What to Do if Your Credit Score Is Falling

By Jason Steele · June 03, 2024 · 7 minute read

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What to Do if Your Credit Score Is Falling

Your credit score is one of your most valuable assets, and it’s important to take action if you notice that yours is dropping. Many credit card issuers now offer customers free credit monitoring, and there are other ways to check your credit score without paying.

Let’s dive in.

Reasons Why Your Credit Score Can Drop

There are several factors that affect your credit score. Here’s a look at some common scenarios:

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Late or Missing Payments

When it comes to determining your FICO score — a type of credit scoring model used in 90% of lending decisions in the U.S. — your payment history matters. A lot. It’s the largest factor in FICO’s credit scoring formula. Missed or late payments can cause your score to drop by as much as 180 points and could remain on your credit reports for up to seven years. Signing up for autopay is one way to help ensure your bills are paid on time.

Credit Utilization Increased

Credit utilization refers to how much of your credit you’re using, and it can indicate to potential lenders how well you manage your finances. It’s also the second-largest factor in your FICO credit score. The general rule of thumb is not to use more than 30% of the credit available to you. If your credit utilization rate is higher than that, you may see a drop in your credit score.

If you need help keeping tabs on where your money is going, consider using online tools like a money tracker. Besides monitoring spending, it can also provide insights on your finances.

Recent Application for a Mortgage, Loan, or Credit Card

Applications for new credit may only make up 10% of your FICO credit score, but that can still have an impact. That’s because lenders often pull a hard inquiry when you apply for credit, which may cause your score to fall slightly. The good news is, the dip is usually temporary.

A Credit Limit Decreased

If your credit limit decreases, that means you have less available credit. And this can cause your credit utilization rate — or debt-to-credit ratio — to increase. Why does that matter? Your credit utilization rate is one of the factors lenders consider when you apply for credit. In general, lenders consider a debt-to-credit ratio of 30% or below as “excellent.”

You Closed a Credit Card

You may want to think twice before closing a credit card, especially if it’s one you’ve had in good standing for a while. When you close a credit card, your total credit line decreases and your debt-to-credit ratio may increase. This could temporarily lower your credit score.

Inaccurate Information on Your Credit Report

Need another reason to routinely keep a close eye on your credit report? Having inaccurate information — say, defaults on loans you don’t have — could potentially hurt your credit. If you spot a credit report error, be sure to dispute it (more on that below).

Recommended: Does Checking Your Credit Score Lower Your Rating?

Major Event Such as Foreclosure or Bankruptcy

Having your home foreclosed or filing for bankruptcy are major issues that have the potential to damage your credit score for several years. For instance, Chapter 13 bankruptcy stays on your credit report for seven years, while Chapter 7 bankruptcy stays on for 10 years. Meanwhile, a foreclosure remains on your report for seven years.

Check Your Credit Report

If you’ve noticed a significant drop in your credit score, it’s worth looking over your credit report. Typically, your credit report updates every 30 to 45 days and includes key information about your credit history such as:

•   Your history of on-time and delinquent payments

•   How often you’ve applied for credit

•   How many accounts you have open and closed

•   Any accounts that are in collections

Every 12 months, you can get a free copy of your credit report from each of the three major credit reporting companies at AnnualCreditReport.com. Be sure to carefully review reports from all three companies, as there may be some differences between what’s reported with Transunion vs. Equifax vs. Experian.

Another option? Signing up for credit score monitoring, which can offer score updates and financial insights.

Dispute Credit Report Information You Believe to Be Incorrect

If you find information on your credit report that’s not accurate, you have the right to dispute it. And the good news is, doing so won’t negatively affect your credit score.

To get the ball rolling on resolving errors, you’ll need to file a formal dispute with the credit reporting company. You can contact them online or by mail or phone. The Consumer Financial Protection Bureau (CFPB) also offers helpful tips on how to file a dispute .

Take Actions to Build Your Credit

Is your credit score not where you want it to be? There are things you can do to help improve it.

One helpful step to take is to pay all of your bills when they’re due, as consistent, on-time payments can significantly raise your credit score over time. Automating your finances is one way to help ensure you don’t miss a due date. It’s also a good idea to focus on catching up past-due accounts so they’re current.

Another step to consider is to limit your credit utilization ratio so your credit balances aren’t too high in relation to your credit limit. You can explore setting up balance alerts that alert you when you’re nearing the recommended 30% credit utilization ratio. You may also want to consider paying your credit card bill more frequently, say, twice a month instead of once a month.

A third strategy is to pay off what you owe. Having a debt repayment plan in place can help, and there are several approaches to consider. Two common ones are the snowball method (where you pay off debts in order from the smallest balance to the largest) and the avalanche method (where you pay off accounts in order from the highest interest rate to the lowest).

What Is a Good or Bad Credit Score?

FICO credit scores run the gamut from 300 to 850, so where does a “good” credit score fall? While there’s no one magic number, most lenders consider scores between 670 and 739 “good.” If your FICO score is between 740 to 799, it’s classified as “very good”; 800 and higher is “exceptional.”

What about scores below 670? If yours falls in the 580 to 669 range, it’s considered “fair.” That means it’s below the average score of consumers, though you may not have issues getting a lender to approve you for a loan. A score of 580 or less is considered “poor,” and could signal to lenders that you’re a risky borrower.

Credit Score Tips

Since paying your bills on time factors heavily into your credit score, you should take steps toward preventing late payments. One good way to do that is to enable auto-pay on your credit cards and other loans.

You can also reduce your credit utilization by trying to minimize the outstanding balances reported to the credit bureaus. For example, if you make payments just before your statement closing date, the lower balance is reported, which reduces your credit utilization.

The Takeaway

Your credit score is invaluable. Lenders use it as they review your applications for credit, as do landlords, prospective employers, and utility providers. So it’s crucial to keep track of your credit score and take action when it falls.

If your score takes a noticeable dip, the first step is to find out why your credit score fell. This may involve carefully checking your credit reports and disputing errors with the credit reporting company. Next, it’s a good idea to take steps to improve your score, which can include paying bills on time, paying off debt, and limiting your credit utilization ratio.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

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Should I be worried if my credit score dropped?

Changes in a credit score are normal. That said, if yours dropped significantly, and you don’t know why, then you should consider reviewing your credit report and disputing any inaccuracies. However, if the drop is small and expected, then there’s no reason for concern. For example, if you applied for a new credit card, you might see your credit score temporarily drop a bit.

How long does it take to recover from credit score drop?

It all depends on the size of the drop and the cause. If you have higher credit utilization, for instance, your score will likely recover when your utilization ratio drops. But if you have a record of delinquent payments or a default, it can take much longer to recover. And with major events, such as bankruptcy or foreclosure, it may take many years until your credit score fully recovers.

Why is my credit score going down when I pay my bills on time?

While your payment history is the most important factor in your credit score, it’s not the only one. If you are paying your bills on time, your credit score could still drop if your credit utilization is increasing or you have a short credit history.

Photo credit: iStock/Pekic

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Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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