Score Drop 10 Points?
Uncover the subtle reasons behind a small 10-point credit score drop. Understand minor shifts affecting your financial profile.
Credit scores are dynamic financial indicators that fluctuate based on changes in your credit behavior and reporting. While a significant drop might be alarming, a decrease of around 10 points is usually a minor adjustment reflecting small changes in financial activity or reporting. Understanding the common reasons behind such minor shifts can help you manage your credit effectively.
Credit Utilization Shifts
Your credit utilization ratio significantly impacts your credit score, making up 30% of your FICO score and 20% of your VantageScore. This ratio compares your current revolving credit use to your total available credit. It is calculated by dividing your total outstanding balances by your total credit limits across all revolving accounts.
Even a slight increase in the reported balance on one or more credit cards can cause a small dip in your score. For instance, a large purchase pushing your reported balance higher just before your credit card issuer reports to the credit bureaus will increase your utilization ratio. This signals to lenders you might be relying more heavily on available credit, seen as a higher risk. Maintaining low credit utilization, generally below 30%, is recommended to positively influence your score.
Recent Credit Activity
Applying for new credit can also lead to a minor, temporary dip in your credit score. When you apply for a new credit card, loan, or mortgage, the lender typically performs a “hard inquiry” on your credit report. A hard inquiry allows lenders to assess your creditworthiness.
Each hard inquiry can cause your score to decrease by a few points, usually fewer than five. While hard inquiries remain on your credit report for up to two years, their impact on your score typically diminishes after 12 months. Opening new accounts also slightly lowers the “average age of accounts,” another factor that can lead to a minor score reduction. The length of your credit history accounts for about 15% of your FICO score.
Minor Payment History Changes
A single late payment can result in a smaller, but noticeable, score reduction. Creditors report payments as late only when at least 30 days past due. While major delinquencies, like 90-day past due payments, cause significant drops, a single 30-day late payment can still negatively affect your score.
Payment history is the most influential factor in determining your credit score, accounting for about 35% of your FICO score. The impact of a late payment varies with your overall credit history; a long history of on-time payments might mean a less severe drop. Once reported, a late payment can remain on your credit report for up to seven years from the date of the missed payment.
Reporting Discrepancies
Sometimes, a credit score drop is due to an error in your credit report, not your actions. Incorrect account information, such as a misreported balance, duplicate entry, or incorrectly marked late payment, can negatively impact your score. These errors can arise from mistakes made by lenders or credit bureaus.
Regularly check your credit reports for accuracy, especially if you notice an unexpected score drop. You are entitled to a free copy of your credit report annually from each of the three major nationwide credit bureaus through AnnualCreditReport.com. If you find an error, dispute it with the credit bureau and information provider. Disputing an error does not negatively affect your credit score; correcting inaccurate information can lead to improvement.