When you should (and shouldn’t) worry about a credit score drop

Just as the numbers on your bathroom scale can fluctuate, it’s common to see movement in your credit score. Yet, if there are big shifts in your credit score — and if that movement is downward — there could be reason for concern.

Below, you’ll discover four common reasons your credit score might drop. You’ll also learn how to differentiate between credit score declines that are probably nothing to worry about and more troublesome score decreases.

4 reasons your credit score might drop

It’s a good habit to monitor your credit scores and your credit reports. However, it can be concerning if you notice a drop in your credit score or receive a notice that your credit report has changed negatively.

There are many reasons why your credit score might suddenly decline, and some are more obvious than others. Below are four common actions that might trigger a drop in your credit score.

It’s a good habit to check your credit score and credit report. TOLGART/GETTY IMAGES

Increased credit utilization

The relationship between your credit card limits and balances (i.e., your credit utilization rate) can have a meaningful impact on your credit score. If your credit card balances increase on your credit report, your credit utilization rate could also increase. This will often trigger a drop in your credit score until you can pay down your credit card debt again.

New negative information

When new negative details, like late payments or collection accounts, show up on your credit report, it’s common for your credit score to decline. Payment history makes up 35% of your FICO® score. Negative information can also stay on your credit report for seven to 10 years. However, if any of the details on your report seem questionable or inaccurate, you can dispute credit errors and ask the credit bureaus to fix those mistakes.

New recent applications

When you apply for financing, like a new credit card or loan, a hard inquiry appears on your credit report. Most new hard inquiries only have a slight negative impact on your credit score. But if you apply for new credit excessively, the impact on your credit score could be more significant.

A positive account disappears

A less apparent cause of a potential credit score drop can occur when a positive account falls off your credit report. This action could cause you to lose the positive payment history associated with the account plus the age of the account, which might have been helping you in the “Length of Credit History” category of your credit report (worth 15% of your FICO Score).

Related: Hidden ways credit card debt can cost you money

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3 times to worry about a drop in your credit score

Seeing a drop in your credit score is never a pleasant experience. Yet there are times when a credit score decline could be more concerning than others, including when:

A drop in your credit score can happen for a few reasons but some reasons are less concerning than others. FG TRADE/GETTY IMAGES

When a credit score drop might not be as troublesome

On a happier note, small declines in your credit score aren’t something to get upset about in many cases. It’s normal for your credit score to fluctuate up and down as the information on your credit report changes.

For example, the credit utilization rate on your credit report may shift each month even if you follow TPG’s 10 commandments of credit card rewards and always pay off your full statement balance. This is because the credit card balance that appears on your credit report is your account balance at the time your credit card company issues your statement each month.

If you want a zero balance to show up on your credit report, pay off your credit card before the statement closing date on your credit card account.

In general, you don’t have to worry about slight credit score fluctuations that occur due to submitting new credit applications every so often. For most people, one additional hard credit inquiry results in a credit score drop of fewer than five points in your FICO Scores, according to FICO. FICO Scores only consider hard inquiries that have occurred in the last 12 months when calculating your score (even though they remain on your credit report for two years).

Related: Why paying off credit card balances is more important than ever

Bottom line

Of course, it’s important to work to keep your credit history and your credit score in the best shape possible at all times. But it’s also wise to understand that your credit score will probably change over time.

If you create a good habit of monitoring your credit scores and credit reports from all three credit bureaus, you’ll notice periodic shifts. So, it’s a good idea to educate yourself about when a credit score drop isn’t a big deal — and when it’s something to look into.

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