Why Your Credit Score Suddenly Dropped
Find out which surprising credit activities will make your FICO fluctuate.
You’re doing everything right, but your credit score is dropping–what gives? Unfortunately, even slight score dips could have a long-lasting effect on your finances and lifestyle, so it’s important to figure out what’s going on behind the credit score scenes.
Start with these four surprising credit culprits that could be lowering your score:
1. You made a big purchase
When you use up a large portion of your available credit on an expensive purchase—even if you plan to pay it in full—if that balance gets reported to the credit bureaus before your payment is submitted, it can mess with your debt utilization. That refers to how much you owe compared to how much available credit you have, and it’s the second biggest factor in credit score calculations (right behind payment history).
So if you charge $4,000 worth of furniture on a card with a $5,000 limit card, at that moment, you’re utilizing 80% of your credit. Experts say you should aim to keep debt utilization below 30% to optimize your credit score.
Safe score strategy: Call your credit issuer to find out the closing date of your account, which is when your balance is reported to the credit bureaus, and often before your due date. Then, pay your bill or a portion of it before the closing date, so your reported balance and utilization is lower. Alternate trick: Make more than one payment per month.
2. You closed a bunch of old credit cards
Closing old accounts could have an impact on your credit score for two reasons. For starters, the length of your credit history comprises about 15% of your score, so if you remove your oldest accounts, you are shortening your credit age. Second, it could affect your debt utilization (yes, that again!), since you’re also reducing your available credit when you close an account.
Safe score strategy: Keep old accounts open, even if you have to cut up the physical cards and no longer use them. Bonus tip: To maximize the length of credit history factor, use your oldest card periodically to keep it active.
3. You just opened a new credit card
Every time you apply for new credit, that’s considered a “hard inquiry,” and it causes a temporary drop in your credit score. (Note: Checking your own credit score is a “soft” inquiry, which you can do as often as you’d like with no penalty whatsoever.)
Safe score strategy: Avoid opening new accounts in the months prior to applying for a lending product. And don’t open more than one or two new accounts in the same year.
4. The wrong info was recorded on your credit report
This one is totally not your fault, but it’s on you to catch the mistakes that could drag down your score. In fact, about 20% of consumers who correct credit report errors say their scores increased afterward.
Safe score strategy: Request your credit reports for free via AnnualCreditReport.com and look them over for errors, such as if there’s a late payment that you know you made on time. You might also try viewing your Smart Credit Report, for an interactive, user-friendly version that makes it simple to spot mistakes. Then, report any errors on one of the bureau websites: Experian, Equifax, or TransUnion.
When it comes to monitoring your credit and making good money moves, doing the big things right is only half the battle. Understanding the small stuff is what can mean the difference between a decent credit score and a great one.