Your credit score is unlikely to drop for no reason, but it might drop for reasons you do not expect. Simply applying for a new credit card, closing out an old one, or being late with a payment can affect your score. A drop in your credit score of 80 points may be enough to reduce your credit score from “good” to “fair,” which can mean you will pay significantly more to borrow money.
Here’s a look at the reasons your credit score might drop, how to monitor your score, and what to do if your credit score drops suddenly.
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Why Did My Credit Score Drop 80 Points?
Your credit score is based on factors related to how you manage your debt. Specifically, whether you pay your bills on time, how much you owe creditors versus how much credit you have available, the length of your credit history, the types of debt you have, and how often you apply for a new loan or credit card. Bankruptcy and foreclosures are additional threats to your credit score.
Any one or a combination of these factors could cause your credit score to drop.
Should You Be Worried About Your Credit Score Dropping?
Credit score changes are fairly common and not always a cause for concern. However, an 80-point drop is worth looking into, as it could impact whether you get approved and receive favorable terms for a loan or line of credit.
For instance, if your score drops from 700 to 620, it’s no longer considered “good.” That means that you will not qualify for the best mortgage or credit card rates because a lender will consider you a riskier borrower and could charge you more for financing.
It’s important to first understand why the drop happened so you can correct any issues and begin getting your credit back on track. Monitoring your credit score can be a good place to start, as it allows you to track changes to your score and get insights into your financial health.
Reasons Your Credit Score Went Down
There are a few reasons why your credit score might go down. But bear in mind that it can take over a month for your credit score to update and reflect any changes in your credit situation.
You Applied for a New Loan or Credit Card
If you apply for a new loan or a credit card, your credit score may go down because card issuers will perform a “hard pull,” or hard credit inquiry, when they look at your credit information. According to FICO™, a hard pull typically takes five points or less off your FICO Score. However, if you apply for several credit cards within a short period of time, it could have a greater impact on your score.
Your Credit Card Balance Went Up
If you carry a balance on your credit card, you won’t just rack up interest charges — your credit score might drop, too. Thirty percent of your FICO Score is based on the amount of money you owe. A significant balance on a credit card could cause your score to fall and your credit utilization rate — or how much of your credit limit you’re using on your revolving credit accounts — to rise.
You Missed Payments
Around 35% of your FICO credit score is based on your payment history. Therefore, if you fail to make your monthly payments — or are late making a payment — your score could fall.2 Tools like a money tracker app can help you identify upcoming bills, create a budget, and more.
You Closed a Credit Card Account
When you close a credit card account, especially one you’ve had for a long time, the average age of your accounts falls. That, in turn, could cause your credit score to dip, as the length of your credit history accounts for 15% of your FICO Score.
What Can You Do If Your Credit Score Dropped by 80 Points?
If your credit score drops by 80 points, there are some steps you can take to find out why and to rebuild your credit score.
Ensure Your Payment History Is Correct
Creditors can make mistakes and report inaccurate information to the credit bureaus. Fraudsters can steal your identity and use your accounts. So it’s worthwhile to check your credit report, including your payment history, and dispute any inaccurate information.
You can check your credit report for free from each credit bureau on AnnualCreditReport.com. You can also check your credit report for free with Experian and sign up for monthly updates.
Don’t Miss Payments
A payment that’s over 30 days past due may be reported to the three major credit bureaus. If you fail to make a payment for 90 days, your creditor may refer your account to a collection agency. These records will remain on your account for seven years.
Keep Your Credit Utilization Rate Low
As you use more of your available credit, your credit utilization rate will increase. The higher your credit utilization rate, the more of a risk you are to a lender, and the more your credit score may decrease. Aim for a rate below 30%. For example, if your credit card has a credit limit of $12,000, don’t use more than $3,600, and ideally use $1,200 or less.
Hold Off on Applying for a Credit Card, Loan, or Mortgage
If you apply for a new loan or credit card, the lender will conduct a hard inquiry to check your credit score. As we mentioned, this type of check will only temporarily lower your score by a few points. But many hard inquiries over a short period can have a compounding effect on your credit score. This might occur if you apply for several credit cards at once. The impact of a hard inquiry will typically last a few months to a year.
Avoid Bankruptcy or Foreclosure
Declaring bankruptcy and experiencing foreclosure on a property both cause a significant drop in your credit score. And both stay on your credit report for a long time: seven years for Chapter 13 bankruptcy, 10 years for Chapter 7 bankruptcy, and seven years for a foreclosure.
How to Build Your Credit Score
Building your credit score comes down to sensible fiscal management over time.
Whether your credit score dropped or not, there are steps you can take to help boost your numbers. Examples include:
• Paying bills on time
• Checking your credit report regularly for errors
• Lowering your credit utilization rate
• Keep spending in check — a spending app can help
Scenarios Where Your Credit Score Might Drop
Here are some scenarios where you might be surprised to find that your credit score has dropped.
You Pay Off Credit Cards
Let’s say you have three credit cards: one with $5,000 in available credit, one with $8,000 in available credit, and one with $500 in available credit. That’s $13,250 of total available credit.
You have a total balance of $3,975 over all three cards, which gives you a credit utilization ratio of 30%.
Let’s also say you take out a debt consolidation loan to pay off all debt except for $250 on the card with a $500 limit. You then close out the two cards with no debt — taking with it $13,000 in available credit. You’ve kept open the card that has a $500 credit limit and a $250 balance.
This might seem like a good move because you’ve paid off over $3,000 in debt and eliminated two credit cards. However, you now have a 50% credit utilization rate, significantly higher than the recommended 30%. This may increase your credit score.
You Close an Old Credit Card Account That You Don’t Use
Another reason to think twice before closing credit card accounts? It could impact the length of your credit history, which accounts for 15% of your credit score. If you close old accounts, it could lower the average age of your credit history, and your score could take a dip as a result.
You Took Out New Loans to Pay Off Debt
Every time you apply for a loan or a credit card, the lender performs a hard pull. If you apply for multiple new loans or credit cards within a short stretch of time, it could temporarily lower your credit score.
Allow Some Time Before Checking Your Score
Credit scores continually fluctuate as information on your credit report gets updated. According to Equifax, your credit score can take 30 days or more to reflect payments you’ve made.
What Factors Impact Credit Scores?
As we discussed, your credit score is calculated based on the following, according to the FICO scoring model:
• 35% of your score is based on your payment history.
• 30% is based on the amount you owe creditors and your credit utilization rate. Ideally, your rate should be around 10% and not higher than 30%.
• 15% is based on the length of your credit history.
• 10% is based on the types of debt you have. A mix of installment debt (such as student loans, mortgage, car loan, personal loan) and credit card debt (or lines of credit) is preferable.
• 10% is based on new credit.
Pros and Cons of Tracking Your Credit Score
There are no drawbacks to tracking your credit score, except for the time it takes to obtain your report.
On the other hand, there are plenty of pros to monitoring your credit score. You’ll know where you stand regarding future loans and what potential lenders will see on your credit report. You’ll also be able to spot inaccurate or incomplete information that you can have removed, which can help boost your credit score.
How to Monitor Your Credit Score
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. Check the reports carefully, and if you find something you don’t agree with, file a dispute to try to have the information removed.
You can also enroll in a credit score monitoring service. These automated services notify you of changes to your credit report that might occur if you qualify for a new credit card or loan, or fall behind on loan payments.
The Takeaway
Your credit score might fluctuate without you realizing it. But a drop of 80 points may be worth investigating, as it could mean you pay significantly more to borrow money. You might be surprised to learn that if you apply for a new credit card, pay off the balance on a card, or close an old account, your credit score could be adversely affected.
It’s a good idea to obtain a copy of your credit report — it’s free — and check that the information given to the credit agencies is accurate. You can also help maintain a good credit score by not missing credit card and loan payments and by keeping your credit utilization ratio 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.
FAQ
Why did my credit score go down 80 points?
Your credit score is based on factors related to how you manage your debt. Bankruptcy or foreclosure will have an obvious effect on your score, but if you have not paid your bills on time, your credit utilization rate is higher than 30%, or you close old credit card accounts and reduce your credit history, you may see a dip. Also, your credit score may be affected if you apply for a number of credit cards or loans in a short space of time.
Why is my credit score going down if I pay everything on time?
Your payment history accounts for only 35% of your credit score. Other factors include your credit utilization rate, the length of your credit history, and the types of debt you have.
Why has my credit score gone down when nothing has changed?
Even if nothing has changed for you fiscally, you may still see fluctuations in your credit score. There are various reasons why, such as a higher-than-normal credit utilization ratio, inaccurate information in your credit report, or identity theft.
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