Why Has My Credit Score Gone Down? 8 Reasons You Can Check Today

You’ve been doing everything right, but then you get the notification: “Your credit score has dropped.” Before you know it, panic sets in. What happened to all your hard work? Why is your credit score going down?

If you’re on the journey to better credit, an unexplained drop in your credit score can feel like a punch in the gut. And while it’s far from ideal, the good news is that you’ll be able to determine what caused it in most cases.

Here, we’ll explore eight of the most common reasons why your credit score might have dropped, plus how you can address them.

8 Reasons Why Your Credit Score May Have Dropped

Your credit score is a complex metric, with a multitude of factors that shape it. These are some of the most common reasons you may have recently seen a drop in your credit score.

1. You Applied for a New Line of Credit

When you apply for a new line of credit (like a credit card or loan), your lender will pull a hard credit check. This can cause a brief dip in your credit score. Not only is this impact typically quite small, but your credit score will recover soon if you maintain good credit habits.

2. Your Credit Usage Increased

Credit scoring formulas place a lot of emphasis on your credit utilisation ratio. A credit utilisation ratio above 25% can have a negative impact on your credit score, so double check that you’re making payments before your account's balance reaches that point.

3. You Closed an Old Account

If you close an old account, such as a credit card that you don’t use anymore, this can cause a dip in your credit score for two main reasons.

1. It will decrease your available credit and therefore increase your credit utilisation ratio.
2. It will reduce your credit mix (the variety of your credit cards, loans, mortgages, etc.).

If you maintain healthy credit habits, your credit score will likely recover from these drops over time. The key thing to keep in mind is that although you might not use an account or card, it will contribute to your credit score as long as it’s open. So if there are no annual fees or late payments, keeping old accounts open is usually beneficial.

4. You’ve Missed a Payment

Making timely repayments on credit cards and loans is one of the most important things you can do to keep your credit score healthy. On the other hand, missing a payment can quickly send your credit score into free-fall and can be visible on your credit file for as long as six years.

To learn more about how missing a payment impacts your credit score, check out our guide on the topic.

5. You’ve Recently Moved

While the act of moving itself doesn’t negatively impact your credit score, there are a few things associated with moving that can affect your credit:

• Electoral roll registration: Credit reference agencies use the electoral roll’s database to verify your identity, including your address. If a lender finds a discrepancy between your information on a credit application and your information on the electoral roll, it could make them hesitant to lend to you. To keep your credit score in good shape, update your information on the electoral roll after you move.
• Additional credit checks: If your landlord checks your credit as a part of their affordability check, this could briefly damage your credit. Similarly, utilities and service providers might run checks of their own before starting service.

Keep in mind that these drops in your credit score are short-lived in most cases. If your credit has been in good health, you can expect it to return in time.

6. Someone Is Associated With Your Credit

Do you share a joint bank account with a flatmate? Joint bank accounts and joint loan agreements can expose your credit score to risk if they’re not properly managed. For example, if you have a joint bank account with someone and that account is overdrawn, it could have a negative impact on your credit.

Make sure to keep tabs on any shared financial accounts you have, and file a notice of disassociation with credit reference agencies if you no longer want to be financially associated with the other person.

7. Your Information on Your Credit Report Isn’t Accurate

Like we mentioned with your address and the electoral roll, it’s important for the information on your credit report to be accurate. If the information on your credit report isn’t accurate, lenders will be less confident in their ability to recover their money. Not only does this damage your credit report, it also makes it less likely that you’ll be approved for new lines of credit.

8. You’ve Paid Off a Loan

What?! Paying off a loan is a good thing, so why would it lead to a decrease in your credit score? Well, when you finish paying off a loan, it can have a big impact on your credit mix and your credit utilisation ratio.

However, your knee-jerk reaction—that paying off a loan is good—is right. You can expect the negative impact to your credit to fade in the short term.

Keep a Cool Head When it Comes to Credit

As you now know, there are a lot of reasons your credit score can drop. Fortunately, your credit will recover from many of these dips relatively quickly. By monitoring your credit score, you can notice drops when they happen and more easily identify what caused the drop. From there, you’ll know what actions you can take to improve it.

If you’re building your credit score, it helps to use tools that keep track of key information that empowers you to work more efficiently. The Pave app tracks your bank accounts and your upcoming bills to ensure you don’t miss payments and throw your credit off track. Additionally, our customised credit tips can give you actionable steps to improve your credit over time.

Ready to get more insight into your credit score? Download the Pave app today!