8 Reasons Your Credit Score May Have Dropped

Your Payment Was More Than 30 Days Late

Payment history has the most significant impact on your credit score. Credit card and loan payments more than 30 days past due are reported to the credit bureaus and are reflected in your credit score. Once the late payment hits your credit report, your credit score will most likely drop.

You Made an Expensive Purchase

Another important factor in your credit score is the amount of available credit you're using, or your credit utilization ratio. It comes as a surprise to many people but, if you make a big purchase on your credit card one month, you could see a credit score drop even if you pay the balance in full on your due date.

This happens because credit card issuers typically report the credit card balance as of the last day of the billing cycle. The balance on your credit card statement is often the balance that appears on your credit report.

Your Unpaid Account Was Sent to Collection

To protect your credit score, it's important for you to pay all of your accounts, not just your credit cards and loans. If you fall behind on the payments on your non-credit accounts (such as your monthly phone bill), the defaulted balance could be sent to a collection agency and included on your credit report. Once a collection shows up on your credit report, it will almost certainly cause a drop in your credit score.

Your Last Collection Dropped Off Your Credit Report

When calculating credit scores, credit scoring models place people in different buckets, known as scorecards. Your credit profile is compared to other people in your scorecard to come up with your credit score. While you may have been at the top of one scorecard with the collection on your credit report, you may fall to the bottom of a different scorecard if any negative information falls off your credit report.

You Made a New Application for Credit

Any time you put in a new application for credit, an inquiry is added to your credit report. Because inquiries make up 10 percent of your credit score, applying for new credit can affect your credit score.

Though inquiries stay on your credit report for two years, they're only factored into your credit score for one year. After just a single inquiry, your credit score should steadily increase and recover in 12 months, provided you make no other credit mistakes.

One of Your Credit Limits Was Lowered

A lower credit limit has the same impact as charging an expensive item. If you have a balance on a credit card with a low credit limit, your credit utilization goes up, and your credit score goes down. You may not have control over whether your credit card issuer reduces your credit limit, but if this happens, paying down your balance can improve your credit utilization and your credit score.

You Closed a Credit Card, or One Was Canceled

Closing a credit card can hurt your credit score, especially if the card has a balance or more available credit than your other credit cards. Credit card issuers can also cancel your credit card, which will impact your credit—not necessarily because it was the creditor who closed the account, but because the account was closed at all.

Your Bankruptcy Fell off Your Credit Report

When bankruptcy falls off your credit report after seven years (ten years for Chapter 7 bankruptcy), you'll likely move to a new credit scorecard, similar to what happens when a collection drops off your credit score. You could see a drop in your credit score because now your credit performance is being compared to other people who haven't filed bankruptcy.