Key Takeaway: Your credit scores, whether viewed on Credit Karma or another source, may have dropped due to a variety of factors, including missed payments, closed accounts, higher credit utilization or identify theft.
Credit scores are based on the information in your credit reports, so your scores can drop if your lenders report new information like a late payment or a change in credit utilization.
Credit scores can drop due to a variety of reasons, all of which are tied to what’s reported on your credit reports each month.
In addition to common reasons like late or missed payments and credit utilization changes, your credit scores can drop because you applied for, opened or closed an account — or even because you paid off a loan.
Credit report inaccuracies due to mistakes or identity theft can also cause a dip — one that’s important to resolve as quickly as possible to avoid further credit score damage.
Credit Karma provides free credit scores and reports using the VantageScore 3.0 model from two of the major credit bureaus: Equifax and TransUnion. Reviewing your reports regularly from multiple bureaus and scoring models can help you build your credit and spot potential errors or fraud.
Let’s look at the nine main reasons why your credit scores might have dropped, and how you can address each of them.
- You have a late or missed payment
- Your credit utilization rate has changed
- Your credit limit was reduced
- You’ve recently opened or applied for credit
- You closed a credit card
- You paid off a loan
- You received derogatory marks from an event like bankruptcy
- You have mistakes on your credit reports
- You were the victim of identity theft
1. You have a late or missed payment
Payment history is the most important factor of both FICO® and VantageScore® credit scores. For the VantageScore 3.0 credit scoring model, for example, payment history makes up 40% of the formula.
If you were only a few days late on a payment, it’s unlikely to show up on your credit reports. But once payments are more than 30 days late, card issuers will report them as delinquent to the credit bureaus.
If this happens, you can expect your credit scores to take a hit. And if the payment is reported as being 60 or 90 days late, your credit scores could fall even further.
If you’re having a hard time keeping track of your payments, consider enrolling in automatic payments.
2. Your credit utilization rate has changed
Your credit utilization rate is how much credit you’re using compared to your total available limit. It’s another important factor to FICO and VantageScore, accounting for 20% of your VantageScore 3.0 credit score.
If you have a $10,000 credit limit on a card and typically charge about $1,500 to it, your credit utilization would be 15%. But, if you made a few large purchases one month and increased your spending to $5,000, your new credit utilization would be 50%.
A change in utilization like this could cause your scores to drop, although the effect will vary depending on how much your credit utilization changed.
To keep your credit scores steady, the Consumer Financial Protection Bureau (CFPB) and credit experts recommend that consumers keep their credit utilization rate below 30%.
3. Your credit limit was reduced
Your credit limit can change if you request it, but your lender can also lower it without your approval.
A lower credit limit can cause your credit scores to drop because you’ll have less available credit to factor into your credit utilization. This means your credit utilization rate will go up even if your spending stays the same.
Let’s consider that credit card with a $10,000 limit again. If you spend $1,500 a month on it, your utilization rate is 15%. But if your lender reduces the card’s credit limit to $5,000, your credit utilization rate would instantly jump to 30%.
4. You’ve recently opened or applied for new credit
Getting new credit, such as a credit card or personal loan, can lower your scores when you apply and when you actually open the account. Here’s why:
- Your lender performed a hard inquiry on your credit reports. A hard inquiry happens when you apply for a new credit product and the lender checks your reports. It will typically cause your score to drop by a few points, but the effect is usually temporary. Checking or monitoring your credit with tools from Credit Karma doesn’t affect your scores because those actions only result in a soft credit inquiry.
- The average age of your accounts will drop. The length of your credit history is an important factor to both FICO and VantageScore scoring models. It looks at the age of your oldest account and newest account, as well as the average age of all of your accounts. Opening a new account will change your average, which might cause your scores to drop.
When you open several credit accounts in a short period of time, you represent more of a risk to lenders. For this reason, your credit scores may drop more if you’ve had several hard credit inquiries placed on your credit reports recently.
If you’re rate shopping, however, credit scoring models are typically more forgiving.For example, if you’re shopping for a mortgage or auto loan within a 30-day period, the credit bureaus will usually group the inquiries together.
But you’ll get a ding on your credit reports for each credit card you apply for, no matter how close together you submit the applications. So, be sure to only apply for credit cards that you truly need.
5. You closed a credit card
Closing a credit card can cause your credit scores to drop for two main reasons:
- It reduces your available credit. So, if you don’t reduce your spending in kind, your credit utilization ratio will go up.
- It hurts the average length of your credit history. The older an account, the more it could affect your average account age when you close it. If the account was in good standing when you closed it, however, these effects shouldn’t be immediate. Closed accounts can remain on your credit report for up to ten years.
Before you close your oldest credit accounts, consider whether it’s absolutely necessary. If you’re trying to avoid an annual fee, you can often call your card issuer and switch to a no-annual-fee version rather than closing the account.
6. You paid off a loan
While it may seem illogical, paying off a loan can actually cause your credit scores to drop.
Paying off a loan can sometimes lower your credit scores because it may change your credit mix — the types of credit accounts you have. In general, having a healthy mix of revolving credit (like credit cards) and installment loans (like mortgages and auto loans) is good for your credit scores.
But this doesn’t mean that you should avoid paying off your loans. You can still build strong scores without having one of each type of credit.
7. You received derogatory marks from an event like bankruptcy
Derogatory marks on your credit reports, such as late payments or accounts moving to collections, indicate that you didn’t pay a loan as agreed in some way.
Major financial events like bankruptcy or foreclosure can heavily damage your credit scores and will result in certain derogatory marks that won’t typically fall off your reports for seven to 10 years.
But, the good news is that the effect of a derogatory mark goes down over time.
Additionally, you may be able to get certain derogatory remarks taken off your credit reports.
If you see a derogatory remark on a report, first verify that it’s legitimate. If it’s not, contact the credit bureaus to dispute it.
8. You have mistakes on your credit reports
Lenders can make mistakes, too. They might’ve reported inaccurate derogatory marks that are dragging down your scores. That’s why it’s important to check your credit reports and keep an eye out for errors.
In 2024, credit or consumer reporting complaints accounted for 85% of all complaints received by the CFPB, according to the agency’s Consumer Response Annual Report. Credit reporting issues were the most frequently reported complaints.
If you find a mistake on your credit reports, you have the right to dispute it with the credit bureaus and with the reporting lender. Under the Fair Credit Reporting Act (FCRA), companies are required to investigate the dispute free of charge and promptly correct errors that are confirmed.
9. You were the victim of identity theft
Finally, let’s address what might be the most frightening reason for a drop in credit scores: Someone could have stolen your identity and opened credit accounts in your name. To find out if someone’s stolen your identity, check your credit reports from the three major credit bureaus — TransUnion, Equifax and Experian — for signs that include …
- Hard inquiries for products you’ve never applied for
- Accounts you never opened
- Names or addresses in your personal information section that aren’t yours
- Debts or accounts in collections that don’t belong you
You’re entitled to one free credit report weekly from each of the three major consumer credit bureaus at annualcreditreport.com. You can also check your TransUnion and Equifax reports for free on Credit Karma.
If you’ve been a victim of identity theft, you’ll likely want to make a recovery plan. Start by placing a fraud alert on your credit file with one of the national credit bureaus. The other two bureaus will be automatically notified.
After you’ve placed your fraud alert fill out an identity theft report with the FTC. Then, you can begin the process of disputing errors on your reports.
You may also want to consider freezing your credit. A credit freeze restricts access to your credit file, making it much more difficult for fraudsters to open accounts in your name.
Next steps: Monitor your credit
Seeing your credit scores drop may cause you some anxiety. But, if you identify the factors that led to the decrease, you can take action to get your scores back up.
One step to consider is credit monitoring. Keeping a close eye on your credit scores and credit reports may help you catch suspicious activity faster than if you’re not monitoring your accounts. This is especially true if you were the victim of identity theft and are in the process of cleaning up your credit.
Credit Karma offers free credit reports and VantageScore 3.0 credit scores from TransUnion and Equifax, as well as free credit monitoring services.
By signing up for credit monitoring, Credit Karma will alert you if there are major changes to your TransUnion and Equifax reports, such as newly opened accounts or inquiries. If you find any errors, you can dispute them.
Whether it’s setting up auto pay so you don’t miss a payment, disputing a derogatory remark or correcting a mistake on your credit reports, these drops can be temporary if you put the right plan in motion.
Looking to build your credit? Consider a credit builder loan.
Taking out a credit builder loan can help you build your credit by giving you the opportunity to show you can make regular on-time payments, which is an important part of your credit scores.
When you get a credit builder loan, the lender typically sets aside the loan amount you want to borrow into a reserve account it controls. You then make regular payments toward the loan, building a positive payment history that’s reported to the credit bureaus. When the loan is paid off (or you reach a certain threshold), the lender gives you access to the funds.
Loan fees, interest and repayment terms vary among lenders, so you’ll want to compare your options before applying.
You might also want to consider Credit Karma’s Credit Builder plan, which can help you build low credit while you save.
FAQs about credit score changes
Reviewing your current credit scores and credit reports is a great first step toward improving your scores. This allows you to see the factors currently impacting your scores and helps you determine where to focus next. Payment history is one of the most impactful factors across credit scoring models, so making regular payments is typically a good next step.
No, checking your credit scores won’t cause them to drop. Checking your own scores is considered a soft inquiry, which will show up on your credit report but has no impact on your actual scores. Only hard inquiries impact your credit scores.
The time it takes your credit scores to recover from a drop depends on the severity of the drop and the factors that caused it. If your scores dropped due to a hard inquiry, for example, they should recover in a few months. If your scores dropped due to something more severe, like a late payment, it will likely take much longer.
You can check your TransUnion, Experian and Equifax credit reports for errors by requesting them for free on annualcreditreport.com. If you spot any errors, you can dispute them with the credit bureaus and the lenders that reported them. You can also use Credit Karma to check your TransUnion and Equifax credit reports for free. If you find errors, you can dispute them.