Payment history has the most significant impact on your credit score. Credit card and loan payments that are more than 30 days late are reported to the credit bureaus and reflected in your credit score. Once the late payment hits your credit report, your credit score will likely drop.
Another important factor in your credit score is how much of your available credit is being used. If you make a big purchase on your credit card one month, you could see a credit score drop even if you pay the balance in full on your due date.
Credit card issuers typically report the credit card balance as of the last day of the billing cycle. The balance on your credit card statement is often the balance that appears on your credit report.
The good news is you can easily correct the impact of a high balance. Pay down the balance, avoid making other credit card purchases, and wait for the balance to show up on your credit report. This will help you recover the lost credit score points.
03An unpaid account was sent to collections.
To protect your credit score, it's important for you to pay all your accounts, not just your credit cards and loans. If you fall behind on the payments on your non-credit accounts, the defaulted balance could be sent to a collection agency and included on your credit report. Once a collection shows up on your credit report, it will almost certainly cause a drop in your credit score.
04Your last collection dropped off your credit report.
When calculating credit scores, FICO places people in different buckets, known as scorecards. Your credit profile is compared to other people in your scorecard to come up with your credit score. While you may have been at the top of one scorecard with the collection on your credit report, you may fall to the bottom of a different scorecard when certain negative information falls off your credit report.
This type of credit score drop is outside of your control. Fortunately, as long as you keep paying your bills on time and keeping your debt low, your credit score will improve.
Any time you put in a new application for credit, an inquiry is added to your credit report. Since inquiries make up 10% of your credit score, applying for new credit can affect your credit score.
Inquiries only affect your credit score for a year, so if that's the only inquiry you have, your credit score should steadily increase and complete recover in 12 months.
Closing a credit card can hurt your credit score, especially if the card has a balance. Credit card issuers can also cancel your credit card, which also impacts your credit, not necessarily because the creditor closed the account, but because it was closed at all.
08Your bankruptcy fell off your credit report.
When bankruptcy falls off your credit report after seven years (ten years for Chapter 7 bankruptcy), you'll likely move to a new credit scorecard. You could see a drop in your credit score because now your credit performance is being compared to other people who haven't filed bankruptcy.
8 Reasons Your Credit Score May Have Dropped
If you're monitoring your credit score often or you're signed up for credit score alerts, then you're aware of how your credit score changes over time. Any increase in your credit score, you're exciting about. But a drop in your credit score? Yikes. That's the last thing you want to see.
Because the credit score calculation is so complex, it could be difficult to pinpoint the exact reason for a credit score drop. Your credit score is based on information in your credit report, so if your credit score drops unexpectedly, it's typically because of a change to the information in your credit report. It does't have to be a big change for your credit score to fall. Here are a few possible reasons your credit score could drop.