Your credit score is a crucial part of your financial health, influencing everything from loan approvals to interest rates. If you’ve recently noticed a drop in your credit score, don’t panic. Understanding the reasons behind a credit score decrease can help you take the right steps to fix the issue and get your credit back on track.

Here are 7 reasons why your credit score might have decreased and what to do to fix it.

1. Late or Missed Payments

Your payment history makes up about 35% of your credit score. Missing a payment or paying late can cause a noticeable drop in your score, especially if it’s reported to the credit bureaus. Even one late payment can have a significant impact, particularly if your credit history is relatively short.

Why It Happens:

Your payment history makes up about 35% of your credit score. Missing a payment or paying late can cause a noticeable drop in your score, especially if it’s reported to the credit bureaus.

How to Fix It:

• Set up automatic payments or reminders to ensure you never miss a due date.
• If you’ve missed a payment, pay it as soon as possible.
• Contact your lender and ask if they can waive the late fee and remove the delinquency from your report (if it was a one-time mistake).

2. Increased Credit Utilization

Your credit utilization ratio—how much credit you’re using compared to your total credit limit—accounts for about 30% of your score. If you suddenly max out your credit cards or carry a high balance, it can negatively impact your score and lead to a credit score decrease. Lenders view high utilization as a sign of financial strain.

Why It Happens:

Your credit utilization ratio—how much credit you’re using compared to your total credit limit—accounts for about 30% of your score. A sudden increase in balances can lower your score.

How to Fix It:

• Aim to keep your credit utilization below 30% (ideally under 10% for the best scores).
• Make extra payments throughout the month to lower your balance.
• Request a credit limit increase to improve your utilization ratio.

3. New Hard Inquiries

Every time you apply for new credit, a lender performs a hard inquiry, which can lower your score by a few points. If you apply for multiple credit cards or loans in a short period, it may indicate financial distress, making lenders hesitant to extend more credit.

Why It Happens:

Every time you apply for new credit, a lender performs a hard inquiry, which can lower your score by a few points. Too many inquiries in a short period can be a red flag to lenders and result in a credit score decrease.

How to Fix It:

• Only apply for credit when necessary.
• If you’re rate shopping for loans, do it within a short time frame (typically 14-45 days) to minimize the impact on your score.
• Monitor your credit report for unauthorized hard inquiries and dispute any errors.

4. Closing an Old Credit Account

Closing an old or unused credit card can shorten your credit history and increase your credit utilization ratio, both of which can lower your score. Older accounts help build a long, positive credit history, which is beneficial to your score.

Why It Happens:

Closing an old or unused credit card can shorten your credit history and increase your credit utilization ratio, both of which can lower your score.

How to Fix It:

• Keep old accounts open, especially those with a long credit history.
• If you must close a card, choose one with a short history and low credit limit.

5. An Account Went to Collections

If you’ve neglected a bill long enough for it to be sent to collections, this can significantly damage your score. Collections accounts indicate a serious delinquency and can stay on your report for up to seven years.

Why It Happens:

If you’ve neglected a bill long enough for it to be sent to collections, this can lead to a significant credit score decrease.

How to Fix It:

• Pay off collections as soon as possible or negotiate a pay-for-delete agreement.
• Check your credit report for errors and dispute incorrect collection accounts.
• Consider working with a credit counselor if you have multiple collection accounts.

6. Mistakes or Fraud on Your Credit Report

Errors on your credit report or fraudulent accounts opened in your name can cause a sudden drop in your score. Identity theft and reporting errors are more common than you might think, so it’s important to stay vigilant.

Why It Happens:

Errors on your credit report or fraudulent accounts opened in your name can cause a sudden drop in your score.

How to Fix It:

• Check your credit report regularly on AnnualCreditReport.com.
• Dispute any inaccuracies with the credit bureaus.
• Freeze your credit if you suspect identity theft.

7. A Major Derogatory Event (Foreclosure, Bankruptcy, etc.)

Bankruptcies, foreclosures, and repossessions have a severe impact on your credit and can stay on your report for several years. These events signal to lenders that you’ve had significant financial difficulties, making it harder to obtain credit in the future.

Why It Happens:

Bankruptcies, foreclosures, and repossessions have a severe impact on your credit and can stay on your report for several years.

How to Fix It:

• Work on rebuilding your credit by making on-time payments and keeping balances low.
• Consider a secured credit card or credit-builder loan.
• Be patient—negative marks lessen in impact over time.

Summary

A drop in your credit score isn’t the end of the world, but it’s a sign that something needs attention. By identifying the cause of your credit score decrease and taking proactive steps, you can repair your credit and maintain a strong financial foundation.

Monitor your credit regularly and practice good credit habits to keep your score in good shape for the long haul.

Want to take control of your credit today? Download our free Credit Guide packed with actionable tips to help you hack your way to a better credit score using actionable and proven DIY step.