Why did my credit score drop?
Your credit score can drop if you miss a repayment, apply for multiple loans or increase your credit limit. But there are many other reasons your credit score can change.
Small changes in your credit score month to month are normal. Sometimes your credit score drops because of a late payment. But sometimes your credit score drops seemingly for no reason.
This can be because of a mistake on your credit report or because of several factors that affect your score.
3 reasons your credit score may have dropped
There are some obvious reasons your credit score can go down. These include:
- Missing a bill or loan repayment.
- Increasing the limit on a credit card.
- Taking out a new credit product.
If you've missed a repayment then you need to make it up as fast as you can.
If you've increased your card limit or taken out a new credit card, your score should improve as long as you keep making repayments on time.
Check out all our tips to improve your credit score.
Why has my credit score gone down for no reason?
It might seem like your credit score has dropped for no reason, but there are events that can impact your credit score that are less obvious and sometimes harder to fix.
Here are some of the main causes for a drop in your credit score (if you haven't missed a payment or taken out a loan recently).
You've made multiple applications for credit in a short time
Applying for a loan or credit card can actually impact your credit score. These "hard enquiries" occur when a credit provider checks your credit report before approving (or rejecting) a credit application.
According to Experian, credit providers may view "multiple enquiries in rapid succession as a sign of financial difficulty".
There are errors on your credit report
Through no fault of your own, your credit report can end up with incorrect information in it. Your report might list a loan or card that you don't have, or a missed payment for a different customer's bill.
You can get these errors corrected by contacting either the credit provider in question or the credit reporting agency that issued your credit report. You'll have to provide some ID and evidence of the error.
Your credit report has been updated
Sometimes, your credit score changes because there's new information about a credit account added to your report.
And this information might not enter your report until a few months after you get the loan. This can cause your score to change seemingly for no reason. But it's really a delay in the reporting process.
You have large, unsecured loans
It helps to have different types of debts. According to Experian, "A mixed credit portfolio helps boost your credit score."
But not all debts are weighed equally. Secured debts are attached to an asset, like the property tied to a home loan or a secured car loan. These are lower-risk debts.
If you have a large number of unsecured personal loan and credit card debts this can impact your credit score even if you never miss a repayment.
Your debt has been sold
If you've had an outstanding debt for a long time it's possible the credit provider has sold it to a debt collector.
If the debt collector has reported this, it could be recorded in your report and harm your score.
Why did my credit score drop after I paid off a debt?
It sounds absurd but paying off a debt can actually cause your credit score to dip, at least temporarily.
Your credit score is calculated based on your credit accounts. If you've been making regular payments on a credit account listed in your report it can help your credit score. It's proof you're a reliable borrower.
Closing the account can cause a brief dip in your credit score. But it isn't a problem you need to fix.
What do I do if my credit score falls?
A very small change is not an issue. Credit reporting agency Experian says "a variation in your score of plus or minus 10 points or less is expected, and typically nothing to be concerned with."
But if you see your credit score fall by a large amount, or it continues to drop over time, you may have an issue.
The first thing you need to do is check your report thoroughly and work out why your score may have dropped.
Then the steps to improve your credit score become clearer.
- Fix any errors on your report.
- Pay any missed bills or payments as fast as you can.
- Lower your credit limits on your cards.
- Consolidate multiple high-interest debts into one.
- Give it time. A small drop in your credit score is often temporary.
Why did my credit score go up when nothing changed?
Records of late payments, defaults or even bankruptcies on your credit report will eventually be removed over time. Your credit score can go up when these listings expire.
Late payments are removed after 2 years, defaults after 5.
Your score can also improve over time simply because you're making repayments on your credit cards and loans.
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I do not have credit cards or outstanding loans, I own my own home, and I pay cash for everything. My utility bills are always paid within 48hours of receiving them, generally the same day. My credit rating has dropped 15 points, and I have absolutely no idea why. How do I rectify this problem?
Hi Janelle,
Small changes to your credit score over time are fairly common. It’s a bit of a mysterious process sometimes. You could just keep your eye on it and make sure it doesn’t drop further.
Or you could get a copy of your credit report and just check if there’s any surprises in there. You may have missed something, or sometimes there are errors on a report which you can get the reporting agency to fix.
I have applied for credit cards and these application have affected my credit score. How long before these applications drop off my credit report?
Hi Kerry,
Thanks for getting in touch! When looking at your negative listings, also take note of when they will come off your report. Most black marks disappear from your credit report after five years, so in some cases it may be worth waiting it out. If a payment default was listed on your report more than three years ago, it may disappear soon. If you can hold off your loan application for a few more months, you can do away with the whole credit repair hassle.
Hi, I always pay my bills on time and my master card is paid in full every month. One of my bills (telecommunications company) was sent to me by email instead of post. I requested it by post. I only knew about the late payment when I was sent a letter by a collections agency. This obviously has impacted my credit score. My husband got an EXCELLENT rating and I got a VERY GOOD rating. Can I ask the telecommunications to put in writing that they were wrong in their billing so that my credit score is not affected?
The new telecommunications company I am with sends it via email which I have approved but the email date for payment reads differently to the attached invoice payment which I have asked them to rectify but they have not rectified it and replied to my emails about “the mistake”. So it seems your credit rating could be affected not by your mistake.
Hi Credit Q,
Thanks for your comment.
Q. Can I ask the telecommunications to put in writing that they were wrong in their billing so that my credit score is not affected?
If you think there was an incorrect listing in your file that affected your rating, yes, it’s best that you get in touch with your service provider who gave that incorrect information so they can rectify it.
Cheers,
May