Why Is My Credit Score Going Down?
If your credit score is consistently going down, it might be time to make a change. Here’s how to identify the problem and change course.
December 7, 2022
Your credit score can affect many aspects of personal finance. Your score determines the interest rates you pay, the ease with which you can get approved for loans and even your ability to secure a lease.
With responsible use of credit, your score should slowly rise over time. But periodically, your scores can dip — leaving you confused and worried.
If you’ve noticed a drop in your credit score, you might be asking yourself, “Why is my credit score going down? And what can I do about it?”
Why is my credit score going down?
A decline in your credit score can be caused by many different factors. We’ll cover the most common in the guide below.
First, it’s important to understand that some fluctuations in your score are to be expected. It takes a long time to build credit and it’s not always a perfect rise. If you see your score decline by a few points now and then, that’s nothing to worry about. But if you notice that your credit score is consistently dropping, that’s a warning sign, and you’ll need to make some changes.
Here’s what to look for that might be causing your score to decline.
Your payment history is the most important component of your credit score; it makes up 35 percent of your credit score.
To build a positive credit history, you must make on-time payments on all your credit cards and loans. Missing payments can ding your score, and even a single missed payment can cause a substantial drop.
To prevent missed payments, it’s a good idea to set up autopayments on your accounts. And remember, for credit cards, you only have to make the minimum payment to keep your account current.
Making a payment late can also ding your score, even if it’s just a few days after the payment due date.
When you get a credit card statement, be sure to pay close attention to the due date. It’ll usually be around three weeks after the statement date.
A derogatory mark is a negative note on your credit report that can damage your credit score and have a long-lasting, negative impact on your credit.
A derogatory mark can include missed payments, late payments, bankruptcy, or an account sent to collections.
Credit utilization ratio
Your credit utilization ratio is a measure of how much of your available credit you’re using. For example, if you’ve a credit limit of $1,000 and a balance of $500, you’re using 50 percent of your credit and your credit utilization ratio is 50 percent.
If your credit utilization is too high, it can negatively impact your credit score. For best results, try to keep credit utilization under 30 percent.
Closing a card
Closing a credit card account — even if you don’t use it — can negatively impact your credit score temporarily. This is particularly true for cards that you’ve had open for a long time.
There are two main reasons for this:
Average age of accounts: Your credit history length makes up 10 percent of your credit score and is calculated based on the average age of all your open accounts. If you close an existing account, this can lower your average age of accounts.
Credit utilization: When you close a credit card, you lose access to the credit limit associated with that card. This can increase your credit utilization ratio because you now have a lower total credit limit to work with.
Applying for additional credit
New credit is another credit scoring factor that makes up 10 percent of your score. If you apply for new forms of credit, it can ding your credit score temporarily.
New applications result in a hard credit check, which lowers your score temporarily. An inquiry or two every once in a while is no big deal, but too many hard inquiries can have a major negative impact on your credit.
If you genuinely need to open a new account, don’t worry about the temporary credit ding. But try to avoid opening multiple accounts at once, and only open accounts when necessary.
If your credit score is dropping rapidly, it could mean that you’ve become a victim of identity theft — when a criminal obtains your personal information and uses it to open financial accounts in your name.
Identity theft is rare, but it can happen to anyone. It’s wise to monitor your credit reports for any signs of suspicious activity.
Credit report error
Credit reports are managed by the main credit bureaus (Experian, Equifax, and TransUnion). Lenders report information to these bureaus, which compile information and calculate credit scores.
But sometimes, mistakes occur. Lenders might accidentally mark an account as closed when it’s open or might report a payment as overdue when it was made on time.
Fortunately, you can fix credit report errors. It’s a good idea to examine your full credit report at least once per year to check for any inaccuracies.
What should I do if my credit score is going down?
If you’ve noticed a downward trend in your credit score, first figure out what's causing it. The situations outlined above are the most common causes of a credit score decline.
From there, take steps to address the issues and boost your credit score. This might mean setting up autopay to avoid missed payments or paying down debt to lower your credit utilization ratio.
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