Why Did My Credit Score Drop?

Your credit score is a reflection of your credit behavior – meaning it’s constantly being updated depending on how you’re using your credit. Some months you may need to use your credit card more frequently than others – though it’s imperative to keep a good cadence and use credit responsibly in order to maintain a good credit score.

Your credit score is made up of a variety of factors outlined by the FICO and VantageScore scoring models – Turbo uses the VantageScore model.

Credit management can feel like a bit of an enigma. Creditors want you to have enough of a credit history to prove your ability to pay off debts – but it’s also important to consider how much you’re using your credit card, how much debt you’re paying, and what types of credit accounts you’re associated with.

When you see a drop in your credit score, it’s sometimes difficult to figure out what lowered your score. It’s important to understand credit scoring basics so that you can recognize when your credit is slipping, and know what actions to take to repair it.

If you’re trying to repair bad credit or have seen an unexplained drop in your recent credit report, read on for information to help you investigate your credit drop, and find tips on how to fix your credit.

Why Does My Credit Score Fluctuate?

• High-Impact Credit Factors
• Low-Impact Credit Factors

Why Does Your Credit Score Drop When You Check It?

• Hard Inquiries vs. Soft Inquiries
• How Many Points Does Your Credit Score Go Down For An Inquiry?

How Do I Get My Credit Score To Go Up?

Why Does My Credit Score Fluctuate?

Credit scores are based on a variety of factors that can cause your score to fluctuate. It’s important to distinguish which credit behaviors are high-impact offenders, and which ones are low-impact and might not have a significant effect on your credit score.

Knowing how your credit is scored, and what has caused your credit score to fluctuate can help you understand how to repair it – and help you adopt better credit management practices.

High-Impact Credit Factors

Credit Utilization

Credit utilization can have a major impact on your credit score. VantageScore recommends keeping your balances low for a credit utilization ratio under 30%.

To calculate your credit card utilization:

1. Divide your credit card balance by your credit card limit
   For example, if your balance is $745 and your limit is $2,000
   745 ÷ 2,000 = 0.3725

2. Multiply the result by 100 for a percentage
   0.3725 x 100 = 37.25%

Late Payments

Making a late credit card payment, or having a missed credit card payment on record – even just once – can negatively impact your credit for months. This “bad credit behavior” tells creditors you may not be able to resolve your debts – which makes you a potential risk.

You might consider setting up automated payments. Even if you’re just paying the minimum, this can help make sure your credit score doesn’t dip because of late payments. Try to check your status with your creditor regularly to make sure you’re in good standing.

Credit Age

Your credit history and age can have a big impact on your score and may become a hindrance when applying for new credit cards or loans. Building your credit is tough when you don’t have a credit history to work from. If your credit is suffering from a lack of history, consider applying for a secured credit card.

Bankruptcy and Foreclosure

Bankruptcy and foreclosure can severely damage your credit score – sometimes even lowering your score by 200-300 points. Know your options when considering filing for bankruptcy – as filing can be extremely difficult to reconcile with your credit history.

Low-Impact Credit Factors

Credit Inquiries

Hard inquiries typically happen when you’re applying for a loan or new credit card. The creditor initiates a “hard inquiry” to evaluate your credit score. These inquiries can negatively impact your credit score temporarily. The impact is worse if you consistently apply for new lines of credit, and rack up multiple inquiries.

A soft inquiry is a credit check completed by you or certain other agencies, that doesn’t impact your credit score. Read more about hard and soft inquiries below.

Credit Mix (Paying Off Debt)

Have you ever paid off a loan and seen your credit score drop even further? While it might seem counterintuitive, there’s a reason your score takes a little bit of a dip when you’ve cleared a debt.

Creditors like to see that you can manage a variety of credit types and keep your credit utilization ratio balanced. Paying off a loan may leave you with fewer types of debt. Because a more diverse credit mix boosts your credit score, it makes sense that decreasing that diversity would have the opposite effect.

Ultimately, paying off your debt is a good thing, but you may find that closing your loan account has a negative impact on your credit score temporarily.

Why Does Your Credit Score Drop When You Check It?

Depending on who is checking your credit score, you could see a slight drop in your score. Before opening a new line of credit, understand the differences between hard and soft credit inquiries.

Hard Inquiries vs. Soft Inquiries

Hard Credit Inquiries

When you’re applying for a new credit card or loan, the creditor will likely perform a “hard inquiry” or “hard pull” to check your credit score. This type of inquiry can slightly lower your credit score.

It’s important to shop around for the right credit card for your lifestyle – with rewards and travel points, credit cards can be extremely beneficial if used responsibly. However, applying for multiple credit cards at once can be counterintuitive to your credit-building efforts, thanks to hard inquiries. If you’re applying for multiple lines of credit, creditors may interpret this as a sign of financial hardship and consider you a risk to approve.

Before applying for a credit card, check the pre-qualifying information to see if you’re a likely candidate for approval. With a little research, and by running a free credit score check, you should be able to get a good idea of whether or not you qualify for a particular card.

Another important distinction to make about hard inquiries is that they will always require your consent. If you believe there was an unauthorized hard credit pull that has lowered your score, be sure to dispute the error with the credit bureau.

Soft Credit Inquiries

A soft credit inquiry occurs when you check your own credit using a service like Turbo – or when certain agencies check your credit score. This kind of credit check does not impact your credit score. Soft inquiries will be recorded on your personal credit report, only available for your reference. Creditors will not be able to see or penalize soft inquiries.

The following credit checks are typically considered soft inquiries:

• Checking your own credit score
• Employment credit checks
• Pulling a credit score from your current credit card provider
• Most property management credit checks

How Many Points Does Your Credit Score Go Down For An Inquiry?

Hard inquiries may result in a 5 to 10 point drop and can remain on your report for a few months up to two years.

The Consumer Financial Protection Bureau recommends avoiding applying for new lines of credit just before, or while you’re applying for a mortgage or loan. This can help increase your odds of being approved, as you won’t have a record of multiple hard inquiries lowering your credit score.

It is a credit myth that your credit score goes down when you check it with a soft inquiry. In fact, it’s actually good practice to keep track of your credit by periodically checking it through soft inquiries, in order to evaluate any changes to your score.

How Do I Get My Credit Score To Go Up?

Recovering from bad credit can take a while depending on what impacted your credit score. Ultimately, keep in mind is that credit is not generally very forgiving – but it is possible to repair your credit with basic credit education and with the implementation of good credit practices.

Transunion outlines a few different ways to build your credit health:

Check Your Credit Report

Use a credit checking service like Turbo to periodically check in on your credit score. This can help you understand what has impacted your score and give you the opportunity to identify any mistakes on your score.

Increase Your Credit Limit

Requesting a credit limit increase can help you keep your credit utilization rate in the sweet spot. Just be sure to keep your spending habits in control when you have more spending power with a higher limit.

Consider Opening Appropriate New Lines of Credit or Up Your Credit Limit

As previously mentioned, it’s wise to apply only for credit cards you’re likely to be approved for. Don’t risk lowering your credit score for an unnecessary hard inquiry. Keeping an open line of credit with a very minimal or zero balance can sometimes help improve your credit utilization standing. If you’re not using a significant portion of your available credit, your credit score can go up. Make sure to do your research before deciding to open a new credit card to repair your credit as this varies for each credit user.

Understanding how a credit score is calculated, and what aspects you can control in regards to your credit score will help you be a more knowledgeable credit user, and help you maintain a healthy credit score.