What Caused My Credit Score to Drop?

Your credit score determines the interest rate you pay for loans and mortgages. It also influences the size of auto and home insurance premiums. Frequently, potential landlords and employers base their decisions on your Fair Isaac Corporation (FICO) score. It is important to check your credit history periodically and correct any circumstances that caused your credit score to drop.

Credit Card Fraud

Although you have some control over the other circumstances that drop your credit score, you must identify credit card fraud or identity theft quickly. The Federal Trade Commission advises that you verify your credit report at least once each year. Make sure that all accounts listed are truly your accounts. You must also check your monthly account statements. Be sure that all charges are correct. If you notice mistakes on either your credit report or a monthly statement, take steps to correct them immediately.

Late Payments

According to My Fico, your credit payment history determines 35 percent of your credit score. Retail accounts, credit card accounts, auto loans and mortgages all report your payments. Even one delinquent payment can drop your credit score. Several late payments or accounts in collection cause your credit score to drop severely.

Too Much Debt

Your percentage of available credit determines another 30 percent of your credit score. When checking your auto loans and mortgages, FICO notices the balance remaining against the original loan. Large credit card balances and maxed-out cards also drop your credit score. Maintaining credit card accounts with large sums available increases your score.

New Credit Accounts

When you open a new credit card account or borrow money for a mortgage or vehicle, FICO reevaluates your credit score. Recent credit inquiries also trigger its interest. New credit accounts for 10 percent of your score. Several newly opened credit accounts can cause your score to drop.

Credit History

The length of your credit history has a big impact on your credit score. A longstanding account with a history of on-time payments increases your score more than a recent account. If you close an older credit card account or pay off a car loan early, the record stays on your report for seven years. After that, it drops off your history. If an older closed account drops from your credit history, your credit score can drop.

Improve Your Score

You can take steps to improve your score if it drops. First, check your score and correct any errors. Consumer Reports recommends that your total monthly payments for nonmortgage debt be less than 20 percent of your income. If you pay down your balances, your score will improve. Make all future payments on time as agreed and keep your older accounts with good history open.