Why Did my Credit Score Drop? Reasons Explained

April 14, 2021 | 3 min read | The mortgage process
why did my credit score drop, how often does your credit score update, does checking your credit score lower it

Working on building your credit score may take time and patience. You may be wondering, “I’ve worked hard and have been doing the right things, yet why did my credit score drop?” You may not realize that some actions can negatively impact your score, so we outlined a few common reasons that cause credit scores to change.

You paid off and closed a credit card

There are a few reasons why closing a credit card may negatively impact your credit score:

  1. Closing an account lowers your total available credit, which impacts your credit utilization ratio.
  2. Credit typically gets better with age. So, keeping an old (and potentially inactive) account open may give your credit score a slight boost.
  3. Having a healthy credit mix positively impacts your score.

We recommend that even if you don’t use that credit card often, keep the account open. If you must close the account, speak with a mortgage or credit specialist first.

You maxed out your credit card limit

When you apply for a new credit card, you will receive a credit limit. It is recommended not to spend more than 30% of your limit each month. For example, if your limit was $100, you should aim to spend no more than $30 on that card each month. If you start spending close to your limit each month, your credit score may drop as it shows you are not responsibly spending money and managing your credit utilization ratio.

You opened several new accounts in a short amount of time

Suppose you are buying a new home and looking for furniture and appliances or it’s a holiday shopping season. In that case, you may be tempted to take advantage of additional savings or sign-on bonuses for cardholders. While the savings may seem nice, you will negatively impact your credit score by changing the length of your established credit history and the amount of debt you owe. 

You have a derogatory mark on your credit report such as a late payment

Late payments are often the most common derogatory marks on credit reports. Although you may not realize it, even having a payment one-day late may cause a slight drop in your credit score. Some creditors do not distinguish between a one day and thirty-day late payment. That is why it is important to set up auto-pay or payment reminders at least 3 days before the payment is due. 

Other Questions to Ask – How Often Does your Credit Score Update?

If you notice a slight drop in your credit score, you may be wondering how often your credit score updates. If your score drops because of any of the reasons listed above, create a game plan to start building healthy credit habits. Depending on the drop’s severity, it may take a few weeks or a few months for your credit score to improve and update. 

Remember – consistency and patience is the key to a good credit score.

Does Checking your Credit Score Lower It?

You may check your credit score on the leading reporting agency websites as often as you’d like without negatively impacting your credit score. However, since your score will most likely not change overnight, it may not be beneficial to check your score very often. 

Summary

Overall, having a good credit score is an important component to purchasing or refinancing a home. If you are interested in learning more about credit or ways to build your credit, contact us today!

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