Why did my credit score go down? 5 reasons and what to do about it

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It’s a common occurrence. You check your credit score, and the results shock you — your score has dropped. And you don’t know why.

After the surprise wears off, you can start to process the new information. There are many reasons why your score might drop, like late payments, high credit card balances, low credit history length, new credit inquiries, and more. Keep reading below to learn why credit scores can go down — and what you can do about it. 

#1. You missed a payment 

Late payments are one of the most common reasons for a credit score drop. However, credit scoring models treat various types of late payments differently.

Providers don’t report a late payment to the credit bureaus until it’s at least 30 days late. If you’re five days late on your mortgage, it won’t appear on your credit report. You may still have to pay a late fee, but it won’t hurt your credit.

The severity of a late payment also matters. A 90-day late payment is worse for your credit score than a 30-day late payment. Even a payment that’s late by one day can cause a drop in your credit score. Multiple late payments can spell disaster.

However, you can avoid this simply by making your payments on time. The easiest way to do this is to sign up for automatic payments, which will withdraw the amount due out of your bank account on or before the due date, on whichever date you choose. If you want to pay off your debt sooner, you can even have more than the minimum payment deducted from your bank account.

Always have enough money in your linked bank account to cover any payments. If you don’t, you may incur an extra fee.

#2. Your credit card balance is high

Your credit utilization percentage refers to how much credit you use compared to your total credit limit. This applies to credit cards, not installment loans like mortgages or auto loans. Credit utilization makes up 30% of your credit score and is the second most important factor when calculating your credit score.

Here’s how it works: let’s say you have a $5,000 balance on a credit card with a $10,000 credit limit. In this case, your credit utilization percentage is 50%. Your credit utilization percentage also reflects your total credit on all your credit cards.

A good rule of thumb is to have a credit utilization percentage of 30% or less. However, if your goal is an excellent credit score, you should aim for a credit utilization percentage of 10% or less.

If your credit utilization percentage is higher than it should be, it will negatively affect your credit score. The good news is that it’s relatively simple to fix your credit utilization:

• Call your credit card company and ask for a higher credit limit. If they increase the limit, your credit utilization percentage will decrease. Sometimes the credit card provider will run a credit check before approving a higher credit limit.
• Pay down your credit card balance. This may be easier said than done. However, one easy way to do this is to make a partial payment before the statement period ends. This can reduce your utilization without you having to change your spending habits.

One of the least well-known reasons for a credit score drop is if you stop using a credit card. After several months of no use, that card may stop counting toward your overall utilization.

“Over time, that could result in the account being excluded for a score calculation,” says Rod Griffin, senior director of Consumer Education and Advocacy at Experian.

This can hurt your credit score. That’s why it’s best to keep using your credit cards, especially your oldest cards. If you have a credit card that’s one of your oldest, try to keep it open just for the boost it gives you on your credit score.

If it’s not a card you want to use daily, you can set up a recurring charge on it — like your Netflix or Spotify subscription — and then set up autopay. That way, the card will be used regularly and will count on your credit report.

#3. You applied for a new loan or credit card

Applying for new credit will result in a hard inquiry, which can cause a slight decrease in your credit score. The good news? Hard inquiries only impact your credit score for one year. They will remain on your credit report for two years but only count against your credit score for one year.

If you’re working on fixing your credit score, you should try to avoid opening new types of credit unless it’s absolutely necessary.

You should also not apply for new credit if you’re applying for a major loan, like a mortgage. Even one application can negatively affect your credit score and cause you not to qualify for a lower interest rate.

The only exception is if you currently do not have any open credit accounts. In this situation, using a new credit card to build your credit can be a good idea. However, try to stick to one credit card at a time. Opening up several cards simultaneously could spell trouble.

#4. You closed an old credit card 

Your credit length makes up 15% of your credit score, so closing an old account can lower your credit score's average age.

Generally, you want to keep your cards open to maintain your credit length. However, the only exception might be if there is a pricey annual fee that you don’t want to pay anymore. In this case, it’s OK to close the credit card and take the hit to your credit score.

But, if you’re about to apply for a mortgage, hold off canceling the card until you finalize the mortgage. Sometimes, when you call to cancel the card, you can negotiate with the card issuer to reduce or remove the annual fee.

Sometimes, paying off a loan can also temporarily lower your credit score. You might feel frustrated if you see your score drop despite your efforts to be financially responsible.

“When you pay off a loan, you’ll often see a dip initially,” says Griffin. “When I paid off my mortgage, my score dropped 30 points, and after about three months, that score rebounded.”

#5. There's an error on your credit report

Research from the Federal Trade Commission has found that one in five consumers has a credit report error that affects their credit score.

If you notice an error, the first step should be to contact the listed creditor. You should explain your situation and ask them to remove the mistake.

If they won’t or don’t remove it, then you can file a dispute on your credit report. You should check your credit reports from all three credit bureaus to see if the mistake is on all of them.

You will have to file a dispute for each bureau with the error on their credit report. Credit bureaus don’t talk to each other, so if you only report the mistake to one credit bureau, it won’t be removed from the other two.

Once you have filed a dispute, check back in a few weeks to see if the situation has been resolved. Set a reminder in your phone or calendar to verify the mistake has been removed.

How to improve your credit score 

Improving your credit score starts with understanding what caused it to drop. As Griffin explains, “It’s like the school paper vs. the grade,” says Griffin. “The teacher applies the grade based on the paper. If you want to change the grade, you have to change the paper.” To improve your credit score, focus on these key strategies: 

• Pay bills on time: Set up automatic payments or reminders to keep you from missing a due date.
• Keep credit utilization low: Aim to use less than 30% of your available credit.
• Minimize new credit applications: Each hard inquiry can temporarily lower your credit score, so only open new accounts when necessary.
• Monitor your credit regularly: Keeping an eye on your credit report can help you identify any errors early. 
• Maintain a mix of credit types: Having both revolving (like credit cards) and installment (like loans) accounts can positively impact your score.

Remember, improving your credit score takes time. Don’t expect drastic changes overnight — it can take several months to see noticeable improvements. As Griffin says, “Credit scores look at your behavior over time, so time is a critical factor.” If you stay consistent with good credit habits, your score will gradually reflect these positive changes.

The bottom line 

While a credit score drop can feel like the end of the world, it's often more manageable than you might think. The time it takes to recover depends on the cause. Minor fluctuations often resolve themselves naturally, so there's no need to panic over small changes. For things like high credit utilization, your score may rebound within a few months of corrective action. However, more serious problems, such as multiple late payments, can take longer to overcome.

The key is to understand the cause, take action, and maintain good credit habits. Monitor your score regularly and address any issues as they come up. Remember that consistency is key for credit management. With patience and diligence, you can work towards improving your credit score over time. Don't be discouraged by setbacks — focus on building positive credit behaviors, and your score will gradually reflect your efforts.

Editorial disclosure: Opinions expressed are author's alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.