Your credit score is a number that’s worked out based on information on your credit file. It helps you track how well you’re managing your money. It’s a good way of knowing how likely you are to be approved for loans or credit cards.
If you’ve been tracking your credit score and have noticed it’s gone down, you’ll want to know why., There are a number of things that could have caused it. Here are 13 reasons why your credit score has gone down.
1. You’ve made late payments on your credit card or loans
If you’re late with just one repayment, your credit score will go down. Your payment history has the biggest impact on your credit score. The more late payments you make, the more your score will drop.
That’s why it’s worth setting up direct debits to make your repayments. You can set them up to go out on the day your salary goes in so you’re less likely to miss them.
2. You’ve maxed out your credit card
Have you spent up to your credit limit on your credit cards? If so, this could be causing your credit score to drop. When lenders view your credit report, they like to see that you’re not desperate for money. Borrowing up to your limit may give lenders concern about whether you’ll be able to take on and repay new debt.
To protect your credit score, pay down any balances you have that are close to or have reached your credit limit. If you can, it’s a good idea to keep your borrowing to 30% or less of your credit limit. Doing this will show lenders that you’re in control of your money and can manage it well.
3. You’ve applied for too much credit recently
Applying for a lot of credit in a short space of time can bring down your credit score. The reason this happens is because, every time you apply to borrow money, the lender checks your credit file. This is known as a hard credit check, and it leaves a mark on your credit. Each hard check brings down your credit score.
Although each hard credit check stays on your credit file for 12 months, the impact it has reduces over time. To reduce the impact your loan applications, have on your credit score, leave long gaps between them. It stops you from looking desperate for money and will help stop your credit score from going down.
4. You’ve closed your old credit cards
You might be surprised to know that closing old credit card accounts can bring down your credit score. Why? There are two reasons.
- Closing a credit card account you’ve had for a while leaves you with just your newer ones. This shortens your credit history which is what lenders use to help them decide whether to lend to you.
- Closing your old credit card accounts reduces the amount of credit that’s available to you. And the more of your credit that you use, the lower your credit score. Keeping your old credit cards open with a zero balance can be helpful. You create a bigger gap between what you owe and your overall credit limit. Not borrowing up to your credit limits helps your credit score.
The one thing to be careful of is that you don’t spend on your old credit card if you keep it open. If you think you’ll be tempted to spend on it, hide the credit card.
5. You’ve defaulted on a loan in the past
When you miss loan payments for a few months, you’ll have a default recorded on your credit file. This could have a big impact on your credit score, especially if the default happened recently.
We know life can get hard at times. But if you find you’re getting into difficulty keeping on top of your repayments, contact your lender. They’ll have ways to help. Budget your money so that you’re not overspending things while you’re paying back your debts. Keeping on top of your repayments is important if you want to keep a good credit score.
6. Your total debt may have increased
Have you recently taken out a new loan? If so, this could be another reason why your credit score has taken a hit. Lenders don’t like to see you borrow more than you can afford. The way they look at this is by comparing the amount you borrow against your income. If your debts are more than what you’ve got coming in, it’ll bring down your credit score.
Try not to borrow more than you need to. Don’t use loans to buy the latest fashions or to go out on a spending spree. You should only get into debt for essential items. Learn to use savings pots to build up the money to buy the things that you don’t need right now.
7. There’s an error on your credit report
Having an error on your credit report isn’t the most common reason for your credit score to go down. But depending on what the error is, it can have an effect. That’s why it’s worth keeping a check on your report. Check your credit report with all three Credit Reference Agencies in the UK. They are:
- Experian
- Equifax
- TransUnion
If you notice something on your credit report that doesn’t seem right, get it changed with the Credit Reference Agency. You can do this by raising a dispute with them.
The Credit Reference Agency will investigate your claim and make any necessary changes to your report. If the error is resolved in your favour, your credit score should go back up.
8 You’ve been declared bankruptcy or have other negative information on your credit report
If you had loans that you haven’t paid back, the lender may have taken legal action to recover their money. This might have been by:
- Declaring you bankrupt
- Repossessing your home
- Registering a County Court Judgement against you
All of these would have been recorded on the public register and would show on your credit report.
If you were struggling, you may have had to take out an Individual Voluntary Agreement. Any of these types of information on your credit report will bring down your credit score.
9. You may not have a long enough credit history
If you’re new to the world of credit or haven’t borrowed money for a while, this leaves you with little or no credit history. Lenders need a credit history to assess how good you are at managing your money. While a long credit history isn’t the only factor that contributes to a high score, it does have an impact. With little or no credit history, your credit score is likely to be low.
10. You may not be registered to vote
Being on the electoral roll helps lenders verify who you are, and it helps to protect against fraud. By making it easy for lenders to identify you, it helps your credit score. If you’ve moved to a new area and haven’t registered to vote at your new address, this’ll bring down your credit score. It’s a good idea to register every time you move home to look after your credit score.
11. You may have changed your address quite frequently
If you’ve moved home a lot over the past few years, it could be the reason why your credit score has gone down. Lenders like to see a stable address history. If you’ve been moving around a lot, it could be having a negative impact your score.
If you’re planning on applying for a loan, it’ll be worth taking some time to update your address history. Make sure it’s accurate as an incorrect address could lead to you being turned down for a loan.
12. You may have experienced identity theft
Identity theft is not a nice experience. It happens when someone uses your personal information to open a credit account or gets access to your bank account without your permission. What’s worse is that this can have a severe impact on your credit history and score. That’s why it’s important to catch it early and get it resolved quickly.
If you suspect that you’ve been a victim of identity theft, you must take action immediately. Get in touch with the bank or lender where your identity was used to get it resolved. Check your credit report and get any unidentified loans or credit cards removed. The longer these fraudulent accounts stay on your credit file, the more harm they’ll do to it.
13. One or more of your credit limits has decreased
A decrease in your credit limit can bring down your credit score in two ways:
- It reduces the gap between what you owe and the credit limit you have
Using up all the credit that’s available to you doesn’t help your credit score. You need to show you can manage your borrowing. You can do this by keeping the amount you borrow to around 30% or less of your overall credit limit.
- It signals to lenders that you may be experiencing financial difficulties
When you reduce your credit limit, it could be a sign that you had to do it as you’re struggling to manage your money. It can make lenders less likely to approve your credit applications. If they do offer you any lending, it might be at a higher interest rate.
What’s next?
It can be disheartening to see your credit score take a hit for no apparent reason. But in most cases, there’s a good explanation for why your score has gone down. The best thing to do is to keep track of your credit score. It’s easy to do. Simply sign up to the Credit Reference Agencies free accounts and you’ll be able to see your credit score. There are credit monitoring services that let you do the same thing.
If you see your credit score go down, take action straight away to get it back up again. Looking after your credit score is important as it helps you manage the financial side of your life.
Why would my credit score drop for no reason?
It can come as a surprise when your credit score drops for seemingly no reason. Especially if you haven’t done anything different recently. But your score wouldn’t drop without good reason.
- One explanation why your credit score has suddenly gone down is because of an error in your credit file. Although it’s rare, a lender might have reported a mistake in their update to the Credit Reference Agency. If this has happened, contact the lender directly to get them to change it. Let the Credit Reference Agency know about the error too by raising a dispute with them.
- Another possibility is that the way the Credit Reference Agency works out your credit score has changed. If this is the case all you can do focus on improving your credit score to get it back up again.
- If there’s been fraudulent activity on any of your accounts, it could impact your credit score. You’ll notice it if accounts have been opened in your name that you know nothing about. They’ll appear as your debt unless you get them removed.
As soon as you see a drop in your credit score check your credit report to find out why it’s changed. There will always be a reason for it and by knowing what that is, you can take action to improve it.
Conclusion
When you’re trying to look after your credit score it can be frustrating to see it go down. But once you understand why it’s changed you can correct what’s caused it. The key is to keep a close check on it. That way, if anything does cause it to change you can quickly do something about it.
A good credit score will help make managing your money easier. It’ll help you when you want to borrow any money. By knowing what can make it go down, you can avoid it from happening.
Disclaimer: Any information provided in this article does not constitute financial advice. Please read carefully about the terms and conditions of the credit provider from where you take out a loan from. External websites linked in this article are for reference only and are correct at time of publishing.
