8 Reasons Your Credit Score Dropped and What to Do

Michelle B. says: “I normally don't worry much about my credit score and I don't need to use it for anything right now. But my FICO score for June was 785 and now for July, it's 747. I didn’t do anything different that I can recall. I don’t have a mortgage or any debt and I’m never late on bills. I reviewed my credit reports in the past six months and didn’t see any red flags on them. Can you help me understand why this drastic change occurred and if I should be worried about identity theft?”

Michelle, thank you for this question. I know that seeing your credit score drop suddenly and for no apparent reason can be frustrating. In this post, I’ll explain why scores fluctuate and when you should be worried about a drop. I’ll also cover tips to boost your scores quickly, so an unexpected credit score dip won’t hurt your finances.

What Affects Your Credit Score?

One of the biggest misconceptions about credit is that you only have one credit score, such as FICO. While FICO is a popular type of score, there are actually hundreds of different credit scoring models that are used by mortgage lenders, credit card issuers, insurers, and merchants. There are even multiple types and versions of FICO scores.

Each scoring model uses a complicated algorithm to evaluate you based on the information in your credit reports at the nationwide credit bureaus: Equifax, Experian, and TransUnion. The higher your score the less risky you appear to potential creditors and merchants.

Here are the ranges for some popular credit scores:

• FICO Mortgage Score: 300 to 850
• FICO Auto Score: 250 to 900
• FICO Bankcard Score: 250 to 900
• VantageScore: 501 to 990
• TransUnion: 300 to 850

In addition to having different score ranges, each scoring model puts emphasis on different factors. For instance, having a missed payment on an auto loan might be weighed more heavily when factored into an auto scoring model.

The exact formula that a credit scoring company uses is kept confidential. However, FICO says they use the following factors and weights as a baseline:

• Payment history (35%) - such as late payments, accounts in collections, and bankruptcies affects your score the most. Making payments on time is a critical factor for maintaining good credit.   
• Amounts owed (30%) - is also known as credit utilization, which is the amount of debt you have compared to your available credit. Using a smaller percentage of your available credit boosts your score.
• Age of credit history (15%) - is how long you've had credit accounts open. Having older accounts improves your...

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