Your credit scores are calculated using information from your credit reports, so it’s normal to see your score change as lenders provide updates to that information. A slight drop in your score may not be a cause for concern, especially if you are consistently practicing good credit health habits. Sometimes, you may not notice changes in your credit report that lead to a drop in score. Your credit score can drop for many reasons, including some of the common reasons below.
Missed payment
Your payment history is one of the most important factors in your credit score. Missing even one payment can have a significant impact on your score. That said, there is no exact answer to how much a particular missed payment will affect your score. It depends on your unique individual credit profile.
Payment history is built month-to-month as lenders report your account status to one or more of the three national credit reporting agencies. Credit card, auto loan, mortgage and retail account (such as store credit cards) payments will appear in your payment history.
If you missed a payment by accident, set up automatic payments if you can. This is an easy way to keep this important credit score factor in check. If you see a big drop in your credit score and you’re not sure if you missed a payment, check the payment history for each account on your credit report. You may be able to find possible missed payments there. If you see a missed payment listed but don’t think it’s accurate, you can contact your lender for more information.
High balances
If you’ve made a large purchase and haven’t paid for it yet, or if you carry high balances on your credit cards, your score could also be affected. Ideally, you want to keep your credit utilization rate below 30%. This means that if you have a $10,000 credit limit, it’s a good idea to try to maintain a balance of less than $3,000 each month. Because there are different scoring models, 30% is not a magic number. It’s more of a recommended goal as you work to lower your balances. Paying your balances on time and in full each month is key to maintaining good credit health.
Some people like to use a balance transfer credit card to help reduce their credit utilization rate and buy some time to pay off credit card debt. This is not necessarily a bad strategy. But applying for a new card may lower your credit score temporarily due to the resulting arduous inquiry. Inquiries tend to have less impact than missed payments and credit utilization.
Using a balance transfer card or other approach can help ease the debt burden in the short term, but you should always focus on developing good credit habits. If habits don’t change, it’s easy to continue to add more debt, turning short-term solutions into a long-term problem.
Disparaging Marks
Missed payments aren’t the only derogatory marks that can hurt your credit score. When foreclosures, bankruptcies and accounts in collections are reported, this negative information can also lower your credit score. With some exceptions, most derogatory marks remain on your credit report for up to 7 years. Bankruptcy records remain on your report for up to 10 years. Negative information tends to have a less severe impact on your credit score as time passes.
Time and consistent good habits are the keys to long-term credit health. A good habit is to constantly monitor your credit so you can manage and protect your information. TransUnion Credit Monitoring offers daily report updates, your VantageScore® 3.0 credit score and instant alerts of critical changes to your report. To simulate how specific future actions, such as a 30-day late payment, may affect your score, you can use the Credit Score Simulator.
As you continue on your path to healthy credit, your credit score can sometimes decline for one reason or another. Often, you can expect it, such as when you apply for a new auto loan or mortgage. Sometimes there are unexpected mistakes, such as missing a payment. Either way, it’s normal for dips to occur. If you continue to build your credit knowledge and develop good habits, you can achieve the credit score you want so you can access the opportunities you deserve.
