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While there are many benefits to being an authorized user on another person’s account, you risk damaging your credit score if the primary cardholder isn’t responsible with the account.

Let’s take a look at the pros and cons of being an authorized user and how to prevent a credit score drop after being added to someone else’s account.

What Does It Mean to Be an Authorized User?

An authorized user means you’ve been added to another person’s credit account and can use it to make purchases. You’ll also receive your own card, though you can’t see the primary cardholder’s charges nor will you receive a bill. The primary cardholder is responsible for any charges made on the card.

The move comes with several benefits. You can have immediate access to credit without the need for a credit inquiry. Plus, it’s an opportunity to establish a credit history or help repair or build your credit.

However, there are limitations worth noting. The biggest one is that the primary cardholder’s behavior reflects on you. If he or she routinely misses payment due dates or uses up most of their available credit, for instance, your credit score (and theirs) can take a hit. What’s more, you can’t make changes to the account or add other authorized users, and you won’t be able to ask for credit limit increases.

If you find yourself stretching your finances every month, consider using a budget. A spending app can help you create a budget and spot upcoming bills.

How Being an Authorized User Affects Your Credit

When you’re added as an authorized user to an account, your credit could be impacted positively or negatively — or not at all.

For instance, if you’re added to an account with a record of timely payments, your credit score may improve. If you’re an authorized user on an account that’s not in good standing, your credit score could suffer. And if the credit card issuer doesn’t report authorized user activity to any of the three credit bureaus, your score won’t be impacted. 

Credit score monitoring services can help you keep tabs on any changes in your credit score and see an overview of your debt balances. 

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

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

Oftentimes, being added as an authorized user on a credit card account can help you establish credit or increase your credit score. But keep in mind that the primary cardholder is responsible for making payments, and the card’s use will be reflected on both of your credit reports. 

Trust is key, so only consider asking someone who has a positive payment history, good spending habits, and low credit utilization ratio. 

How to Add an Authorized User to Your Account

The process of adding an authorized user to an account varies by credit card. But generally speaking, you should be able to handle it online or by calling the issuer directly.

When adding an authorized user, you will likely need to know their personal information, such as their address, phone number, and Social Security Number. Once you’ve submitted your request, your credit card company should mail a new card to the authorized user. 

How to Remove an Authorized User From Your Account

The easiest way to remove an authorized user from your account is to contact your credit card company’s customer service department. However, depending on the card, you may be able to take care of this online. You’ll likely be asked to verify your account information.

Does Removing an Authorized User Hurt Your Credit Score?

Removing an authorized user from an account may not hurt your credit score, but it could impact theirs. If the card has a long record of on-time payments and low credit utilization, that positive history will be removed from the authorized user’s credit report. And if the account has been open for a long time, it could also decrease the average length of their credit history.

However, the authorized user may see a boost in their score if they’re removed from an account with a history of late or missing payments or high credit utilization.

Recommended: How to Check Your Credit Score Without Paying

How Does an Authorized User Build Credit?

Before you’re added as an authorized user, it can be helpful for you and the primary cardholder to understand the factors that affect your credit score. Here’s what goes into your FICO™ Score, which most lenders use.

•   Payment history

•   Amounts owed

•   Length of credit history

•   New credit

•   Credit mix

Of those five factors, payment history and amounts owed have the biggest impact on your credit score. So ensure the primary cardholder makes on-time payments and avoid carrying a high balance, which can affect your credit utilization ratio.

How Fast Does an Authorized User Build Credit?

How long does it take to build credit? Credit card companies typically report activity to the credit bureaus every 30 to 45 days. 

Pro tip: You can often check your credit score for free through certain banks and credit cards. Many financial institutions will give regular credit score updates as a free service to their customers. 

If yours doesn’t offer this service, you can sign up for a credit score monitoring service or use a tool like a money tracker app.

Difference Between Authorized User vs. Joint Account Holder on a Credit Card

Though both share an account with another person, there are some important differences between an authorized user and a joint account holder.

Most notably, a joint account holder is equally responsible for making payments on the account, while an authorized user is not. Also, when you apply for a card as a joint account holder, the credit card issuer will perform a hard inquiry, which could cause your credit score to drop temporarily. A hard inquiry is generally not required when adding an authorized user.

Pros and Cons of Being an Authorized User

Becoming an authorized user on an account comes with its share of benefits and drawbacks. Here are a few things to consider:

The Takeaway

Being added as an authorized user can help you build or improve your credit, but in some cases you may notice a drop in your credit score. This often happens when the account is not in good standing, perhaps because of late or missed payments or a high balance. To help protect your (and the account holder’s) credit score, ensure bills are paid on time and keep credit utilization low.

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

Will being added as an authorized user hurt my credit?

While becoming an authorized user can help your credit, there are times when it can have the opposite effect. For instance, if you’re added to an account that has a history of missed payments or the credit utilization ratio is too high, your credit score could fall.

How many points does your credit score go up as an authorized user?

There’s no set number of points you receive when you become an authorized user. However, if the account you’re associated with is in good standing, you may see an increase in your credit score.

How long does an authorized user show on a credit report?

Generally speaking, it takes a month or two after you’ve been added as an authorized user for the account to show up on your credit reports.

Photo credit: iStock/Milan Markovic

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-Q324-012

If you review your credit report and notice an unfamiliar item — or you receive an alert about an account from your credit monitoring service but don’t recognize it — start by contacting the lender or creditor. There is a chance that the listing is totally legitimate.

According to the Consumer Financial Protection Bureau, the item may be a third-party collection company a creditor has sold an account to, or it may simply be an inquiry resulting from a prescreened offer of credit. Contacting the creditor is the best way to get to the bottom of this.

However, it’s also possible that the creditor or credit bureau has made an error or, worse, that a criminal has opened a fraudulent account in your name.

Below, we’ll explore the impact an unfamiliar account can have on your credit score and the steps to take any time you notice potentially incorrect information on your credit report.

How Errors Can Hurt Your Credit Score

If your credit report contains errors indicating missed or late payments, your credit score could suffer. The largest factor affecting your credit score, for instance, is payment history; it accounts for 35% of your FICO Score. That means even one or two errors regarding a missed or late payment could drag your score down.

A fraudster who opens a credit account in your name and racks up debt can do far worse damage. For starters, they’ll reduce your average age of credit by opening a new account, and if they max out that account, they’ll increase your credit utilization. Finally, a fraudster will not pay off the bills they’ve racked up in your name, meaning your credit report could soon show thousands upon thousands of dollars in missed payments.

Recommended: 10 Strategies for Building Credit Over Time

How to Dispute Items on Your Credit Report

To dispute an item on your credit report, you’ll need to contact the company who has reported the error and the credit bureau itself. Check your credit report from all three major credit bureaus, as you may need to correct the issue with more than one bureau.

You’ll likely need to start by filling out a dispute form and submitting it to the credit bureau(s) reporting the error. You’ll want to detail why the item on your report is incorrect. You should also include any paperwork that supports your claim. You can dispute errors online or over the phone:

•   Equifax: 866-349-5191

•   Experian: 888-397-3742

•   Transunion: 800-916-8800

If you’re submitting by mail, pay for a return receipt so you know when the credit bureau has received your dispute. Use the address that appears on your credit report, or visit the credit bureau’s website to determine where to send the dispute.

Credit bureaus have 30 days to investigate your dispute. You should expect further contact from the bureau(s) regarding the status of your dispute and any next steps.

In addition to disputing with the credit bureau(s), you’ll also need to contact the creditor directly. Depending on the creditor, you may do this by mail, online, or over the phone. 

Note that it’s possible for your credit score to drop after a dispute, rather than improve. For instance, your credit limit may be lower than what was previously reported, which could lead to a decrease in your credit score.

How to Escalate Matters

If you suspect fraudulent credit card transactions or other unauthorized credit accounts rather than a simple mistake, you’ll also need to report the fraud to the Federal Trade Commission (FTC). Here’s how to report identity theft if you notice fraudulent activity on your credit report.

Steps to Take for an Unfamiliar Creditor on Your Report

Notice an unfamiliar creditor on your report? Here are the steps to take:

•   Do some quick research: Whether you use a money tracker app or a DIY method, go through your own past transactions and notices from your creditors to determine if the entry on your credit report is correct — and you’ve just forgotten about it.

•   Contact the credit bureaus: If you’re certain the unfamiliar creditor is there by mistake (or due to fraud), you need to contact the credit bureaus to file a dispute.

•   Freeze your credit reports: This is an important step so third-party lenders cannot review your credit report while it’s inaccurate. It’s also a good practice if you’re the victim of fraud.

•   Contact the creditor who reported the error: You’ll also need to dispute the error with the company that initially reported it to the creditor.

•   Escalate to the FTC: If the mistake is simply a data entry error, you don’t need to take any further steps. But if the issue on your credit report is the result of some type of fraud, you’ll need to report it to the FTC.

Recommended: How Long Does It Take to Build Credit?

How to Prevent Errors and Fraudulent Activity

Disputing errors on your credit report is essential as soon as you notice them, but you can also take proactive steps to prevent errors and fraudulent activity altogether.

Credit Report Freezes

Freezing your credit reports prevents fraudsters from opening new credit accounts in your name. You’ll just need to temporarily unfreeze your credit reports whenever you’re applying for credit, whether that’s a new credit card or a mortgage.

Protect Your Financial Info

Your personal information, including your name, address, email, phone number, bank account number and routing number, and Social Security number, can be dangerous if they fall into the wrong hands. Always use secure passwords online, and never share your personal information unless you’re certain you’re speaking to a legitimate person and not a scammer.

It’s also a good idea to familiarize yourself with common online bank scams and ways to avoid them.

Credit Card Monitoring

Monitor your credit card activity closely. Real-time transaction alerts are a great way to spot credit card fraud the moment it happens. If you receive a notification for a transaction you did not authorize, you can often launch your bank’s mobile app to freeze the card and then contact your bank to discuss the charge.

Enroll in Identity Monitoring Services

In addition to credit score monitoring services, which allow you to check your credit score regularly, consider enrolling in identity monitoring services. These provide a larger array of protections, alerting you when other important information, such as your Social Security number, gets compromised. Identity theft protection services even include insurance to help cover costs associated with identity theft.

💡Quick Tip: Online tools make tracking your spending a breeze: You can easily set up budgets, then get instant updates on your progress, spot upcoming bills, analyze your spending habits, and more.

The Takeaway

If you notice an error or unfamiliar account on your credit report, it’s important to take action fast. Dispute the error with the credit bureau as well as the company that reported the incorrect item. If you suspect fraud, you should also contact the FTC. In the meantime, consider enlisting the help of a credit monitoring service to help you stay on top of your credit score and credit report.

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

What if I don’t recognize something on my credit report?

If you don’t recognize something on your credit report, it’s possible a creditor has simply prescreened you for credit approval. But it’s also possible that there’s an error on your report or, worse, that you’re the victim of fraud. Contact both the credit bureau and the creditor to dispute the error, and follow up with the FTC if you suspect fraud.

How do I dispute an unknown account on my credit report?

To dispute an unknown account on your credit report, file a dispute (via mail, online, or over the phone) with the credit bureau issuing the report. You’ll also need to contact the creditor that has made the erroneous report. If you confirm that the entry on your report is the result of fraud, consider freezing your credit reports and contacting the FTC.

What if my account is not on my credit report?

If you have a credit account that does not appear on your credit report, it’s possible the creditor does not report to the credit bureaus. Reach out to the creditor where you hold the account to understand which, if any, credit bureaus they report to.

Photo credit: iStock/izusek

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 .

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

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-Q324-023

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.

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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.

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