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If you’re new to credit or want to rebuild your credit, becoming an authorized user on another person’s credit card account can help. As an authorized user on a credit card, your credit score can be positively impacted when the account and its activity are managed well and reported to the credit bureaus. The card’s activity is still also reported under the primary account holder’s credit profile, in addition to yours.

Being an authorized user does have its share of responsibilities. You’ll want to make sure to maintain responsible credit card habits as an authorized user to help your credit, as well as to avoid adversely impacting the primary account holder’s credit.

What It Means to Be an Authorized User

When you’re an authorized user, you have a credit card that’s attached to another person’s account. This duplicate credit card, also known as a supplementary credit card, will have your name on it, and you’ll be able to use it to make purchases. Since you’re not the primary account holder, you won’t have the authority to make changes to the account.

As an authorized user, you’re not legally responsible for making a payment after each billing cycle. That responsibility remains solely with the original cardholder, which marks a major distinction between an authorized user relationship and a joint credit card account. Since you’re not liable for repaying the charges as an authorized user, you might not get a monthly statement.

In terms of getting started as an authorized user, be aware that some issuers impose an annual fee to add authorized users to a card account. Additionally, some credit cards have limits for the maximum number of authorized users permitted on an account.

Further, card issuers often have a minimum age requirement that you must meet as an authorized user. The age requirement depends on the issuer. For example, SoFi requires authorized users to be at least 15 years old, while the minimum authorized user age for an American Express Platinum Card is 13 years old.

Recommended: What Is the Average Credit Card Limit?

How Being an Authorized User Affects Your Credit Score

There are a couple of ways that being an authorized user on a credit card can affect your credit score.

If the Lender Reports Authorized Users to Credit Bureaus

If your main goal in becoming an authorized user is establishing credit or rebuilding your credit history, this can be a viable option to pursue. Card issuers don’t require a credit check to become an authorized user.

Your credit score can be positively affected if the issuer reports satisfactory payment activity and usage to the credit bureaus for all persons named on the account. Keep in mind that not all credit card companies send activity data to the bureaus for authorized users, though. So before going this route, ask the primary user to confirm whether the issuer does.

How You Use the Shared Account

If the bank reports the card’s positive activity to credit bureaus for all users, it will also report unsatisfactory activity. Being an authorized user can hurt your credit if a late or missed payment is reported and included on an authorized user’s credit profile, for example. On the flipside, on-time payments or a low credit utilization rate can help the credit of both the primary and authorized users.

Since the card data that’s included for an authorized user depends on the credit bureau, ask the credit issuer to specify which credit agency it reports to. That way, you’re aware of the factors that affect credit scores.

Risks Associated With Being an Authorized User

A major risk of becoming an authorized user on a credit card is that it can adversely affect your credit score. If the primary user fails to make at least the minimum monthly payment on time, for instance, that will also impact your score, assuming the bureau reports payment history for authorized users.

Additionally, the purchase behavior of all users on a card could put a strain on the account’s limit, pushing balances near or at the borrowing limit. This will affect the credit utilization on the account, which also can impact the credit score of all users on the account.

With so many factors that need to be in balance, each user associated with the card must have a clear understanding of purchase and repayment expectations. If an individual drops the ball, it can put a strain on the relationship in addition to the users’ credit scores.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score?

Who Should You Ask to Add You as an Authorized User?

Asking another person to add you as an authorized user on their credit card is significant. It requires the utmost mutual trust, which is why this individual is typically someone who’s very close to you. This might include your:

•   Spouse or partner

•   Parent

•   Grandparent

•   Adult child

•   Adult sibling

•   Aunt or uncle

It’s helpful to clarify expectations around payment before being added as an authorized user. For example, do they want to cap your spending power on the card? When do they want payment for your charges? What’s the expectation if, for any unforeseen reason, you can’t cover your part of the bill?

Even though the primary cardholder is liable for the payments, it’s helpful to come to an agreement about how you two will settle your purchases, one-on-one.

Using Your Credit Card Responsibly

Receiving authorized user status on a credit card is a convenient way to build your credit profile. It also can help you practice responsible borrowing habits. A few sensible practices when using a credit card as an authorized user include to:

•   Avoid overspending. Examine your budget before using your card to verify that you can afford the purchase.

•   Ensure payments are made on time. Communicate with the primary cardholder to confirm that at least the minimum payment is made by the credit card due date. If you’re covering your portion of the charges, make sure to get the money to the primary cardholder by the date you agreed upon.

•   Be mindful of the card’s limit. Avoid keeping an ongoing high balance close to the credit card limit, which can negatively affect credit. Authorized users might not have access to the account history or statements, so regular communication with the primary user is essential.

Recommended: Tips for Using a Credit Card Responsibly

The Takeaway

As an authorized user, your credit score could be built from the positive borrowing activity on the card, assuming the the issuer reports the account activity to the credit bureaus. Additionally, the card must be managed responsibly — otherwise, your credit could be negatively impacted. Getting added to a card that doesn’t charge an authorized user fee can be a good way to get started.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

Can authorized users affect your credit?

If an authorized user racks up charges, it might adversely affect your credit utilization ratio, which in turn can lower your credit score.

Additionally, you’re legally liable for all charges the authorized user makes on the card. If they’re unable to pay and you also can’t keep up with the payments, missed or late payments can negatively impact your credit.

Does an authorized user get a hard inquiry?

Typically, authorized users who are added onto an existing account don’t undergo a hard inquiry. Since the primary cardholder is the person who opened the account and is still 100% liable for all charges made to the card, credit issuers usually don’t need to verify the authorized user’s credit background or ability to repay the debt — even if they make charges.

What is the minimum age to be an authorized user?

The minimum age for authorized users on a credit card will vary with the card’s issuer. In some cases, the user must be aged 13, 15, or 18. In other situations, there may be no age restriction at all. Check with the issuer to know for sure.

Photo credit: iStock/tolgart

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.

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.

SOCC-Q324-043

Lowering your debt to improve your credit score means that you are considered less of a risk to a lender. And with a higher credit score, you will qualify for better financing terms. However, in some cases, paying off a car loan or other type of financing can have the opposite effect and actually lower your credit score. 

Here’s a look at why your score could suffer if you pay off a loan. We also look at how you can avoid a drop in your credit score when your financial situation changes.

Why Did My Credit Score Fall After Paying Off My Car?

A credit score drop could be a direct result of paying off a car loan — or a completely unrelated reason. For example, if you apply for a loan or new credit card, the lender may do a “hard pull” to check your credit score. Too many credit checks within a short period could cause a temporary drop in your credit score, even if you don’t sign for the loan.

If you pay off a car loan, the loan will remain on your credit report for up to 10 years. As long as you always make your payments on time, the loan will continue to have a positive effect on your credit history. Newer accounts, however, have more of an impact on your credit score. So, if you close an old account that you dutifully paid off, your current credit standing could worsen because your regular payments to that old account are no longer taken into consideration.

In addition, when you pay off a car loan, your credit mix changes because you now have one less account in your name. This change can lead to a drop in your credit score.

Let’s take a closer look at factors that affect a credit score and how paying off a car loan can impact them.

Credit Score Contributing Factors

Auto loan lenders typically look at your FICO™ Score or your VantageScore. We’ll focus on the FICO Score because it’s probably the most popular. Four main factors make up your FICO credit score with varying weights. Here’s a look at each of them.

Payment History

Your payment history makes up 35% of your FICO Score, and it is a measure of how likely you are to pay back your debts. The score looks at whether you pay your credit card bills, your mortgage, and any installment loans on time. A few late payments on credit cards or a mortgage won’t ruin your score, but any bankruptcies or collections may. If you need help spotting upcoming bills and managing payments, tools like a money tracker app can help.

Credit Utilization

Your credit utilization rate makes up 30% of your FICO Score. This is the amount of revolving credit versus the total amount of credit available to you. The lower your utilization percentage, the better your credit score because it shows you are not maxing out your credit — so you’re better able to pay back a lender.

Your total available revolving credit includes the amount you can spend on credit cards and lines of credit like home equity lines of credit (HELOCs). Your credit utilization rate is based on the numbers on your credit report, and this data may lag behind your current limits and balances by a month or more. 

A car loan has no impact on your credit utilization rate. However, it can affect your total debt and your debt-to-income ratio.

Length of Your Credit History

The length of your credit history accounts for 15% of your FICO Score. A longer credit history will have a positive effect on your FICO Score. Your credit history takes into account how long your credit accounts have been open, including the age of your oldest account, the age of your newest account, and the average age of all your accounts. So when you close an older credit card account, you may see a drop in your score — regardless of whether you’ve paid off your car loan.

Credit Mix

Your credit mix is the type of credit you have — for example, credit cards, mortgage, HELOCs, installment loans, student loans, and car loans. Your credit mix accounts for 10% of your FICO Score. If you are successfully managing a variety of financing types, it will be reflected in your FICO Score. After you pay off a car loan, your credit mix decreases, and your credit score may dip as a result.

New Credit Card Applications

When you apply for a new credit card, the provider will do a hard inquiry on your credit score that could cause it to dip slightly. A new account will reduce the average age of your accounts, which could also lower your score.

On the other hand, a new credit card account will increase the amount of credit available to you, which might lower your credit utilization rate. It might also diversify your credit mix, and if you make payments on time, it could build a stronger payments history.

Recommended: 8 Reasons Why Good Credit Is So Important

How to Pay Off Debt and Help Your Credit Score

Paying off debt should boost your credit score, but in some cases, it can damage it. For example, if you pay off debt and close credit card accounts, you may not be able to demonstrate to the credit bureaus that you make regular payments and practice responsible fiscal management.

Here are some ways to pay off debt that are unlikely to lower your credit score.

•   Pay due amounts on time. Your payment history is the most important component of your credit score. You can improve it by paying off your credit card balances in full each month and also paying your mortgage on time.

•   Pay off high-interest debt. High-interest credit cards can trap you in a spiral of debt if you don’t pay off the balance each month. Pay off these cards first so you reduce the likelihood that you will fall behind on payments and rack up interest charges. This will benefit your credit score because lenders will consider you less of a risk.

•   Pay off debt with cards with low credit limits. If you are maxing out the credit limit on a card with a low credit limit, your credit utilization rate may be high because you have more debt than you have accessible credit. That makes you a high risk to a lender and will reduce your credit score.

Try to keep your credit utilization rate below 30%, and ideally around 10%. By paying off credit card debt with a low credit limit, you reduce your debt load but maintain access to the credit, improving your credit utilization rate.

•   Pay off your student loans (maybe). Paying off your student loans may or may not be beneficial. It will reduce your debt-to-income ratio; however, regular student loan payments contribute to a healthy payment history. Also, student loans add diversity to your debt mix, so paying off this type of installment loan might negatively impact your credit score.

•   Pay any past-due bills. Paying off old debts that are late shows lenders that you pay what you owe. Pay the most recent bills first.

How Do I Keep My Credit Score From Dropping?

Practicing good fiscal management will help keep your credit score from dropping. Keep in mind that closing old credit card accounts and paying off some debts may backfire. Maintain a credit utilization rate that’s below 30%, and most importantly, pay your bills on time.

How Long Does It Take for Your Credit Score to Improve After Paying Off Debt?

Paying off debt may not necessarily improve your credit score, and your score may show a decrease initially. However, in most cases, your score should reflect a better credit utilization ratio in one or two months. 

Keep in mind that a car loan has no impact on your credit utilization score.

Recommended: How Often Does Your Credit Score Update?

Ways to Increase Your Credit Score After Paying Off a Loan

If your credit score dropped when you paid off a car loan or other loan, do some research to find out why. Then, there are various things you can do to remedy the situation and build back credit.

•   Avoid late payments. Setting up automatic payments and using a spending app can help you to avoid missed payments.

•   Check your credit utilization rate. Check that by paying off a debt and closing an account, you have not raised your credit utilization rate to over 30%. Aim to spend no more than 10% of your total available credit.

•   Avoid closing out older credit accounts. Keep older credit accounts open, even if you never use them. This will lengthen your credit history.

•   Limit new credit inquiries. Be careful when shopping for new credit cards or loans. Hard inquiries by lenders within a short period (around 14 days) will lower your credit score. Try to find lenders that will prequalify you for financing without a hard inquiry.

•   Improve your credit mix. Try to use both credit cards and installment loans responsibly by making regular, timely payments.

However, remember that a variety of loan types will only have a small impact on your credit score. It’s not advisable to take on extra debt just to fulfill the need for a diverse credit mix.

How to Monitor Your Credit Score

When it comes to credit score monitoring, you have plenty of options.

Federal law allows you to view a free copy of your credit report from each of the three national credit bureaus (Experian, TransUnion, and Equifax) at AnnualCreditReport.com.

You can also use a credit score service. Some sites provide a free credit score to users. Others may provide credit scores if you pay a monthly subscription fee.

Some credit card companies, banks, and lenders have started to provide credit scores for their customers. Check your statement, or you may be able to access it online after logging into your account.

If you find information you believe is inaccurate or incomplete on your credit reports, you can also file a dispute with the credit bureau that provided the report.

The Takeaway

Paying off a loan, such an auto loan, can have an unexpected negative effect on your credit score. This may be because of a decrease in your credit mix, a change in the length of your credit history, or another factor that contributes to your credit score.

It’s important to monitor your credit report and your credit score and understand why any changes occur. That way, if your credit score drops, you can take steps to remedy the situation, such as paying off the balance on credit cards, improving your credit mix, and watching that your credit utilization rate stays below 30%.

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.

See exactly how your money comes and goes at a glance.

FAQ

Why did my credit score go down after paying off my car?

If you pay off a car loan, the loan will remain on your credit report for up to 10 years, and as long as you always make your payments on time, the loan will continue to have a positive effect on your credit history. If you remove that loan, your current credit standing could worsen because you have less of a credit history. 

 How long does it take for your credit score to go up after paying off my car?

In most cases, your score should go up in one or two months if other factors do not come into play, such as a limited payment history or closing an unrelated credit account.

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

A change in your credit history could cause your credit score to drop. For example, if you apply for new loans or credit cards within a short timeframe, the hard checks conducted by lenders may cause a temporary drop in your score even if you don’t sign for the loans. Also, if you close out old credit cards, you could be shortening your credit history, which will lower your credit score.

Photo credit: iStock/milan2099

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-Q324-011

There are several explanations for why your credit score might fluctuate by a few points now and then. But if you’ve noticed that your score is down by as many as 20 points, and you can’t think of any reason for this dramatic drop, it’s a good idea to do some checking ASAP. This can help you determine what affected your score and what you should do about it.

Read on for some common reasons why your credit score could unexpectedly drop by 20 points, and how you can improve and protect your score going forward.

Why Did Your Credit Score Drop 20 Points?

The fact that you even noticed that your credit score took a dip is proof that you’re paying attention to your finances, so give yourself a high five for that. If there’s a problem — a credit reporting error, for example, or possibly identity theft — you’ve got a head start on getting it fixed. And if it’s something you did without knowing it could impact your score (at least not by this much) you can resolve to do better in the future.

Even if you’re doing everything right — including paying bills on time, keeping low credit card balances, and using credit score monitoring to track how you’re doing — you can’t always know from month to month what will happen to your credit score. That’s because credit scoring systems like FICO® Score and VantageScore® use information from a credit report to assess your creditworthiness and assign it a number from 300 (the lowest score) to 850 (the highest).

If the information in your credit reports is up to date and correct, your credit score will reflect that. But it’s up to each individual lender to decide when or even if it will report information to the three major credit reporting agencies: Equifax, Experian, and Transunion. And sometimes the reports can be incomplete or incorrect. If that’s happened to you, your score may drop, or it may not be as high as you think it should be.

What Factors Impact a Credit Score?

FICO® and VantageScore® use different formulas to calculate credit scores, but the same basic factors from your credit report can move your score up or down. And some things can have a bigger influence on your score than others.

Here’s how FICO® breaks down what affects your credit score:

•   Payment history (35%): Your record of paying your bills late or on time can have the biggest impact on your FICO® Score. A spending app can help you keep tabs on upcoming bills. 

•   Amounts owed (30%):  Even if you’re managing it well, carrying a lot of debt could affect your score. This category applies to the amount you owe overall, but it puts a priority on your credit utilization. Lenders generally like to see a credit utilization rate of 30% or lower.

•   Length of credit history (15%): This category looks at the age of your oldest account, the age of your newest account, and the average age of all your accounts together.

•   Credit mix (10%): Lenders also may want to see that you, as a borrower, can handle different types of financing, including credit cards, installment loans, retail accounts, and mortgage loans. So FICO® includes this in its credit scoring formula.

•   New credit (10%): When you apply for some type of financing, whether it’s a new credit card or a new car, the lender may make what’s known as a hard credit inquiry, which could cause a dip in your score. The drop is typically small and temporary, but you might notice a bigger change if you make several credit applications at around the same time.

Should You Be Worried About Your Credit Score Dropping?

It’s normal to feel frustrated and concerned if your credit score drops suddenly, especially if you don’t understand what happened. But the good news is, it can be pretty easy to find out what’s up. If your financial institution, credit card company, or your favorite money tracker app offers you a way to get your credit score regularly, you may have access to a brief summary that explains what caused that number to go up or down. This can be a good place to start looking for clues as to why your score dropped by 20 points.

It’s also useful to know how to read a credit report so you can get the information you need to catch errors or spot identity theft. This can help you get to the bottom of what’s affecting your score and take steps to get that number back in line with what you think it should be. You have the right to request a free copy of your credit report from each of the credit bureaus once a year by visiting AnnualCreditReport.com.

Reasons Your Credit Score Might Go Down

It could be that something you did (or didn’t do) caused your score to drop, and you might not even know it. Maybe you closed an old account that you didn’t use anymore, or maybe you applied for a loan or new credit card. It’s also possible that you have an old unpaid balance hanging out there that you thought was cleared up but isn’t.

Examples of Credit Score Dropping

A combination of several factors could explain why your credit score seems to have suddenly and randomly dropped by 20 points. Here are some examples of why a credit score can go down:

You’re Using a Large Percentage of Your Available Credit

Are you close to maxing out all the credit you have available to you? Did you recently make a large purchase with your credit card that pushed you close to your credit limit? Even if you’re paying your bills on time, if your credit utilization rate is higher than 30%, it could explain a reduction in your credit score.

You Closed an Old Credit Card Account

It may seem counterintuitive (and super frustrating) that canceling a credit card  can have a negative effect on your credit. But there are a couple of reasons why closing a credit card account can lower your credit score. 

First, when you cancel a card, you reduce your available credit, which can cause a jump in your credit utilization rate. Second, closing an older account can affect the length of your credit history, which is another factor that goes into determining your credit score. It may make sense to close the account anyway if the card has high fees or if it’s hard to resist overspending. But if you do cancel a card, especially one you’ve had for a while, you can expect to see a temporary drop in your credit score.

You Made a Late Payment

Maybe you simply forgot to pay a credit card bill. Or maybe you failed to make a payment in a month when money was tight and figured you’d play catch-up with a bigger payment the next time. Either way, if the credit card company reported your late payment to a credit reporting agency, it could be the reason your credit score dropped. Remember: Payment history is the biggest factor in calculating your credit score.

You Made the Final Payment on an Installment Loan

When it comes to determining your credit score, your “credit mix” isn’t as big of a factor as your payment history or the amount of available credit you have. But if you recently paid off a car loan, personal loan, or some other type of installment loan — and your credit mix is now limited to just credit card debt — it could have an affect on your score. 

That doesn’t mean you shouldn’t celebrate your accomplishment or that you should run out and apply for another loan. But it could help explain why your credit score is lower than you think it should be.

What Can You Do If Your Credit Score Dropped by 20 Points?

There are a few steps you may want to consider taking right away if you notice a big drop in your credit score.

Review Your Credit Reports

If you find an error on your credit report, such as a payment incorrectly reported as late, the Consumer Financial Protection Bureau (CFPB) recommends filing a formal dispute, in writing, with both the credit reporting company and the entity that provided the information (such as a credit card company). By law, the credit reporting company must investigate your dispute and notify you of its findings.

If you notice signs that you may be the victim of identity theft (such as unknown accounts or unfamiliar debt), you may choose to alert the credit bureaus. You can also report identity theft on the Federal Trade Commission’s site, IdentityTheft.gov.

Prioritize Timely Payments

The biggest factor in determining your credit score is your payment history, so keeping track of your bills is important. If payment deadlines tend to get away from you, you may want to set up online bill pay to reduce your bill-paying burden. Or you can put payment due dates on a physical or digital calendar, then set up alerts on your phone so you know it’s time to pay. 

When you pay a bill, be sure to note the details, such as the date, amount, and confirmation number if paid online.

If You Can, Delay Applying for New Credit

You may want to wait until your credit score comes back up a bit before applying for a new credit card or loan. If you want to get the best interest rate or you’re worried about getting approved, you’ll want your credit to be shipshape. It also can be a good idea to avoid authorizing several companies to do a hard credit pull if you’re shopping for a mortgage, car loan, or credit card.

How Can You Build or Repair Your Credit?

If you’ve been working to improve your creditworthiness, even a small dip in your credit score can be disappointing. But you don’t have to let a negative fluctuation deter you from your goal.

How can you continue to build your credit? Besides paying your bills on time, managing your credit utilization, and having a good credit mix, you also can help lenders see that you’re a good risk by paying down high-interest debt — and keeping it paid off.

How Can You Monitor Your Credit Score?

There are several ways you can check your credit score without paying. Many credit card companies and financial institutions offer free credit reporting and scoring as a benefit to cardholders. (You may have to opt-in to begin receiving this service). If your personal information was compromised in a data breach, you may be offered free credit monitoring for a specific period of time. You also can pay for a credit monitoring service to get regular updates.

Allow Some Time Before Checking Your Credit Score?

Though credit score updates can occur at any time, checking about once a month should provide a good gauge of how you’re doing. (You can check your own credit score any time you like without any negative impact.) 

If you get a free credit score from your bank or credit card, you’ll probably receive a new score monthly. With a credit monitoring service, on the other hand, you may receive an alert any time there’s a significant change in your score or some type of suspicious activity.

Pros and Cons of Tracking Your Credit Score

Tracking your credit score can help you protect your credit and may provide added incentive to keep working on your financial health. Here are some pros and cons to consider:

Recommended: Why Did My Credit Score Drop After Dispute?

The Takeaway

A 20-point drop in your credit score can be worrisome. But there are several steps you can take to determine what caused such a significant change and then try to fix it.

It also can be helpful to be proactive instead of reactive when it comes to your credit score. By paying attention to the factors that can have the biggest impact on your credit, such as your payment history and credit utilization, you can keep working to build and protect your credit.

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.

See exactly how your money comes and goes at a glance.

FAQ

Why did my credit score drop 20 points randomly?

It may seem as though your credit score dropped randomly, but there’s usually something behind a dip of 20 points or more — and it’s worth looking into. It could be a late payment, an error on your credit report, a sign of identity theft, or some other reason.

Why did my credit score drop and I don’t know why?

A change in your credit score reflects a change in a credit report. It may be that you made a late payment and you didn’t think your credit card company would report it. Or maybe you made a major purchase that changed your credit utilization rate. If you’re concerned, you may want to check your records against your most recent credit reports.

Is it normal for a credit score to drop 25 points?

A credit score can drop for many reasons. Though a 25-point dip is something you’ll probably want to check into (if you can’t figure out why it happened), there are steps you can take to dispute information in your credit report and repair your credit score.

Photo credit: iStock/milan2099

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.

SORL-Q324-002

Credit scores measure your financial health at a given point in time. Ideally, your score increases as you build your credit history, so a sudden decline can leave you wondering why.

Several things can cause a credit score to fall 100 points (or more), and late payments are often at the top of the list. Here’s a closer look at why credit scores decrease. 

Why Did Your Credit Score Drop 100 Points?

A credit score can drop by 100 points or more when there’s a significant change to your credit reports. Possible reasons for a credit score drop of 100 points or more include:

•   Late payments

•   Missed payments

•   High balances relative to your credit limits

•   Reduced credit limits

•   Delinquencies and collection accounts

•   Bankruptcy filing

•   Foreclosure or repossession

•   Judgments

•   Multiple inquiries for new credit in a short timespan

•   New credit accounts in your name1

These types of items can drag your score down. Paying off loans or closing credit card accounts can also cost you credit score points, even though you might consider them positive financial steps. 

Identity theft and fraud can trigger a sizable drop in your credit score as well. If someone uses your identity to obtain loans or open lines of credit without your knowledge, that could leave you vulnerable to late or missed payments, delinquencies, and collection actions. A money tracker app can help you keep tabs on your credit score, and you’ll also get updates when it changes. 

Should You Be Worried About Your Credit Score Dropping?

A credit score drop can be worrisome, especially if you weren’t expecting it. You may have cause for concern if you:

•   Plan to apply for a mortgage or another type of loan soon

•   Would like to refinance an existing debt that you have at a lower interest rate

•   Suspect that someone may be using your identity to obtain credit fraudulently

Fluctuating credit scores could make it more difficult to get approved for new loans. If you are approved, a lower score could result in a higher interest rate. 

Identity theft is a more serious matter. You may not even be aware that someone is using your identity to obtain credit in your name until you’re denied credit, or worse, sued for an outstanding debt you didn’t create. 

Reasons Your Credit Score Went Down

Why did my credit score drop by 100 points for no reason? The short answer is that it didn’t. There must be some change to your credit report to result in a score decline. 

Changes that can show up on your credit reports include:

•   New accounts opened in your name

•   Account closures

•   Changes to your balances or credit limits

•   Payment activity, including late payments or missed payments

•   Delinquencies and accounts that are sent to collections

•   Paid off balances

•   Debt settlements, in which your creditors agree to let you pay off less than what you owe

•   New inquiries for credit1

Inaccurate information can also harm your credit. Between 2021 and 2023, consumer complaints about credit report errors increased by 168%, according to the Consumer Financial Protection Bureau (CFPB). Credit report errors can range from payments being incorrectly reported to accounts listed as belonging to you that are not yours.2 

In some cases, a credit score drop might be caused by someone else. This can happen when you cosign a loan for someone. As the cosigner, you’re legally responsible for the debt. Any activity relating to the account, including late or missed payments, can show up on your credit report.3 

What Can You Do If Your Credit Score Dropped by 100 Points?

If your credit score drops by 100 points or more, the first thing to do is determine why. Obtaining copies of your credit reports can shed some light on what may be causing the decline. 

Here are some things to look for as you review your reports:

•   Missing or incorrect payment history

•   Incorrect balance information

•   Accounts that don’t belong to you

•   Collections for debts that don’t belong to you

•   Loan accounts you’ve paid off that still show a balance

•   Open accounts that are listed as closed or vice versa

•   Duplicate debts, meaning the same account is listed multiple times

If you identify what you believe is an error or inaccuracy, you have the right to dispute it with the credit bureau that’s reporting the information. Equifax, Experian, and TransUnion — the three major credit bureaus — all allow you to initiate credit report disputes online.4 

Why did my credit score drop over 100 points when there were no errors? That’s trickier to answer, as it depends on the information in your credit file. If there are no errors or inaccuracies, then you’ll need to consider things like payment history, credit limits, and debt balances to see if they’ve had any impact on your score. 

Examples of Credit Score Dropping

Hopefully, you never have to deal with a major credit score drop. But it may help to have some examples of what can cause your score to go down. 

•   You’re ready to buy a home and are shopping for a mortgage lender. You find the one you want to work with and apply for a loan. You’re approved, but the new inquiry and associated debt on your credit reports lead to a score drop. 

•   You cosign a car loan for your niece, on the promise that she’ll make the payments on time. She loses her job but doesn’t tell you and the loan payments go unpaid for six months. The lender repossesses the vehicle, which lands on your credit report and costs you credit score points. 

•   You make the final payment to your student loans. The account is now listed as closed and paid in full on your credit reports, but it lowers your score. 

Again, not all things that lead to a credit score drop are negative. Paying off debt, for example, is something to celebrate even though it can ding your credit to a degree. 

How to Build Credit

How long does it take to build credit? There’s no simple answer, as it can depend on what you’re doing (or not doing) to recover lost credit score points. 

Some of the most effective strategies for building credit include:

•   Paying bills on time to establish a positive payment history

•   Keeping the balances on your credit cards low or paying in full each month

•   Paying down debt that you already have

•   Periodically requesting credit limit increases from your credit cards (but not running up new debt against them)

•   Leaving older credit accounts open, even if you don’t use them

•   Using different types of credit, such as loans and credit cards

•   Limiting how often you apply for new credit

You can also build credit as an authorized user on someone else’s credit card. Authorized users have charging privileges on the card and account activity will show up on their credit reports, but they’re not legally responsible for the debt.5

Having a checking or savings account typically doesn’t affect credit scores. Banks can, however, report negative activity related to closed accounts to ChexSystems, a consumer credit reporting agency. A negative ChexSystems report could make it difficult to get approved for a new bank account. 

Allow Some Time Before Checking Your Score

If you recently checked your credit following a score drop, you may want to wait a while before checking it again. Credit scores change when there’s new information added to your credit reports, whether it’s something positive or negative. 

It may be helpful to check your credit monthly or quarterly if you’re working on rebuilding your score. That way, you can track your progress against any steps you’re taking to improve your score to see what’s working. 

At a minimum, it’s a good idea to check your credit at least once annually. That can allow you to see what’s changed over the last year and look for any suspicious or potentially fraudulent activity. 

Pro tip: Use a free credit monitoring service to get regular credit score updates. 

Recommended: How to Check Your Credit Score Without Paying

Closing a Credit Card Account Can Hurt Your Score

Closing credit cards can hurt your score if you still owe a balance at the time you close the account. Your credit utilization ratio measures how much of your available credit you’re using. When you close a credit card with a balance due, you automatically increase your credit utilization ratio.6

For example, let’s say you have a combined credit limit of $20,000 across five credit cards. You owe $6,000 in total debt to your cards, which makes your credit utilization ratio 30% ($6,000 / $20,000 = 0.3).

Now, assume that you owe $5,000 to one card alone. That card has a credit limit of $10,000. You close it, cutting your total credit limit in half. Now you have a credit utilization ratio of 60% ($6,000 / $10,000 = 0.6).

Some experts say that 30% or less is an ideal credit utilization ratio to aim for, while others target 10% instead. The main thing to remember is that the lower your credit utilization is, the less harmful changes can be to your score. 

In terms of how to lower credit utilization, you can do so by paying down credit card balances and/or increasing your credit limits. 

What Factors Impact Credit Scores?

If you’re wondering what affects your credit score, it’s not just one thing. FICO credit scores, which are the most commonly used among top lenders, are determined by five factors. 

•   Payment history: 35% of your score

•   Credit utilization: 30% of your score

•   Credit age: 15% of your score

•   Credit mix: 10% of your score

•   Credit inquiries: 10% of your score7

VantageScores are based on some of the same factors, though they’re calculated differently. The VantageScore model was developed by the credit bureaus as an alternative to FICO scores. 

Pros and Cons of Tracking Your Credit Score

Tracking your credit score can be beneficial but there are some potential downsides. Here’s a quick look at the advantages and disadvantages. 

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

How to Monitor Your Credit Score

Credit score monitoring services make it easy to track your credit scores and get notifications when there’s a change to your credit report. SoFi, for instance, offers free weekly credit score updates and access to a certified financial planner if you have questions about credit score changes. 

Regardless of which service you use to monitor your credit, keep track of changes as they’re reported. Specifically, look at which changes are positive and which are negative. That can guide you toward what you might need to do to improve your score. 

The Takeaway

Seeing your credit score drop by 100 points or more can be disheartening, but it’s not the end of the world. There are things you can do to get your score back on track. 

Tracking your money is a good place to start. Tools like a spending app connect all of your accounts in a single dashboard so you can understand the factors that are influencing your credit scores. You can also check your scores for free. It’s a simple way to take charge of your financial health while you work on building good credit. 

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.

See exactly how your money comes and goes at a glance.

FAQ

Why did my credit score drop 100 points when nothing changed?

It may seem as if nothing has changed on your credit reports, but there must be some type of change for your score to be affected. If your score dropped, take time to review your credit reports thoroughly. Even a seemingly minor change, such as a new credit inquiry, could make a dent in your score. 

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

Paying bills on time can help add points to your score, but it might still go down if you have a high credit utilization or apply for new credit frequently. Closing accounts could also hurt your score, even if you pay on time. Using a spending app to track bills and expenses can help you stay on top of your due dates.

How to dispute a credit score drop?

You can’t dispute a credit score drop, but you can dispute the information on your credit reports that you believed caused the drop. Keep in mind, however, that disputing credit report information isn’t guaranteed to improve your score. 

Photo credit: iStock/kate_sept2004

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-Q324-009

It may come as a surprise, but sometimes your credit score drops after you pay off a loan or credit card debt. This happens because paying off debt can impact several factors that make up your credit score. For example, it might change your credit mix, shorten your credit history, or impact your credit utilization ratio.

If you’re wondering why your credit score dropped 40 points after paying off debt, here are some potential reasons to consider. 

Why Would My Credit Score Drop 40 Points After Paying Off Debt?

Paying off your debt is a big win and usually boosts your credit score. But sometimes, you might see a dip. To understand why, it’s important to know how your score is calculated.

Information from the three major credit bureaus — Equifax, TransUnion, and Experian — comes together to create your credit score. The bureaus gather details about your loans, credit cards, and other debts. Your credit score is calculated using a formula that measures how reliable you are at making payments. Lenders use this score to decide if they should give you credit.

Recommended: How Long Does It Take to Build Credit?

Credit Score Factors

Although there are many ways to calculate your creditworthiness, here are some common factors that may affect your credit score after you pay off your debt. 

Payment History

Payment history makes up 35% of your FICO credit score and is the most important factor. So while late or missing credit card payments might not seem significant at the time, they could bring down your overall score. 

If you need help keeping track of bills, consider a tool like a money tracker app. It allows you to spot upcoming bills, create budgets, and monitor your credit score.

Credit Utilization

Your credit card utilization ratio — or the amount of available credit you’re using — makes up 30% of your credit score, so it’s worth monitoring. 

Here’s how it works: If you have $10,000 in available credit and a $5,000 credit card balance, your credit utilization ratio is 50%. Usually, credit bureaus and lenders want to see a utilization ratio under 30%.

When you pay off your debt and close the account, your total available credit decreases and your credit utilization ratio increases. This, in turn, can cause your credit score to dip. 

Length of Your Credit History

Your credit reports show how long your credit accounts have been open. Having a longer credit history can improve your credit score, albeit not to the extent other factors can. (It makes up 15% of your credit score.) On the flip side, if you close an old account, you shorten your credit history — which can potentially lower your score.

Credit Mix

The variety of your credit accounts — like personal loans, credit cards, and mortgages — is 10% of your credit score. And managing different kinds of credit can help improve it. Paying off a specific type of credit, such as a car loan or mortgage, can have the opposite effect, as it reduces the diversity of your credit mix. 

New Credit Applications

When you apply for a new line of credit, lenders check your credit report to determine the risk of lending you money. This check, known as a hard inquiry or “hard pull,” can drop your credit score by a few points for a short time, though it stays on your report for two years. 

But keep in mind, when calculating your score, FICO, the scoring model most lenders use, only looks at credit pulls from the past 12 months. And new credit only makes up 10% of your credit score.

Recommended: What Is a FICO Score?

How to Pay Off Debt and Help Your Credit Score

Paying off debt may lead to a temporary dip in your credit score, but its benefits far outweigh any drawbacks. In fact, there are steps you can take build your credit as you whittle down your debt load:

•   Make on-time payments: Always make payments on time, whether it’s your credit card balance or mortgage. Punctual payments positively impact your score the most.

•   Prioritize high-interest debt: Pay off credit cards with the highest interest rates first to reduce debt risk.

•   Pay off cards with a low credit limit: This can help keep your debt-to-credit ratio in check.

•   Keep credit utilization low: Aim to use less than 10% — and no more than 30% — of your available credit.

•   Clear small balances on multiple cards: Having zero balances on more cards is better for your score.

•   Pay off past-due bills: Prioritize the most recent ones. This shows new lenders that you’ve settled your debts.

How Long Does It Take for Your Credit Score to Improve After Paying Off Debt?

Luckily, a drop in your credit score is generally brief. After you pay off your debt, your score should bounce back within a month or two because credit bureaus typically update your credit information every 30 to 45 days.

You can check your credit score without paying. If it doesn’t improve right away, don’t worry. The paid-off debt will stay on your credit report for up to 10 years. If you made payments on time, this positive history can help boost your credit score in the long run. 

Ways to Increase Your Credit Score After Paying Off a Loan

Once your debt is settled, you may want to turn your focus to boosting your credit score. Some steps you may have taken as you paid down the debt will serve you well at this point, such as making on-time payments and keeping credit utilization low. But there are other strategies that can help:

•   Build a long credit history: Keep older accounts open so you can build a long history of responsible credit use. The longer your history of on-time payments, the better your score may be. 

•   Apply for credit sparingly: Only apply for new lines of credit when needed. Too many applications in a short period can negatively impact your score.

•   Review your credit reports: Regularly review your credit reports for any errors or inaccuracies. If you spot anything out of the normal, make sure to dispute any mistakes. This way, you can ensure your score reflects accurate information.

How to Get Credit Score Monitoring

Using a credit monitoring service can help you keep tabs on your credit score. These services notify you when there are changes to your credit reports, which can help you catch any suspicious activity. While comprehensive monitoring services are available, there are ways to monitor it yourself:

•   Ask for a free copy of your credit report: You’re entitled to a free credit report every year from each of the three credit bureaus. Visit AnnualCreditReport.com to get started. 

•   Check for complimentary credit monitoring: Some accounts offer free credit score monitoring. Call your bank or credit card company to see if you qualify.

•   Freeze your credit reports: If you suspect a data breach or theft of your Social Security number, consider freezing your credit report. This restricts access to your credit information, stopping thieves from opening new accounts in your name. Note that freezing or unfreezing your credit is free and doesn’t affect your credit score.

•   Set up fraud alerts: You can place a fraud alert on your credit report if you think you’re a fraud or identity theft victim. Creditors will verify your identity by calling you when a credit application is made. It’s free to request and lasts for one year without affecting your credit score.

The Takeaway

There are many reasons why your credit score dropped 40 points after paying off debt. You may see a temporary dip in your credit score due to changes in your credit mix, history length, and utilization ratio. 

To help boost your score, make on-time payments, use less credit, maintain old accounts, apply for new credit sparingly, and regularly check for errors in your credit reports. These habits can help you maintain a strong credit score. And if you need help managing your finances as you pay off debt, consider enlisting the help of a spending app.

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.

See exactly how your money comes and goes at a glance.

FAQ

How long does it take for a credit score to update after paying off debt?

You can expect your credit score to update within a month or two as long as you continue practicing good credit habits like making on-time payments. Credit bureaus usually refresh your information every 30 to 45 days.

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

Paying on time is just one part of your credit score. Other factors, like how much credit you’re using or the length of your credit history, can also cause your score to drop, even if you don’t miss any payments.

How to increase credit score after paying off debt?

To keep your credit score strong after paying off debt, follow a few key tips. For example, always make your payments on time, avoid using too much of your available credit, and apply for new credit only when you really need it. Also, review your credit score regularly so you can spot discrepancies.

Photo credit: iStock/Erdark

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-Q324-003