Top 5 Reasons Your Credit Score May Have Dropped

If you’ve experienced a drop in your credit score, here are five common explanations as to why your credit score may have dropped recently:

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1. A missed or late payment.

A payment on a credit card bill or loan that’s more than 30 days late could easily shave a significant number of points from your credit score. What could be worse? A bankruptcy. A foreclosure. An unpaid balance turned over to a collection agency. Payment history is typically the single-largest component of a credit score, so any missed payments will hurt. 1

2. A carried balance that’s too high.

If you have recently begun to use a high percentage of your available credit, your credit score may have dropped. Your credit utilization ratio, which measures how much of your available credit you are using, is usually the second-largest piece of your credit score. 2

3. Credit inquiries.

Applying for new credit racks up hard inquiries, or instances when potential creditors look at your credit report. These count against you since a consumer adding credit is likely to be adding debt. 3 Inquiries make up approximately 10% of your credit score.

4. A cancelled card.

Closing credit card accounts may not boost your credit score, and in some cases may lower it. An old card may be more valuable than you think because one factor that goes into credit scores is length of credit history. Additionally, getting rid of a credit card lowers your available credit, which can raise your credit utilization ratio. 4

5. A creditor has cancelled your card, or lowered your limit.

It’s a bad sign when a creditor reduces your credit limit or, worse, cancels your card. Asking for a lower credit limit as a means of helping you manage your spending may negatively impact your credit score. 5

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