Published in: Credit Cards | Sept. 21, 2018
By: Lyle Daly
Monitoring your credit is a good habit to get into, but it can also be stressful if you sign in one day and notice that your score has gone down. It's not always obvious why this happens, which makes it hard to know how to get your score back to where it was.
But there are only so many possible explanations for a credit score drop. Once you know what they are, you'll be able to pinpoint what happened to your score and how to fix it.
Before you start digging into your credit history, make sure you're using the same service to check your credit score as you used before.
Here's why -- you have a lot of credit scores. The three major credit bureaus of Equifax, Experian, and TransUnion all assign scores based on the information they have for you, and they do this with both the FICO system (the most widely used) and the VantageScore system. There are even multiple versions of your score with each system.
If you originally used a service that provided your VantageScore 3.0, and then used a service that provided your FICO® 8 score, that would explain why there's a difference.
Assuming you're checking the same score, let's get into the reasons behind a credit score drop.
The most likely cause of a credit score drop is your credit utilization. It's a significant factor in your score, and since most people's utilization changes at least a little from month to month, it's a common reason for fluctuations. Your utilization could have increased if you:
Improving your credit utilization also happens to be the fastest way to fix your credit score, so you could get your score back up in a month or two by paying down any balances.
When you apply for a new credit card, the creditor runs a hard credit check on you. This has a small impact on your score. It's typically under five points, although it can be more if you apply for multiple credit accounts within a couple of months.
If you're approved, the new credit account could lower your average account age, which can also cause a credit score drop.
Neither of these would be a huge hit to your score. Hard credit checks, in particular, stop making an impact on your score within six months to a year.
Once you close a credit card, its credit line is removed from your total available credit. If you have any balances on your other credit accounts, they will then take up a greater portion of your available credit. That increase in your credit utilization could lower your score.
Your average account age could decrease, but this depends on the scoring system you're checking. Under the FICO system, closed accounts stay on your file for 10 years, so you wouldn't have any problems related to your average account age.
Considering how important payment history is to your credit, you may think any late payment is going to ruin your score. That's not quite true.
For a creditor to report a late payment to the credit bureaus, that payment must be 30 days late or more. If you pay your bill 14 days late, it's not ideal, but it won't hurt your credit.
If you have missed a payment by that much, it's bad news for your credit. You'll need to get caught up and avoid missing any more payments in the future. Even then, it will likely be well over a year before your score bounces back.
Wait, shouldn't this be a good thing? It is, but when you're using multiple types of credit, that's seen as a positive factor for your credit score.
If you have both a revolving credit account, such as a credit card or a credit line, and an installment loan, that's considered better than just having one or the other.
This won't ruin your score, so don't feel the need to get another loan for no reason. Just know that you may see a minor drop in your score when you pay off a loan.
Mistakes happen, but if they happen on your credit report, it's imperative that you catch them immediately.
You can get a free credit report from each bureau once per year, and it's worth doing to make sure everything is correct. If you're racking your brain wondering why your score dropped, you may want to order new copies of your report to double-check what's there.
It's normal for your credit score to fluctuate by about 10 to 20 points, so try not to worry if your score decreases a bit. For anything more significant, see what the reason is, and then you can get to work on fixing it.
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