Why Did My Credit Score Drop?

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Why Did My Credit Score Drop?

Sometimes your credit score shocks you by dropping for seemingly no reason. This can be discouraging and frustrating if you can't pinpoint a cause. While Credit Karma doesn't calculate your credit scores, we can point out some of the factors that can affect your score, and you may be able to trace a drop in your score to one of these factors.

1. Credit Utilization

Carrying a significant amount of debt on your credit cards could be one reason why your score dropped. Your credit card utilization rate is a snapshot of how much credit you're using, calculated by dividing your total credit card balance by your total credit limit. If you're relying too much on credit, a lender could view that as a bad sign.

Possible Solution: If you have the means, you can try a couple of different approaches to paying down debt. For example, you could use the debt snowball method, where you pay down your small balances first to gain momentum and make your debt seem more manageable (while continuing to make minimum payments on your other debts).

You could also ask your card issuer for a credit limit increase on an existing account, although whether you get this is at your issuer's discretion. Alternatively, opening a new credit card would also increase your total available credit.

You can monitor your current utilization by connecting your financial accounts.

2. Payment History

Since creditors are trying to judge how likely you are to pay back your debt, reliability is important to them. If you miss even a single payment, your score could take a major hit, especially if you've never missed a payment before.

Possible Solution: Moving forward, see whether your credit card provider will allow you to set up automatic payments, or link your financial accounts and turn on bill reminders to help avoid missing future payments. Continue monitoring your credit report as well to ensure all of your payments are being reported as on-time. You can monitor your credit reports from Equifax and TransUnion for free using Credit Karma.

3. Derogatory Marks

If you experienced a major drop in your credit score, a derogatory mark could be the culprit. Tax liens, accounts in collections and bankruptcies are among the most serious things that can happen to your credit score. Since they represent major delinquencies, they can reflect poorly on your ability to take care of your finances.

Possible Solution: Check your free credit reports with Credit Karma to investigate whether these derogatory marks actually belong on your report. If they don't, consider filing a dispute.

4. Average Age of Open Credit Lines

The longer you've had credit accounts open, the more creditworthy you generally appear to lenders. If you've closed an account recently, some scoring models won't factor in your closed account when determining your credit age, so your credit history may appear shortened and your score might drop. Opening a new account could also lower the average age of your accounts.

Possible Solution: Before opening or closing an account, use Credit Karma's Credit Simulator to see how the action could potentially affect your score, and be prepared for a change when you pay off a loan. If you're not sure if you should close an account, consider the pros and cons of doing so.

5. Total Accounts

While it's not the most important part of your credit score, having a good mix of different types of credit and an appropriate number of open accounts shows lenders that you have the experience to pay off debt responsibly. If you've just paid off the only loan you have, your credit mix might look a little less diverse to lenders. Similarly, if your total number of accounts suddenly skyrockets or nosedives, that could indicate that you're financially strapped and need credit or can't afford your existing credit accounts.

Possible Solution: Before you open or close any accounts, you may want to check your credit reports, where you can see the distribution of your open and closed accounts. Doing so will help you be aware of where you stand. If you're thinking about opening up new credit cards, don't fall for every offer out there - only open ones that you need.

6. Hard Credit Inquiries

Generally, when you apply for a new form of credit, whether it's a credit card, auto loan or mortgage, a hard inquiry is placed on your credit report. Normally, a single inquiry would initially only cause your score to drop a few points (if at all). However, if you've applied for several accounts in a short period of time, you could appear desperate for credit, and the damage from those hard inquiries might add up.

With that said, some scoring models (but not all) allow for rate shopping on auto or home loans without any additional damage.

Possible Solution: To avoid unnecessary inquiries, only apply for credit when you need (and can afford) it, and try to focus on cards that you have a good chance of getting approved for. Credit Karma shows you your estimated Approval Odds before you apply, so you can make a more informed decision.

If you're looking for a loan and need to rate shop, consider looking through consumer reviews to narrow down your choices. You can also consider getting pre-qualified or pre-approved for credit, so you have a better sense of what you'll be approved for before you apply. By doing your homework, you may be able to avoid unnecessary hard inquiries.

Building Your Credit Knowledge

Credit scores often seem like they're shrouded in a veil of mystery. Now that you know what might have brought down your credit score, try your best to keep an eye on your credit health. Even though these situations can't always be avoided, understanding their impact could help you make more informed decisions.

Editorial Note: The opinions you read here come from our editorial team. While compensation may affect which companies we write about and products we review, our marketing partners don't review, approve or endorse our editorial content. Our content is accurate (to the best of our knowledge) when we initially post it, but we don't guarantee the accuracy or completeness of the information provided. You can visit the company's website to get complete details about a product. See an error in an article? Use this form to report it to our editorial team. For questions about your Credit Karma account, please submit a help request to our support team.

Advertiser Disclosure: We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.

Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.

Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.

All Comments

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5 Contributions
88 People Helped

Helpful to 2 out of 2 people

My credit utilization is low (>3%).  I paid all my cards off and my score went down 56 points on CK.  Using the CK credit simulator, I received the same projected result.  Pay off credit card debt, score goes down.  Credit Karma, while an ok tool for free credit scores (using their own fomula, not the same formula as the three credit bureaus), is still simply an advertising vehicle for credit card companies.  It's in the interest of credit card companies for a customer to maintain a balance.  CK formula is built around this philosophy, trying to convince customers your score actually decreases if you pay debt.   

1 Contribution
2 People Helped

Helpful to 2 out of 2 people

Your credit score is based on the amount of DEBT you have. When you pay off the debt, there's no way to track how you handle money in the financial world. For many, paying cash for purchases (with the exception of a home) is empowering. Companies make more money off of peoples "credit" by convincing the consumer that credit cards are the way to go. In reality, CASH buys more! We are a consumer based society meaning we are pushed to "consume" at all costs and made to believe that debt is essential to thrive. It's a Robin Hood effect - take from the poor and give to the rich. 

1 Contribution
24 People Helped

Helpful to 24 out of 33 people

Question, on here it states my credit somehow dropped 73 points within a month. I recieved no alerts or anything ( I have fraud alert just incase) The only negative in my credit history is that its "young". The only thing that changed was I paid of a car loan in december.  So I double checked on transunion and it states my credit is 720, which is what it should be. Why such a drastic difference?

Reply by
jimgreene68

1 Contribution
41 People Helped
Helpful to 41 out of 45 people

I actually did nothing different, no charges on my cards, kept paying like normal, no new inquires, etc and mine dropped like a rock.  Let them keep it, tired of dealing with it.  Have everything I need now, paying off the credit cards next month, then let them take my credit score and jamb it.  

Reply by
ms2spoiled

5 Contributions
39 People Helped
Helpful to 20 out of 22 people

I was just added to an open credit line that my husband has and my score dropped 81 points!!!  I'm so confused with this entire thing.  I  have been using CK for almost 3 years consistently and one of the things they talked about was keeping your utilization below 30%. With the addition of this card that I'm now and "authorized buyer" on, my utilization went up to only 14%, where's the justice in that??  One other change is that after 5 years, my car note was paid off last month. So I guess, silly me for thinking I was being careful with my credit for paying off the loan when it was due. Any words of wisdom anyone is able to offer is greatly appreciated!! 😒😒

1 Contribution
1 Person Helped

Helpful to 1 out of 1 people

The lending industry was set up by lenders (with helpf from their friends in Congress) to benefit lenders, not the borrowers.  Yes, it is skewed, yes it makes no sense that paying off your debts can hurt your credit score.  This system is like casinos:  it is of, by, and for the "house", in this case the banks.  Helping little guys is not their motive.  We can carefully use the system to our own benefit, but it's important to remember who set up the whole game.   This is why a strong Consumer Financial Protection Bureau is vital.  And why the current administration wants to gut it and shut it. 

2 Contributions
3 People Helped

Helpful to 3 out of 3 people

I think Credit Karma is pretty much close to the real thing.  I was curious, so I purchased my credit score from the big three.  There was only a 1 point difference between what Credit Karma showed and what was on the credit reports I paid for. 

1 Contribution
1 Person Helped

Helpful to 1 out of 1 people

After recieving the good news a couple of months ago that my credit  rating had went up, I was very disappointed to recieve notice it had droped again, even though I pay off 10 times the monthly due.  I read  where Credit Karma states that having higher balances will cause your score to drop. So in other words I have been wasting my time paying  the large amounts every month long before the due date I might add.  Seems like you can't win.  I  will no longer be excited if I EVER get a notice saying my credit score has improved,becuase I know it will be a lie.

Top Contributor
11 Contributions
5 People Helped

Helpful to 1 out of 1 people

imo the scores you are seeing here is not the true fico score that is used. these scores are way off...i have no faith in any number posted on this website. sorry to disappoint you

1 Contribution
1 Person Helped

Helpful to 1 out of 1 people

I just do not get it. My score dropped 40 points for seemingly no reason. I have been trying to build my credit back up after the recession killed me. I was almost back to good credit when this happened. The only thing that went on was an old (7yr) closed card with a 0 balance was removed from my account due to age. How can a closed card being removed hit me so bad. It has taken years to build back up. I was going to apply for a real card but not now. Just not right and there is nothing you can do.

2 Contributions
1 Person Helped

Helpful to 1 out of 1 people

Need some help and a question answered if you any can. Everytime I apply for a credit card or a credit limit increase and it comes back denied the thing I notice the most it say I have serious deliquents is that due to the late payemnts I had on my credit file on two accounts even though both of them are paid off and closed now.Please help and advise things to do.

1 Contribution
1 Person Helped

Helpful to 1 out of 1 people

So for years I paid cash for everything after y divorce. I filed banruptcy. With the money I have in my Credit union , they gladly issued me a Platinum card with a 25K limit. I have never missed a payment and if the total was 10K I just would pay it off at the end of the month, Even with the bankruptcy I had a 720 score. I knew my bankruptcy was coming off in Nov of 2016. When it came off I checked all the agencies and it was off. I applied for a silver Visa, a discover and a regular visa...All approved...my score dropped to a 580. I was told it was due to the 3 inquiries in a row, even though they were approved and it will come back up in a couple of months. Heck, I had my Mortgage paid off 10 years ago and have an equity line of 300K aailiable to me and have a 580. Thank God I dont need credit for something urgent !

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