It can be perplexing when you think you’re doing all the right things to improve your credit, only to see your credit score drop instead. Whether substantially, or even by just a few points, seeing your score go down can be frustrating, especially if you aren’t sure of the cause. While it can sometimes be difficult to pinpoint the exact reason, some of the following are possible causes:
You applied for credit
Each time you apply for credit, a hard inquiry is made and these hard inquiries will negatively affect your credit score. Although your credit score will drop, it often isn’t much, but may depend on the type of loan you’re applying for. If you applied for credit recently and you’ve noticed a bit of a drop in your credit score, that is likely the reason why. Try to avoid applying for other lines of credit in the meantime and you should see it bounce back soon.
You closed out a credit card
You paid off all your credit card debt and then closed out the account—wouldn’t this cause your score to go up, rather than go down? Not necessarily. If you had that credit card for a long time, closing it out can have a negative affect on your credit score. Canceling credit cards can be okay, but when it comes to the credit card you’ve had the longest, it’s best to keep it active. This can actually help to improve your score, but you’ll likely see the opposite effect by closing it out.
You were only looking at one of your scores
You have three separate credit scores, and while the differences may be minor, there could be times where they vary greatly. You may be comparing a higher TransUnion score to a lower Experian score, for example. Remember to always monitor all three of your credit scores.
You fell behind on payments
Whether it’s a large loan or a small credit card balance, making the minimum required payments each month (at the very least) is essential to ensure that your credit score doesn’t drop. If paid after your payment due date, however, it could affect your credit. To ensure that you always make timely loan and credit card payments, consider setting up your accounts on an automatic payment schedule.
An account went into collections
If you’ve had a past due account for some time now, it may have been turned over to collections, and that could be why your credit score has gone down. Even a small account being in collections can affect your credit score. For example, if you have an unpaid medical bill that you forgot about, or didn’t know you had, it will begin to hurt your credit score once it is turned over to a collection agency. If you’re unsure about what accounts you may have in collections, be sure to check your credit report.
You have a mistake on your credit report
Another important reason to check your credit report is to make sure that everything is accurate. Credit report errors are common, and a negative mark on your credit report can be what brought your score down. If you notice anything on your credit report that you know is incorrect, be sure to dispute it immediately.