Why Has My Credit Score Gone Down?

Why Has My Credit Score Gone Down?

This page was last updated on 1 September 2021

Why Has My Credit Score Gone Down In 2021?

Credit scores are used by lenders to decide whether it is safe for them to lend you money. The credit score is calculated by looking at your credit history to predict how you will act in the future.

Organizations that calculate your credit score are called credit bureaus. These organisations collect information on how you have handled your finances in the past. This helps lenders decide whether to issue credit. A low credit score could negatively impact your chances of successfully applying for a loan or credit card.

Some of the key information included in credits reports is:

  • How often you apply for credit
  • How much credit you owe
  • Your payment history
  • The length of your credit history
  • Your mix of credit

Topics that you will find covered on this page

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There are three major credit bureaus in the UK and there may be differences in how they work out your credit score. In this blog post we will go through some of the most common factors, to show a few reasons why your credit score dropped.

Credit scores fluctuate  and you don’t need to panic if your credit report changes slightly. 

But, it is useful to keep an eye on your credit score and to try to work out what may be causing a credit score drop. So when you see that your credit score has dropped ask yourself the following questions:

Do I have late or missed payments?

Payments missed by 30 days will cause your credit score to drop, as these will be reported to your credit bureau.

The longer you leave a payment unpaid or the more often you miss payments, the greater the risk of a low credit score.

Remember credit bureaus work out your credit score by looking at your past financial behaviour.  Credit issuers don’t want to lend to people who have a lot of late or missed payments.

A missed payment will stay on your credit report for seven years. So it is important to keep up with your credit payments to maintain a good credit score. If you have issues keeping up with multiple accounts, why not set up automatic payments?

Has my credit usage changed?

Using a lot more credit than usual, for example making an unusually large credit card payment, will have an impact on your credit score. To work out whether you are using a healthy amount of credit, look at your credit utilization ratio.

To calculate your credit utilisation ratio divide all the money you owe by the credit you have available. A healthy credit utilisation ratio is under 30%.

So, run a quick calculation to check that your credit utilization rate is below 30%. Try to remember whether you have done anything which could suddenly change your credit utilisation rate.

Also, keep an eye on whether your credit card company has reduced the credit limit, as this will change your credit utilization rate. Credit limits depend on factors such as your income, credit history, and whether you have a missed payment.

Remember: lenders will be reluctant to issue credit to a borrower with a high credit usage. This suggests that the borrower will not be able to take on new debt.

Have I taken on new credit?

Have you taken out a mortgage or applied for a new credit card?

When you apply for new credit the lender makes a “hard inquiry”. All this means is that the lender will complete a credit check before deciding whether to lend you money. The hard inquiry will be noted on your credit report, which will make your credit score slightly lower for a short time.

This is because taking on new credit will make your average credit age shorter. The shorter the average age of your credit score, the lower your credit score. This credit check will stay on your credit report for two years. Hard inquiries are somewhat inevitable as you go through life and apply for mortgages, loans and so on

"If you have not paid back your loans in the agreed way, the credit issuer may place a “derogatory mark” on your credit report. The derogatory mark is placed on credit reports where there is a tax lien, a bankruptcy, or a foreclosure."

But, applying for many new lines of credit can cause a significant credit score drop, and lenders may worry whether you are in a position to take on new debt.

To avoid running up unnecessary inquiries, use eligibility checking tools to find out how likely it is that the bank will accept your application.

Have I paid back my loans in the agreed way?

If you have not paid back your loans in the agreed way, the credit issuer may place a “derogatory mark” on your credit report. The derogatory mark is placed on credit reports where there is a tax lien, a bankruptcy, or a foreclosure.

credit score drop

These can very negatively impact credit scores, so let’s go through them:

Bankruptcy is a legal process the borrower starts where they cannot repay the debts they owe and are looking for relief from debt payment. A bankruptcy can lower your credit score for 6 years.

Foreclosure is where your mortgage lender will take possession of your house, because you have consistently missed your payments. A foreclosure will lower your credit score for seven years from the day of the missed payment.

Other financial settlements such as a County Court Judgment and an Individual Voluntary Agreement will also affect your credit score leading to a scores drop.

Remember your credit score is calculated by looking at your past financial history. A lender may consider it risky to lend to someone who has a history of failing to make their payments.

Have I closed a credit card?

Closing a credit card account may cause your credit score to drop. It will remove the available credit on that account, reducing your total credit limit. This in turn makes your credit utilization ratio higher. Closing an old account will also shorten your average credit age which can cause credit score drops.

So, when deciding whether to close a credit card account you should weigh up the benefits and negatives. If the credit card has high annual fees or you have a history of credit card debt, it may be best to close. But if keeping the account open has few financial disadvantages, you could keep it open for the benefit of your credit score.

credit scores drop

Make sure to keep an eye on all of your accounts to make sure that your credit card company has not closed your account without your knowledge.

Credit card companies may close your account after a period of inactivity, late payment, or default without notice. If the account is to be closed for any other reason they must notify you with 30 days to go.

Have I cosigned a loan, a mortgage, or a credit card application?

Have you been avoiding late payments, managing your credit usage, and still your credit scores drop? If you have recently cosigned a new line of credit you may need to take a look at the other person in the picture.

Be sure to monitor whether the other person has late payments or high credit usage, and be ready to have a firm conversation if this is the case.

Your credit score may also be affected by another person if you are signed on as their guarantor or you receive a joint County Court Judgment.

To avoid this problem, apply to have your financial association with the other person removed from your credit report. You are allowed to do this if you do not hold any active accounts together.

Have I recently paid back a loan?

It may sound strange but sometimes your credit score may drop after you have paid back a loan.

This is because paying back a loan may affect your credit mix. Your credit mix is a combination of the different types of accounts in your credit report. Your credit score is higher when you have a range of different accounts (for example mortgages, student loans, credit cards). This is because having a range of different accounts shows that you can handle different types of debt.

While this may cause a dip in your credit score, it is important to pay back your loans on time to maintain a great credit score. Failing to pay back a loan can make your credit score drop significantly. Credit reports can still have strong scores with a smaller credit range.

Is there a mistake or am I the victim of identity theft?

Have you looked at all these questions and still think that there is absolutely no reason why your credit score dropped? It may be that there is a mistake in your credit report. This may mean that your lender has given the credit bureau incorrect information. Contact your credit bureau and check their process on how to apply to get your credit report changed. 

Alternatively, it may  be a sign that you are a victim of identity theft.

Remember to check your credit report regularly to spot any odd activity. For example, check whether any unfamiliar accounts have been opened with your name.

If you believe that there is a mistake in your credit report contact your credit reporting bureau as soon as possible to dispute this. If you think someone has stolen your identity, contact your bank immediately. They will be able to advise you on further steps, for example setting up fraud alerts.

Article author

Katy Davies

I am a keen reader and writer and have been helping to write and produce the legal content for the site since the launch.   I studied for a law degree at Manchester University and I use that theoretical experience, as well as my practical experience as a solicitor, to help produce legal content which I hope you find helpful.

Outside of work, I love the snow and am a keen snowboarder.  Most winters you will see me trying to get away for long weekends to the slopes in Switzerland or France.

Email – katy@helpandadvice.co.uk

LinkedIn – Connect with me

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Frequently Asked Questions

Has my credit usage changed?

Using a lot more credit than usual, for example making an unusually large credit card payment, will have an impact on your credit score. To work out whether you are using a healthy amount of credit, look at your credit utilization ratio.

Do I have late or missed payments?

Payments missed by 30 days will cause your credit score to drop, as these will be reported to your credit bureau. The longer you leave a payment unpaid or the more often you miss payments, the greater the risk of a low credit score.

Have I taken on new credit?

Have you taken out a mortgage or applied for a new credit card?

When you apply for new credit the lender makes a “hard inquiry”. All this means is that the lender will complete a credit check before deciding whether to lend you money.

Have I paid back my loans in the agreed way?

If you have not paid back your loans in the agreed way, the credit issuer may place a “derogatory mark” on your credit report. The derogatory mark is placed on credit reports where there is a tax lien, a bankruptcy, or a foreclosure.

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