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Whether you’re getting your ducks in a row to buy a house, trying to secure a lower interest rate on a future auto loan, or simply monitoring your credit as a personal finance best practice (good on you!), even a small dip in your credit score can make your stomach drop.
The good news: In the big scheme of things, a credit score drop of 10 points isn’t a huge deal — or at least it doesn’t have to be. While it’s smart to keep an eye on what’s going on, a 10-point drop could be due to a new credit application or an increase in your credit utilization, both of which are often temporary and easily made up for with positive credit behavior over time.
Below, we’ll look into some of the most common reasons your credit score may have taken a quick dip.
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Why Did Your Credit Score Drop 10 Points?
Credit scores usually run from 300 to 850, so 10 points really isn’t that significant of a drop. Of course, if you happen to be just a few points shy of having “good” or “exceptional” credit, that drop could feel like a more substantial loss. Fortunately, these fluctuations are normal and usually easily made up for with on-time payments, which have the largest effect on your credit score.
Some common reasons for a 10-point credit score drop include:
Hard Credit Inquiries
If you’ve recently applied for a new loan or line of credit, the credit check the lender makes to assess your creditworthiness can affect your score. This category, known as “new credit,” accounts for 10% of your FICO score. The effect can be compounded if you apply for many new loans or lines of credit in a short amount of time.
Balance Increases
Fully 30% of your FICO score is based on the total amount you owe versus the amount of credit you have available. So if you recently made a larger purchase on credit or took out a new personal loan, you could see a ding to your score.
Account Closures
While paying off a credit card or loan could help increase your score (by lowering your total balance), closing an account can affect the age of your overall credit history. This accounts for 15% of your FICO score. In the case of a credit card closure, it could also lower your total available credit, which could actually increase your credit utilization ratio even as your total balance decreases. So if you’ve recently closed an account, again, you may see your score take a small dive.
Errors or Identity Fraud
Scary but true: An unexpected dip could point to something fishy on your credit report, be it a payment misreported to the credit bureaus as late or a brand-new account you don’t recognize.
In any case, unexpected changes to your credit score are a great reminder to take a look at your in-depth credit history at least once per year. (A credit score update typically occurs every 45 days.) There are plenty of ways to check your credit score without paying, and you can pull your full reports annually at annualcreditreport.com. From there, you can file disputes with the credit bureaus — and the reporting lenders.
Recommended: Why Did My Credit Score Drop After Dispute?
Should You Be Worried About Your Credit Score Dropping?
As unsettling as a small credit score dip can be, if you’re carefully monitoring your credit and actively working on good financial habits, it’s usually not something to worry about. (Credit score monitoring lets you keep tabs on your score and earn rewards points when it increases.)
If, however, your credit score is dropping because you’re borrowing more than you can afford to pay back, taking out too many new loans or lines of credit at once, increasing your utilization ratio, or making late payments, it could be a wake-up call to start moving back toward healthier financial habits.
And, of course, if your dropping score alerts you to fraudulent or erroneous information on your credit report, it’s well worth the effort it takes to file a dispute and clear up that misinformation — before it wreaks even more financial havoc in your life.
Reasons Your Credit Score Went Down
As mentioned above, some of the most common reasons a credit score could drop include increased credit utilization (even if only temporarily), hard inquiries on your report, account closures, and errors or fraudulent information in your credit history.
Keep in mind, too, that the younger and less robust your credit history, the more weight each individual occurrence will have in your score. For example, if you’re a young adult who got their first credit card only a year ago, and still has only that single line of credit, a hard inquiry or balance increase could affect your score more profoundly than it would for someone with 15 years of credit history, thousands of dollars in available credit, and several different types of credit lines and loans.
What Can You Do If Your Credit Score Dropped by 10 Points?
If you notice your credit score has dropped by 10 points, you’re likely already monitoring your credit — which is a great habit to be in. Depending on why exactly it dropped, you may simply need to wait the fluctuation out. (For instance, if your score dropped due to multiple hard inquiries, there’s little else to do but wait — and stop applying for new lines of credit or loans.)
If you’ve recently increased your credit utilization or made a large purchase on a credit card, focusing on paying the balance back as soon as possible may also help. As always, making on-time payments in full on every account you have is one of the most important steps toward building and maintaining a healthy credit history and credit score.
Examples of Credit Score Dropping
Here are a few scenarios where you might notice a dip in your credit score.
Say, for example, you just successfully applied for a new credit card and then decided to apply for an auto loan, too. Even if your credit score was healthy enough to handle both of those inquiries — and get you qualified for both the new card and the loan — you may see a temporary dip because of the multiple hard inquiries.
Or maybe you regularly use a credit card for everyday purchases and then pay it off in full each month to take advantage of cash-back rewards. But one day, your car breaks down, and you find yourself needing to quickly fork over $800 you weren’t expecting to spend — and you reach for your everyday credit card. Even if you pay the total off in full at the end of the month, the temporary increase in your balance could diminish your score for a while, depending on when the amount is reported to the bureaus.
How to Build Credit
If you’re paying close attention to your score because you’re figuring out how to build your credit, the good news is, you’re already on the right track. While it’s impossible to build great credit overnight, awareness of your score and the factors that contribute to it is a great first step toward excellent credit.
There are plenty of ways to build credit over time, but here are some of the most important tips:
• Make your payments in full, on time, every time. Since payment history accounts for the largest chunk of your FICO score, being consistent with payments is a key to building credit. If you can, paying off your credit cards entirely each month can help you build your credit without paying interest or carrying a revolving balance.
• Avoid taking out too many loans or lines of credit at once. Along with the negative impact of multiple hard inquiries, getting yourself into too much debt too fast can make it impossible to keep up with payments and keep your utilization ratio low.
• Don’t unnecessarily close accounts. Even if you stop using one of your credit cards, consider leaving the account open so it can help lengthen your overall credit age. (Try to remember to use the card every once in a while and then immediately pay it back. The card issuer may automatically close the account if it’s inactive for too long.)
Allow Some Time Before Checking Your Score
Rome wasn’t built in a day, and neither was your credit score. While it can be tempting to constantly check in on your score to ensure it’s trending the right direction, it can take some time for the 10-point dip you noticed to pass — or for the changes you make in your daily habits to reflect in your score.
What is worth checking every day, however, is your spending. Knowing where every dollar you earn is going can give you insight into areas where you could afford to cut back and save more. Using a money tracker app can help.
Closing a Credit Card Account Can Hurt Your Score
As discussed above, closing a credit card account can hurt your score, even if you’ve paid off the card and no longer plan to regularly use it. That’s because having the account open can increase the length of your credit history and also provide you with more available credit, which can help keep your credit utilization low. In short, think twice before you close a credit card account once you pay it off!
What Factors Impact Credit Scores?
According to Experian, these are the factors that affect your credit score and how heavily they’re weighted in the calculation:
• Payment history, which refers to your record of making on-time payments to all of your accounts: 35%
• Amounts owed, which refers to the ratio of money you owe versus your available credit (aka credit utilization): 30%
• Length of credit history, or the average age of your credit accounts: 15%
• New credit, which takes into account the number of recent hard inquiries: 10%
• Credit mix, which favors those who have different types of accounts (a mortgage, auto loan, and credit card rather than only credit cards, for example): 10%
Pros and Cons of Tracking Your Credit Score
Tracking your credit score is one of the best ways to ensure you’re fully informed about what’s going on with your report. It also gives you the biggest leg up on nipping potential fraudulent charges or errors in the bud before they can have a deeply negative impact on your file.
But there are cons, too. For instance, if you’re paying hyper-close attention to your credit score and checking every single day, small, normal fluctuations of 10 points or less could stress you out.
As with everything else in life, the key is balance. Keep track of your score, sure, but don’t obsess over it every single day. This is especially true if you’ve checked your report and ensured it’s free of errors or fraud. Just keep paying your bills on time and avoid overspending, and your score will eventually catch up with your good habits. (A spending app can help you manage budgeting and bill payment.)
How to Monitor Your Credit Score
These days, there are nearly endless ways to keep track of your credit score without having to pay for the privilege. Many credit card companies offer FICO score tracking as a free perk, and you may also be able to access your score via your online bank account.
Keep in mind, though, that your score is not the same as your report, and only viewing your full report gives you the comprehensive details about what factors are going into your score. Examples include payment history, how long your accounts have been open, and how many accounts you even have in the first place. Checking your credit report is the best way to get ahead of fraudulent or erroneous information, so make sure you give them a look at least once a year.
The Takeaway
While a credit score drop of 10 points can be unsettling, in many cases, it’s perfectly normal — and will normalize so long as you continue to maintain your good credit habits. If it’s an unexpected fluctuation, however, it’s worth looking over your credit report for errors or fraud.
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FAQ
Why did my credit score randomly go down 10 points?
There are many reasons why a credit score might drop 10 points, including temporarily increased credit utilization, one or multiple hard inquiries on your file, or a recent account closure. To understand why your score is dropping, it’s a good idea to access your full credit report, which will help you ensure there’s no fraudulent activity or erroneously reported information in your file.
Is it normal for your credit score to fluctuate 10 points?
A credit score fluctuation of 10 points is fairly minimal and often normal, especially for those whose credit histories are younger and slimmer. If you only have a few accounts and they’re all relatively new, even small changes can have a relatively large impact on your score. However, as long as you keep making your on-time payments and avoid running up a large revolving credit card balance, these should automatically neutralize over time.
Why is my credit score going down if I pay everything on time?
Although payment history is one of the largest factors impacting credit score, it’s not the only one. Other reasons you might see your score decrease include a recent account closure, a change in your credit utilization ratio (caused by an account closure or taking out more debt), or a recent spate of hard inquiries on your file.
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