Why Did My Credit Score Drop?

March 1, 2024

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If you monitor your credit score regularly, chances are that each time you check it you’re hoping for improvement – or that it stayed the same as last time.

But keep in mind that it’s normal to see some fluctuations from month to month, as different factors, such as payment history and credit utilization, can influence your score. While a slight dip is not always a cause for concern, it can still be jolting and leave you wondering: Why did my credit score drop?

Here are five common reasons that might explain a drop in your credit score.

1. You may have missed a payment

First, check to see if you’ve let any payments slip through the cracks. It’s unsettling to realize you’ve missed a payment, but it happens.

If you’re more than 30 days late on a payment, creditors can report it to the national credit bureaus, which could hurt your score. How much your credit score drops depends on a few things, including how long the bill goes unpaid. For instance, an unpaid bill from three months ago can bring down your score more than an unpaid bill from 30 days ago.

So if you’ve caught a missed payment, try to take care of it as soon as possible. Delinquent or missed payments can stay on your credit report for up to seven years.

Pro tip: Consider enrolling in autopay to avoid missing any payments in the future.

2. Your credit card balance went up

Your credit utilization ratio – how much of your available credit you’re using – factors into your credit score. So if one or more of your credit card balances went up, you may see a dip in your credit score.

Here’s an example: You book two international plane tickets and two weeks’ worth of hotel rooms on your credit card that has a $10,000 limit. Suddenly you’ve gone from carrying a low balance of a few hundred dollars to carrying a balance of $6,000. Even though you have a plan to pay off this balance, you’re still using 60% of your available credit.

The general rule of thumb is to try and keep your credit utilization to 30% or below. Lowering your utilization rate as soon as possible – per card and overall – by paying off your balances on time could help nudge your score back up.

3. You applied for a new line of credit

Applying for a loan or credit card triggers a hard inquiry into your credit history, which could impact your credit score. That being said, hard inquiries for new lines of credit are quite normal – after all, you’ll probably need to apply for a mortgage, auto loan or a new credit card several times over your life. An occasional drop of a few points here and there shouldn't be a cause for alarm.

However, this may become an issue if you apply for or open multiple lines of credit within a short timeframe. This behavior can make you appear riskier to lenders, so be mindful of how often you’re applying for new credit.

4. You closed old credit accounts

Another possible reason for why your credit score dropped could be because you've closed some unused credit accounts, causing your credit utilization ratio to rise and the average age of your accounts to fall.

5. You paid off a debt

This one can be a head-scratcher at first glance. After all, isn't paying off debt a good thing?

If you find your credit score has dropped slightly after paying off an installment loan, like on a car or home, take a look at your credit mix. If that was your only credit line, your score may have dipped by a few points.

But don't worry, generally speaking, your credit mix only accounts for a small percentage of your overall credit score - 10% to be exact when it comes to the calculation of your FICO credit score.

And consider this: The benefits of paying off debt – like having more money for your savings and investment goals – outweigh the slight, temporary effect on your credit score.

Parting thoughts:

If you’ve read through all these reasons and are still wondering why your credit score dropped, it may be worth double-checking your credit report to ensure it’s free from errors and that you haven’t become the victim of fraud. If either of these seem to be true, you can dispute the error or place a fraud alert on your credit report.

Interested in learning more about how credit scores work? Check our our Credit Score Guide.

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this website were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice.