Why did my credit score drop?

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:

1. Missing a bill or loan repayment.
2. Increasing the limit on a credit card.
3. 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.

1. Fix any errors on your report.
2. Pay any missed bills or payments as fast as you can.
3. Lower your credit limits on your cards.
4. Consolidate multiple high-interest debts into one.
5. 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.

Written by

Richard Whitten

Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206), a Tier 1 Generic Knowledge certification and a Tier 2 General Advice Deposit Products (RG 146) certification. See full profile

linkedin