SoFi

Employers can approach background checks in different ways. In some cases, credit reports are included. A job background check may include a credit check in certain industries, such as banking and security. The size of the company can be a factor, too: Large corporations are more likely to conduct a credit check than a small family business.

We’ll walk through the specifics of when an employment background check may include a credit check, why potential employers want this information, and what financial data they have access to.

What Are Credit Checks?

A credit check is a request to see your financial data as collected by one of the three major credit reporting bureaus: Equifax, Experian, and TransUnion. Credit reports contain information about past and existing credit accounts, payment patterns, and how much debt you’re carrying.

According to the Fair Credit Reporting Act (FCRA), only certain individuals and organizations have the right to check credit histories, such as lenders, insurance agents, and landlords. Potential employers can also conduct a credit check for employment purposes, with your permission.

Sometimes credit checks are conducted to confirm a consumer’s identity — and head off identity fraud — rather than to investigate your financial history. For instance, banks may run a limited credit check on customers looking to open a checking account.

Credit Check vs Background Check

A background check contains identification verification information along with data from criminal records, educational and employment backgrounds, civil records, driving history, and more. In some instances, a background check may also contain a credit check.

The Importance of Good Credit

A good credit history primarily makes it easier to get approved for a loan and to qualify for better interest rates and loan terms. The higher the score, the less someone will pay in interest over their lifetime, potentially saving them money in the long run.

Good credit can also help renters qualify for an apartment. In some cities, renters routinely provide a credit reference with their rental application. While there’s no minimum credit score needed to rent an apartment, a strong credit history shows landlords that you’re someone who pays their bills on time.

Employers may also check your credit if you’ve applied for a job. Having good credit without any red flags can make the hiring process go more smoothly. However, some cities and many states have banned this protocol or put limits on it.

Recommended: Should I Sell My House Now or Wait?

Why Employers Look at Your Credit Score

An employer may run a credit check on a job applicant whom they’re seriously considering hiring. Employer credit checks are more common in industries where employees handle money or have access to customers’ financial data.

By conducting credit checks, businesses hope to confirm that an applicant demonstrates financial responsibility and doesn’t pose a security risk to the company, other employees, or customers.

Responsibility

A credit report shows how responsibly an applicant has handled their own money. If there are any red flags, the employer may not want to hire that person to handle company funds or take on other important responsibilities.

Security

A credit report can be used to verify your identity along with other pieces of background information. If there are discrepancies that can’t be easily cleared up, that’s a red flag.

What a Credit Report May Tell an Employer

The information in a credit report can include employment history as well as red flags such as late payments, debts sent to collections, foreclosures, liens, lawsuits, and judgments.

Employment History

Your complete employment history is not included in a credit report. Past and current employers may appear on your credit report, but only if you listed them on a loan or credit card application. Typically, if a lender wants your employment history, they will ask you for it directly.

Late Payments

Credit reports contain information about current and historical credit accounts, including installment loans (mortgages, car loans, personal loans) and revolving credit (credit cards and lines of credit). The reports typically contain information from the past seven to ten years, including a person’s payment history and whether credit accounts are paid up to date or are past due.

Debt Collection

Once someone is behind on payments — at least 120 days — the lender may send the account to a collections agency. These agencies attempt to collect on the bill. This can have a significant impact on your credit score, since making payments on time is the biggest factor in the algorithm that determines your credit score.

Debt Charge-Off

If a company you owe money decides they can’t collect the funds, they can “charge off” the amount as uncollectible. This may stay on your credit report for seven years, starting with the delinquency date that ultimately led to the charge-off. A debt charge-off typically lowers the person’s credit score even more than going to collections.

Foreclosures

When a homeowner misses multiple mortgage payments, the lender may take possession of the home, or “foreclose” upon it. This remains on a credit report for seven years, starting with the first missed payment that ultimately led to the foreclosure. This can significantly reduce someone’s credit score — although the impact may diminish over time — and can be a red flag for employers.

Recommended: Does Net Worth Include Home Equity?

Liens

A tax lien is a claim that you owe money for taxes, usually federal, state, or property tax. Tax liens no longer appear on credit reports by the three major credit bureaus, and they can’t affect your credit. They are, however, available on public records. If an employer conducts a full background check, they can still receive this information.

Lawsuits and Judgments

Just like tax liens, judgments from lawsuits are not included in credit reports or factored into a credit score. An employer that conducts a background check, though, will likely receive this information because it’s part of public records.

How to Prepare for an Employer Credit Check

Every consumer should be aware of what information is available on their credit report. You can request your credit report and find out your credit score for free at AnnualCreditReport.com.

Review your report for errors. Even small typos — like misspelling your name — could present problems down the line. Report inaccuracies to the relevant credit bureaus via their online dispute process to have them corrected or removed.

You may also consider signing up for a credit monitoring service. What qualifies as credit monitoring varies from company to company. Look for a service or a money tracker app that sends customers alerts whenever their credit score changes, accounts are opened or closed, and red flags appear on their credit history.

If you’ve had financial problems in the past but have turned things around, be prepared to explain to your potential employer how you’ve accomplished that.

Recommended: What Is a Tri-Merge Credit Report?

Credit Check Limitations

Credit reports contain a lot of private financial information. However, you can feel secure knowing that there are strict limits to what can be included. The following information cannot appear on your credit report:

•   Account balances for checking, savings, and investments

•   Records of purchases made

•   Income information

•   Judgments and tax liens

•   Medical information (physical and mental), although money owed to a doctor or hospital can appear

•   Marital status

•   Disabilities

•   Race and ethnicity

•   Religious affiliations

•   Political affiliations

Does an Employer Credit Check Hurt Your Credit Score?

No. Employers conduct what is known as a “soft credit inquiry” or soft pull. Because the credit check isn’t the result of applying for a new loan or credit card, the request probably won’t appear on your credit report and it won’t affect your score.

What Are Your Legal Rights as a Job Applicant?

According to federal law, job applicants have the right to:

•   know what is in their file

•   ask for a credit score

•   dispute incorrect or incomplete information

•   be told if information in the file is used against them

An employer or potential employer must get written consent before they can request credit report information (the trucking industry is an exception). Some cities and many states have banned or put limits on an employer’s ability to check your credit report.

The Takeaway

Employers may run credit checks on applicants as part of the hiring process. By conducting credit checks, businesses hope to confirm that an applicant demonstrates financial responsibility and doesn’t pose a security risk to the company, other employees, and customers. Credit checks are more common at large corporations and in industries where employees handle money or have access to customers’ financial data. You can prepare for an employer credit check by requesting your report and correcting any errors. You may also want to use a credit score monitoring service to keep tabs on any changes.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Why do background checks include credit reports?

Information found in a credit report can give the employer a sense of the job applicant’s financial stability. This may be especially important if the job involves handling money, financial data, or pharmaceuticals. Some industries that routinely pull credit checks on applicants include banking, retail, insurance, public safety, and security.

Does a background check include a hard credit check?

No. A background check with a credit check involves a soft inquiry, so it won’t affect your credit score.

What causes a red flag on a background check?

Criminal records, suspicious credit histories, inconsistencies in information provided, and gaps in employment history can be considered red flags in a background check.

Photo credit: iStock/serggn

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SORL-Q324-035

Although Experian is the largest credit bureau in the U.S., TransUnion and Equifax are widely considered to be just as accurate and important. When it comes to credit scoring models, however, there is a clear winner: FICO® Score is used in roughly 90% of lending decisions.

It’s crucial that consumers understand at least the basics of how credit reports work and credit scores are calculated. After all, a high credit score can get borrowers the best deals on loans and credit cards, potentially saving them many thousands of dollars over a lifetime. Read on to learn how you can build a credit history that lenders will swoon over.

Will My Credit Score Be the Same Across the Board?

In a word, no. Credit scores vary depending on the company providing the score, the data on which the score is based, and the method used to calculate the score.

In an ideal world, all credit bureaus would have the same information. But lenders don’t always report information to every bureau, so there will be variations in your credit file — usually minor — from bureau to bureau.

How Are Credit Scores Calculated?

Regardless of the scoring model used, most credit scores are calculated with a similar set of information. This includes information like how many and what types of accounts you have, the length of your credit history, your payment history, and your credit utilization ratio.

Lenders like to see evidence that you have successfully managed a variety of accounts in the past. This can include credit cards, student loans, personal loans, and mortgages, in addition to other types of debts. As a result, scoring models sometimes include the number of accounts you have and will also note the different types of accounts.

The length of your credit history shows lenders that you have a record of repaying your debts responsibly over time. Scoring models will factor in how recently your accounts have been opened.

Your payment history allows lenders to see how you’ve repaid your debts in the past. It will show details on late or missed payments and any bankruptcies. Scoring models typically look at how late your payments were, the amount you owed, and how often you missed payments.

Each scoring model will place a different weight of importance on each factor. As an example, here are the weighting figures for your base FICO Score:

Recommended: Can You Get a First-Time Personal Loan With No Credit History?

Which Credit Score Matters the Most?

As noted earlier, the credit score that matters the most is generally your FICO Score, since it’s used in the vast majority of lending decisions. There’s really no way to determine which credit score is most accurate, though, because they all use slightly different scoring models to calculate those precious three digits.

Even within your FICO Score, there’s variation. The most widely used FICO Score is FICO 8 (though the company has released a FICO 9 and FICO 10). This differs from previous versions in key ways:

•   Credit utilization is given greater weight.

•   Isolated late payments are given less weight than multiple late payments.

•   Accounts gone to collections for amounts less than $100 are ignored.

In addition, FICO can tweak their algorithm depending on the type of loan you’re applying for. If you’re looking to get an auto loan, your industry-specific FICO Score may emphasize your payment history with auto loans and deemphasize your credit card history.

As you can see, slight differences in method can result in different credit scores even given the same source data.

What Are the Largest Three Credit Bureaus?

The three major credit bureaus are Experian, Equifax, and TransUnion. These bureaus collect and maintain consumer credit information and then resell it to other businesses in the form of a credit report. While the credit bureaus operate outside of the federal government, the Fair Credit Reporting Act allows the government to oversee and regulate the industry.

It’s worth noting that not all lenders report to the credit bureaus. You may have seen advertisements for loans with no credit check. Lenders that offer this type of loan won’t check your credit, and typically don’t report your new loan or your loan payments to the credit bureaus. Because these loans are riskier for the lender, they can justify high interest rates (possibly as much as 1000%) and faster repayment schedules. Consumers should beware of predatory lenders, especially risky payday loans and other fast-cash loans.

How To Find Your Credit Score

Your credit history and score play a large role in your personal finances. They can impact everything from taking out a mortgage or renting an apartment to buying a car and refinancing your student loans. Having an idea of what your credit score is can help you determine what your loan may look like and how much you can afford to borrow.

You can request a free copy of your credit report from each of the major credit bureaus at AnnualCreditReport.com. Typically, your credit reports will not contain your credit scores. However, you may be able to access your FICO Score for free through your bank or credit card company (it may be on your statement or you may be able to see it by logging into your account online). You can also purchase credit scores from one of the three major credit bureaus or FICO. Some credit score services offer free scores to any user, while others only offer sores to customers who pay for credit monitoring services.

Be careful when you pull your free credit reports not to accidentally opt in to an add-on service that will charge you for special tools or credit monitoring.

Building Strong Credit

Credit scores aren’t set in stone. They evolve constantly as new financial information comes in, both positive and negative. Here are some strategic steps to consider for those trying to build a positive credit history:

Make Payments on Time

This includes credit card payments, rent, loans, utilities, and any other monthly bills or payments. Lenders often consider past behavior to be a predictor of future behavior and want to avoid lending money to individuals with a history of missed payments.

Pay Down Revolving Credit

Revolving credit refers to credit cards and credit lines, such as home equity lines of credit (HELOCs). Lenders generally like to see that you use no more than 30% of the total revolving credit available to you. It’s an indicator that you are able to effectively manage your credit.

One popular way to pay down high-interest revolving debt, is to use a debt consolidation loan. These are unsecured personal loans that typically offer lower fixed interest rates compared to credit cards. Getting approved for a personal loan is fairly straightforward, and you can usually shop around for the best personal loan interest rates without it affecting your credit score.

Be Selective About New Accounts

Opening a new credit card or applying for a loan generally involves a hard credit inquiry. Too many hard credit inquiries can have a negative impact on the applicant’s score. So while having a diverse mix of credit is a good thing in the eyes of lenders, opening a number of new accounts at once may be counter-productive.

The Takeaway

All three major credit bureaus — Experian, Equifax, and TransUnion — are more alike than they are different, and any variations in their data are usually minor. Equifax is the largest credit bureau in the U.S., but TransUnion and Equifax are thought to be just as important. When it comes to credit scores, however, lenders prefer FICO Score by a wide margin.

SoFi Personal Loans

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

https://www.sofi.com/signup/pl?appType=pl“>

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOPL-Q324-024

The main difference between a soft vs. hard credit check is that each hard check can knock a few points off your credit score, whereas soft checks don’t affect your score. Both hard and soft checks pull the same financial data but for different purposes. Hard checks are typically done when you apply for a loan or credit card; soft checks are conducted for most other purposes, such as pre-screening for credit card offers.

It’s important for consumers to understand this difference because too many hard checks — also known as hard pulls and hard inquiries — can significantly lower your credit score. This in turn can hurt your chances of getting the best offers on credit cards and loans. Keep reading to learn more about credit checks and how to prevent unnecessary hard checks of your credit file.

What Is a Soft Credit Inquiry?

A soft inquiry is when a person or company accesses your credit as part of a background check. They will be able to look at:

•   The number and type of all your credit accounts

•   Credit card balances

•   Loan balances

•   Payment history for revolving credit (credit cards and home equity lines of credit)

•   Payment history for installment loans (auto loans, mortgages, student loans, and personal loans)

•   Accounts gone to collections

•   Tax liens and other public records

Soft inquiries are not used during loan or credit card applications, and do not require the consumer’s permission or involvement. Reasons for a soft check can include:

•   Employment pre-screening

•   Rental applications

•   Insurance evaluations

•   Pre-screening for financial offers by mail

•   Loan prequalification

•   Checking your own credit file

•   When you’re shopping personal loan interest rates or credit cards

Soft credit checks do not affect your credit score, no matter how often they take place. Some soft checks appear on your credit report, but not all — you may never find out they took place.

When they are listed, you might see language like “inquiries that do not affect your credit rating,” along with the name of the requester and the date of the inquiry. Only the consumer can see soft inquiries on their report; creditors cannot.

Recommended: Does Applying for Credit Cards Hurt Your Credit Score?

What Is a Hard Credit Inquiry?

A hard credit inquiry typically takes place when you apply for credit, such as loans or credit cards, and give permission for the lender or creditor to pull your credit file. As with a soft credit pull, the lender will look at the financial information listed above.

Each hard pull may lower your credit score — but typically by less than five points, according to FICO® Score. All hard inquiries appear on your credit report. While they stay there for about two years, they stop affecting your credit score after 12 months.

Not all loans require a hard credit inquiry — but consider that a red flag. Some small local lenders may offer short-term, high-interest, unsecured personal loans. Borrowers must show proof of income via a recent paycheck, but no credit check is required. The risks of these “payday loans” are so great that many states have outlawed them.

Avoiding Hard Credit Inquiries

Consumers should carefully consider if they really need new credit before applying for an account that requires a hard credit check.

For example, department stores and some chains like to entice you to apply for their store credit card by offering a generous discount on your purchase as you’re checking out. In that situation, ask yourself if it’s worth a credit score hit (albeit a small one).

Another way to minimize hard inquiries is to ask which type of credit check a company intends to run. If, for example, a cable company usually requires a hard credit inquiry to open an account, you might ask if a hard pull can be avoided. Other situations where there may be some flexibility include:

•   Rental applications

•   Leasing a car

•   New utility accounts

•   Requesting a higher credit limit on an existing account

Disputing Inaccurate Hard Inquiries

A good financial rule of thumb is to review your credit reports every year to check for common credit report errors and signs of identity theft. You can access your credit reports from the three consumer credit bureaus (Equifax, Experian, and TransUnion) for free at AnnualCreditReport.com.

To check for inaccurate hard inquiries, look for a section on your credit report with any of these labels:

•   Credit inquiries

•   Hard inquiries

•   Regular inquiries

•   Requests viewed by others

You can dispute hard inquiries and remove them from your credit reports under certain circumstances: if you didn’t apply for a new credit account, you didn’t give permission for the inquiry, or the inquiry was added by mistake.

That said, under federal law, certain organizations with a “specific, legitimate purpose” can access your credit file without written permission. They include:

•   Government agencies, usually in the context of licensing or benefits applications

•   Collection agencies

•   Insurance companies, when certain restrictions are met

•   Entities that have a court order, as in child support hearings

Even so, if you didn’t give permission for a hard credit pull, it’s worth filing a dispute to request that the credit check be removed from your report.

Consumers may dispute hard inquiries online through AnnualCreditReport.com, or by writing to the individual credit reporting agencies.

Hard Credit Checks and Your Credit Scores

As mentioned, hard inquiries appear on your credit report, and each hard pull may lower your credit score by five points or less. Here we’ll go into a bit more detail.

Why Hard Inquiries Matter

Multiple hard inquiries within a short time frame can do significant damage to your credit score. It could potentially be enough to move you from the Good credit range down to the merely Fair. Someone in a Fair credit range can pay substantially more over a lifetime in interest and fees than someone with a Good score or higher.

How Many Points Will a Hard Inquiry Cost You?

As noted above, each hard pull can lower your credit score by less than five points. One or two hard inquiries per year may not matter, especially if you’re not planning on applying for a loan.

If you’re rate shopping for a particular type of loan, such as a mortgage or auto loan, keep in mind that multiple hard credit checks within a specific period (often several weeks) for the same purpose are usually counted as one inquiry by credit scoring companies. However, this is not the case with hard pulls for credit card applications.

How Long Do Inquiries Stay On Your Credit?

Hard inquiries stay on your credit report for two years. While they’re on your credit report, they are visible to anyone who checks your credit. But their impact on your credit score typically lasts less than 12 months.

Soft inquiries may remain on your credit report for one or two years, but only you can see them.

The Takeaway

Soft credit inquiries do not affect a credit score, while hard credit inquiries may cost you a few points. In both cases, individuals or businesses pull information from your credit reports. Checking your own credit report counts as a soft pull, as do most other situations where the consumer hasn’t given written permission. Hard pulls are typically done only when you’re applying for a loan or new credit account.

Many lenders allow you to “prequalify” for a loan without running a hard credit check. This allows you to shop rates without risking any impact to your credit.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOPL-Q324-025

Seeing a significant dip in your credit score can be disheartening, especially if it’s taken a 60-point plunge. But keep in mind there are many explanations for a drop, including changes to your mix of credit, the age of your accounts, credit utilization, or payment history. Or it could be due to an error in your credit report or even a case of identity theft.

Understanding why your credit score fell by 60 points is an important first step as you work to boost your numbers.

Should You Be Worried About Your Credit Score Dropping?

It depends. It’s not uncommon for credit scores to fluctuate by several points, and a slight drop in is usually nothing to stress about. However, if your score dropped suddenly or has been decreasing over time, it’s a good idea to investigate what might be behind the change.

A lower credit score can have far-reaching effects. It could impact your ability to rent an apartment or secure a home, car, or personal loan with favorable interest rates. And if you’re applying for a job, potential employers may run a credit check.

Why Did My Credit Score Drop 60 Points?

It’s fairly normal for your credit score to change by a few points here and there over time. That’s because credit scores are based on the most recent available credit information reported by lenders and collection agencies — and that information may be received at different times throughout the month. The score you see today may be different a few weeks later.

But if your score dropped 60 points, chances are it happened for a reason. Late payments, an increase in your credit utilization, signing up for multiple new credit cards in a short time frame, or closing an old account could all help explain a dip.

Recommended: Why Do I Have Different Credit Scores?

7 Reasons Why Your Credit Score Went Down

Here are some common scenarios that could negatively affect your credit score.

There’s a Missing or Late Payment

A consistent, on time payment history is one of the biggest factors that determine your credit score. It makes up 35% of your FICO® Score, which is used in 90% of lending decisions.

While missing a credit card or loan payment can happen to anyone, a payment that’s 30 days past due can dramatically lower your credit score, particularly if it’s high. For instance, someone who has a credit score that falls within the good to excellent credit score ranges may see their score drop by 63 to 83 points with one missed payment. Meanwhile, someone with a fair credit score could see a drop between 17 to 37 points, according to FICO.

Your Credit Utilization Is Too High

Credit utilization, or the amount of credit you’re using versus the amount of credit you have available, is also important, as it accounts for 30% of your FICO score.

If you use too much of your available credit, it could signal to lenders you’re overextended and may not be able to keep up with your debts. On the flip side, the lower your credit utilization, the higher your credit score can be. A good rule of thumb is to aim to keep your credit utilization below 30%.

Whether you use a spending app or go the DIY route, creating a budget can help you keep your finances in order and your credit utilization low.

There’s a Mistake in Your Credit Report

Mistakes happen, but they could cause your credit score to fall. Common credit report errors to be on the lookout for include a false late payment, incorrect account balances, a closed account that’s still showing up as open, and a misreported current balance or credit limit.

One way to help spot issues early on? Check your credit report regularly and dispute any errors. You can now check your credit report for free on a weekly basis from each of the three major credit bureaus: TransUnion, Equifax, and Experian.

Recommended: Why Did My Credit Score Drop After a Dispute?

You’ve Closed a Credit Card Account

If you’ve paid off a credit card balance, you may consider getting rid of that card altogether. But that can lower your credit score. That’s because when you close out an account, your overall available credit is lower.

And if that account is older, the length of your credit history decreases, too. Lenders like to see borrowers who have active accounts and a history of making regular on-time payments.

You’ve Recently Applied for Credit

There’s nothing wrong with applying for a new credit card. But keep in mind that every time you apply for a new line of credit or a loan, the lender may perform a hard credit check. (That’s when the lender pulls your credit report to assess your credit history.)

A single hard inquiry will result in a slight dent in your credit score. But multiple hard inquiries could cause your score to drop by as much as 10 points each time they occur.

You Paid off a Loan

When you pay off an installment loan, like a personal or auto loan, the account shows up as closed on your credit report. As a result, your credit mix — which composes 10% of your credit score — may change.

You’re a Victim of Identity Theft

If your identity has been stolen — and thieves open up a line of credit or max out your current credit cards — you may see a significant drop in your credit score.

If you suspect you’re the victim of identity theft, you’ll want to report fraudulent transactions ASAP to your creditor or financial institution. If you think your Social Security number or other important personal information has been stolen, you should report it to the Federal Trade Commission (FTC).

You might also want to contact one of the three major consumer bureaus and ask them to place a fraud alert on your credit report. This lets lenders know they need to take extra measures to verify your identity if they get a credit application in your name.

What Can You Do If Your Credit Score Dropped by 60 Points?

There are several things you can do to get your score back up if it falls by 60 points.

The first thing you’ll want to do is review your current credit report to make sure there aren’t any glaring errors. As noted previously, you can obtain a free credit report from TransUnion, Equifax, or Experian via AnnualCreditReport.com.

Another thing to do is to pay your bills on time, every time. One way to ensure you won’t miss a payment, or pay late, is to set up automatic payments so the money is automatically deducted from your bank account on the due date. Tools like a money tracker app can help you spot upcoming bills and manage payments.

How to Build Credit

Building credit can take time, but here are some strategies to consider:

•   Become an authorized user on someone else’s credit card account. This allows you to reap the benefits of the cardholder’s good credit. Just be sure the person who authorizes you is trustworthy and uses their card responsibly.

•   Get credit for other bills you pay, such as rent or utilities, by having them added to your credit report. Experian Boost, for example, adds on-time payments from other accounts to its credit reports. There are also existing rent-reporting services that can report your on-time rent payments to the credit bureaus.

•   Ask the lender to increase your credit limit. Having access to more available credit without increasing your balance can lower your credit utilization — and potentially increase your credit score. When you make the request, ask the creditor if it’s possible to avoid a hard inquiry, which could cause your score to dip a few points.

Allow Some Time Before Checking Your Score

It can help to think of your higher credit score journey as a marathon, not a sprint. Credit reports are updated when credit issuers send new information to the credit reporting agencies. Typically, this occurs every 30 to 45 days. So if you’re working to correct or dispute errors, or taking other steps to improve your credit score, you may not see an improvement right away.

Similarly, if you open a new credit card, it can take a few months before you see any credit score updates.

Recommended: How Long Does It Take to Build Credit?

Pros and Cons of Tracking Your Credit Score

There are several benefits to tracking your credit score — and some drawbacks to consider, too.

Pros:

•   You can spot mistakes early on.

•   Checking your score won’t hurt your credit because it’s a soft credit inquiry.

•   You can see where you stand financially and how you can improve your score.

Cons:

•   You may be charged monthly or annual fees.

•   You may be frustrated or discouraged with your current score.

•   You could still become a victim of identity theft or fraud.

How to Monitor Your Credit Score

There are a few different ways to check your credit score without paying, although you could pay for the service.

Some companies, including SoFi, Experian, and Capital One, offer a complimentary credit monitoring service. Certain credit card companies and banks also provide customers with their credit score. Another option is to track your FICO score for free at myFICO.com.

The Takeaway

Seeing a 60-point drop in your credit score out of nowhere can be upsetting. But take heart: There are steps you can take to help reverse that decline. By staying on top of your monthly payments, monitoring your credit reports, and keeping credit utilization low, you can help put yourself — and your credit score — back on firm footing.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Why has my credit score dropped 60 points out of nowhere?

Your credit score could have taken a dip of 60 points for a number of reasons, including missing one or more payments, having a high credit utilization, paying off a loan, incorrect information on your credit report, or being the victim of identity theft.

Why is my credit score going down when I pay on time?

Although making timely payments makes up the biggest part of your score, it’s not the only factor. You could be great about paying your credit cards or loans on time, but other issues could be responsible for your score going down. For example, if you’ve closed out a credit card account, that can affect your credit history and credit mix — both of which can impact your credit score.

How to dispute a credit score drop?

Contact the credit reporting company that’s showing inaccurate information on your credit report. Let them know about the error and be prepared to show documentation to back up your claim.

Photo credit: iStock/Neustockimages

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SORL-Q324-013

Seeing your credit score fall by 70 points without warning can be alarming. But there are a number of reasons for a dip, including late or missed payments or changes in your credit mix.

Keep reading to learn about what causes a credit score to drop and what you can do to help boost your numbers.

Why Did Your Credit Score Drop 70 Points?

Some changes in your credit score over time are to be expected. The three-digit number reflects the most recent available credit information reported by lenders and collections agencies.

However, if your score has dropped by 70 points, there’s likely a good reason why. And it’s a smart idea to investigate what prompted the dip.

Reasons Your Credit Score Went Down

It’s not always easy to uncover why your credit score fell by 70 points, but there are some common scenarios that could be to blame.

•   Your credit utilization has increased. Your credit utilization ratio is the percentage of credit you’ve used, based on your total available credit. It makes up 30% of your FICO® Score, which most lenders rely on. If you’ve maxed out the credit limit on one or more credit cards, your credit utilization ratio will likely increase. And your credit score may take a hit as a result.

•   You’re late with a payment. How well you stay on top of payments accounts for 35% of your FICO Score, and a payment that’s more than 30 days late can put a noticeable dent in your score. If you have trouble keeping up with due dates, consider enlisting the help of a money tracker app.

•   Your account has been sent to collections. Typically, accounts that are more than 180 days past due are sent to collections. This will impact your credit score, but just how much depends on your history. For instance, if you have an otherwise clean credit record, you might see a steeper drop than someone who already has a poor credit score and a spotty payment history.

•   You’ve closed a credit card. There are a couple of reasons why canceling a credit card can hurt your credit score. First, you no longer have access to the card’s credit line amount, which could increase your credit utilization rate. And second, if you close a card you’ve had for a long time, the length of your credit history goes down. The good news is, there are ways to cancel a credit card without negatively impacting your credit score.

•   There’s an error on your credit report. Mistakes happen — and if one ends up on your credit report, it could negatively impact your score.

•   You’re a victim of identity theft. Whether someone opened up a line of credit in your name or racked up charges on your credit card, identity theft can wreak havoc on your credit score.

Examples of Credit Score Dropping

Sometimes, a simple action can cause your credit score to drop without you even realizing it.

Let’s say you have a new credit card that offers a temporary 0% APR for 12 months and a credit limit of $4,000. You’re moving into your first apartment on your own and need to buy new furniture and essential home goods. You spend $3,000 on the card, and plan on repaying the debt in installments over the promotional APR period.

Financially, this might be a smart strategy. After all, you might’ve put your other savings toward the first-month’s rent and security deposit. And paying $250 each month for the next year might be more manageable than repaying $3,000 at once.

However, the move also puts your credit utilization rate at 75%, which is substantially higher than the recommended 30% or below. It can also take some time before you’re able to pay down enough of the balance so the rate drops.

Another example is if you pay off a personal loan. Once you make your final payment, the account is considered closed on your credit report. As a result, your credit mix, which accounts for 10% of your credit score, may also change.

What Can You Do If Your Credit Score Dropped by 70 Points?

Your credit score isn’t a fixed figure. If yours has fallen, there are ways to help it bounce back.

A good first step is to regularly review your credit report and look for errors. You can check your credit report for free each week from the three main credit bureaus: TransUnion, Equifax, and Experian. Visit AnnualCreditReport.com to get started.

Paying your bills on time is another smart strategy. If you need help managing bill paying, consider setting up automatic payments so the money is automatically deducted from your bank account on time each month. Creating a budget, either on your own or with the help of a spending app, can also help ensure you have enough each month to cover your bills.

Recommended: How Long Does It Take to Build Credit?

Should You Be Worried About Your Credit Score Dropping?

While a 70-point drop in your credit score can sting, its impact depends largely on where your score stood before the fall. For example, if your FICO Score was 669, dropping 70 points would still keep you under a “fair” credit rating. However, if you have good to exceptional credit, a 70-point dip could cause your score rating to slip down a rung.

What Factors Impact Credit Scores?

If you want to course-correct a 70-point drop and build your credit, it helps to pay attention to all of the factors that make up your score:

•   Payment activity. Accounting for 35% of your score, this factor looks at your repayment habits across all debt types, such as credit cards, home loans, installment loans, and retail cards. Derogatory marks like bankruptcies and collections are also factored in here.

•   Debt owed. Thirty percent of your score looks at the balances you owe on your accounts, how many accounts have a balance, and your credit utilization.

•   Account age. How long you’ve had your oldest and newest accounts and the average combined age of all your accounts are considered in your score.

•   Credit diversity. A healthy credit mix shows you can be responsible for managing different types of credit. This factor accounts for 10% of your score.

•   New accounts. The details of new accounts under your credit file make up the last 10% of your credit score calculation. Here, credit scoring models evaluate hard credit inquiries and when you last opened a new account.

Recommended: What Affects Your Credit Score?

How to Build Credit

While you can’t build credit overnight, there are steps you can take to help boost your credit score. Here are a few to consider:

•   Pay your bills on time. As we mentioned, payment history can have a major impact on your credit score. Even if it’s just the minimum amount, be sure to send in your payments on time each month.

•   Ask to become an authorized user on someone else’s credit card account. This allows you to benefit from the primary cardholder’s good credit and, if the account was managed responsibly, could bolster your credit score.

•   Request a credit limit increase. You may lower your credit card utilization by increasing your available credit — and keeping your balance in check. Contact your creditor about an increase, and ask if it’s possible to avoid a hard inquiry. That could ding your credit score.

•   See if you can add rent and utility bills to your credit report. Rent-reporting services will report on-time rent payments to the credit bureaus. Similarly, Experian Boost will add on-time payments from other accounts to its credit reports.

Allow Some Time Before Checking Your Score

It can be tempting to see how a small tweak in your repayment and borrowing habits might have changed your credit score. However, checking in too soon might not provide enough time for the impact of the change to take effect.

Instead, let the changes you make take root over a few months before checking your score. And consider checking your credit before a major purchase or if you think you’ve been exposed to a high fraud risk, such as using your credit card or ATM card abroad.

At a minimum, check your score annually to see how much it’s changed.

How to Monitor Your Credit Score

You can pay to access your latest credit score directly from the credit scoring model that you’re interested in. However, many banks, card issuers, and lenders provide complimentary access to your credit score.

For example, Chase lets you see your VantageScore for free,, while Wells Fargo customers can access their FICO score at no additional cost. Log in to your account online to see if your lender or card issuer provides credit score monitoring through its portal, or contact them directly.

Credit score monitoring tools also keep you informed about changes to your score.

The Takeaway

Seeing your credit score drop 70 points can understandably put you on edge. But keep in mind there’s an underlying reason for the decrease, even if it’s not obvious. A change in your credit utilization, a shift in your credit mix, or a string of late payments can all take their toll on your score. Fortunately, over time you can take meaningful steps to recover from the 70-point drop, including checking your credit report and disputing any errors, paying bills on time, and managing how much available credit you use.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

FAQ

Why did my credit score randomly drop 70 points?

There are many reasons your score might unexpectedly drop 70 points, including an increased credit utilization ratio, late or missed payments, or a closed credit card or loan accoun.

Why did my credit score go down when nothing changed?

Credit scores can fluctuate even if it seems like you didn’t do anything out of the ordinary with your credit accounts. If you recently applied for a new loan or credit card, for example, a hard inquiry might temporarily knock your score down a few points.

Why is my credit score going down if I pay everything on time?

Paying your credit cards and loans on time positively impacts your credit score, so keep this habit going! However, if you’re making on-time minimum payments and not repaying each statement balance in full, your credit utilization might be increasing. To prevent the negative effect on your credit, keep your utilization under 30% — and ideally lower than 10%.

Photo credit: iStock/svetikd

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SORL-Q324-015