Don't panic if you see that your credit score dropped. Your credit score can take a dip for many reasons.
Reasons for a credit score drop
This list of 11 reasons why your credit score might drop isn't exhaustive. But it does include the main reasons why your score could decrease.
Credit usage increase
Your percentage of credit used, also referred to as your credit utilization ratio, has a high impact on your credit score in any scoring model (Chase Credit Journey uses the VantageScore® 3.0 model). Credit utilization is your total credit card balance in relation to your credit limit. Most experts recommend keeping your credit utilization ratio below 30%, but the lower that number is, the better.
Missed or late payment
Your payment history has an impact in the VantageScore® 3.0 model. Making a late payment or missing a payment on any of your credit accounts, be it a credit card, student loan or mortgage, can be a detriment to your credit score — not to mention the fees you'll endure. Your credit score represents your creditworthiness, or your ability to repay your debt. Missing a payment or making a late payment indicates that you may not be financially responsible.
The best way to avoid making late or missed payments is to set up autopay.
Drastic drops to your credit report
If you see a really drastic drop in your credit score, you've likely experienced some type of major derogatory mark. These can include:
- Account in collections
- Tax lien
- Civil judgment
- Debt settlement
Closed credit account
Paid off a student loan or car loan
Paying off any loan is an achievement that's worth celebrating. But the types of credit you have also are considered high impact on your VantageScore® 3.0. This means having a good mix of credit between revolving debt (like credit cards) and installment debt (like loans). If you pay off the only loan you have, that affects the diversity of your accounts.
Applied for a new loan, credit card or mortgage recently
Applying for a new loan, credit card or mortgage likely will lead to a hard credit inquiry, also known as a credit check. One hard inquiry isn't much to worry about, but if you apply for several credit card accounts at once, the hard inquiries could pile up. Recent credit is considered low impact on the VantageScore® 3.0 model.
A mistake in your credit report
Errors happen. If a number is transposed incorrectly (for example, if two digits were swapped) or payment is recorded to the wrong account or an on-time payment was reported late, that can hurt your credit score. Monitoring your credit report frequently to catch mistakes is key. And if there's an inaccuracy, make sure to dispute it.
If you notice a drop in credit score that you can't explain there is a chance you're a victim of identity theft. If you see an unfamiliar address or other unrecognizable information in your credit report, make sure to flag it. Our identity theft tool kit (PDF) can provide you with information on who to contact and how to file a report.
Someone else used your credit card
The “someone else" using your credit card doesn't necessarily have to be a stranger. Have kids? A spouse? A roommate? Someone you know could've potentially used your credit card without you knowing.
Cosigning a loan or credit card application
Cosigning a loan or credit card application doesn't inherently affect your credit score. But if the person you cosigned for isn't being responsible, your credit score could suffer. Make sure if you act as a cosigner for someone that you can trust them.
Credit limit was lowered
If your credit limit is lowered, that can affect your credit usage or credit utilization ratio, which in turn can hurt your credit score. Whether your credit limits are dropping or your balances are inflating, make sure to monitor your credit usage.
Why does your credit score drop when you check it?
Your credit score shouldn't drop when you check it yourself. These pulls are typically soft inquiries, which don't affect your credit score. If a lender or creditor checks your credit score, that may lower it.
Hard credit inquiries, or hard pulls, do affect your credit score. These happen when a lender or credit card issuer pulls your credit to determine whether to extend credit to you. In this case, you should be aware and consent to the pull.
Factors that impact your credit score
The VantageScore® 3.0 scoring model is made up of six factors:
- Payment history
- Credit history
- Credit usage
- Total balances
- Recent credit
- Available credit
Using the VantageScore® 3.0 model, those factors create a score ranging from 300 to 850, with 300 being deficient and 850 being excellent.
Ways to improve your credit score
- Make your monthly payments on time
- Lower your overall debt
- Don't use credit for purchases you can't afford
- Don't apply for credit cards unnecessarily