My Credit Score Dropped by 5 Points. What Gives?

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It's not a big drop, but it may be annoying to see.

Key points

  • Credit scores can fluctuate from month to month, so it's important to keep track of yours.
  • Applying for a new loan or credit card could cause your score to drop slightly.

It's a good idea to have a sense of what your credit score looks like at all times. The higher that number, the more likely you are to get approved for a new credit card or loan. And if you're taking out a large personal loan or a mortgage, a strong credit score could spell the difference between being offered a favorable interest rate and a more expensive one.

At times, you may notice that your credit score has taken a hit -- even if you didn't do anything careless, like skip a bill or pay it very late. But there's a good reason why you might notice a five point drop in your credit score. And for the most part, it's really nothing to worry about.

What causes a minor credit score decline?

If you're delinquent on a bill or rack up a very high balance on your credit cards, then you might see your credit score drop quite a bit. If you're only seeing a five-point drop, however, then chances are, it's because of a hard inquiry on your credit report.

Whenever you apply for a new loan or credit card, the lender or company in question will pull your credit report to make sure you're not too risky a borrower. When this happens, it's considered a hard inquiry.

Usually, a hard inquiry will cause your credit score to drop by about five to seven points -- sometimes a little bit more. And so, if you see that your score has taken a mild hit, there's a good chance it's because you recently applied to get a new credit card, finance a car, refinance a mortgage, or borrow money in some other way.

Should you worry about a five-point credit score drop?

In most situations, a five-point drop in your credit score won't impact you in any way. Say your credit score is an 815, and it takes a five-point hit. A score of 810 is still considered exceptional, so that's not something to lose sleep over.

Furthermore, let's say your credit score is 680, which is considered good but not excellent. If your score drops to 675, you're still in that same category. With a good credit score, you're likely to get approved for a loan. However, you may not qualify for the lowest interest rate a given lender is offering. But chances are, five points won't make a difference there.

Now in some situations, a five point drop in your score could have an impact. It takes a minimum credit score of 620 to qualify for a conventional mortgage. If your score is sitting at 620 and it drops by five points, you may need to wait to apply for a home loan and work on bringing that number up. But most of the time, a five point decline isn't something to stress over -- especially if you have great credit to begin with.

How to avoid a modest credit score drop

If you don't want to see your credit score sustain any damage, make a point not to apply for any new loans or credit cards for a while. But rather than fixate on avoiding a move that might result in a five point drop, a better bet is to work on boosting your credit if it clearly needs work.

That could involve paying off a chunk of existing debt to lower your credit utilization ratio and paying incoming bills on time to establish a more favorable payment history. If you're able to raise your credit score by 100 points, you'll buy yourself more leeway to withstand a five point drop without worry.

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