There are a lot of reasons that your credit score could drop 20 points all of a sudden. Your credit score is constantly going up or down by several pints and this is nothing to worry about. 20 points however, usually means something has happened. Here are some possibilities.
1. You charged up a credit card.
One of the biggest score factors is how much of your credit you are using. This is known as credit utilization. If you want perfect credit, you should have your revolving credit balances below thirty percent.
Anything above that level will actually be harming your credit score.
So, one possible reason that your credit score tanked by 20 points or more is that you might have added to your balance. Think carefully, did you put that 200 dollar purse on a credit card or simply allow Visa to pay for a night out?
If this is the case, all that you need to do is pay down your credit card until you get the balance down to where it was or below thirty percent. Once you do that, your score will recover.
Keep in mind that this will take a little time. Once you have paid the balance down, it could take up to 30 days for your creditor to update your balance on the report.
2. You applied for new credit.
Credit inquiries can also have a negative effect on your score. Usually, a single inquiry would not cause a 20 point drop, but multiple inquiries might.
Multiple inquiries make you look risky to a creditor because it looks like you are getting ready to charge up your credit. They do not know if those inquiries will amount to nothing or a bunch of new accounts with balances.
So, did you apply for new credit?
If so, the fi to your score is to wait it out. An inquiry will stay on your report for two years. Don’t panic though, it will stop affecting your in one year and will have diminishing effects up to that point. This means that every month that goes by without anther inquiry, your score should rebound a bit.
3. You closed an account.
Closing an account, even if it is in good standing, can hurt your credit. There are several reasons for that.
First, if you closed a revolving credit account, it could have dropped your available credit. Your balance would have stayed the same but your available credit would have dropped. This would raise your credit utilization and cause your score to drop.
Second, if that account that you closed was one of your older accounts, closing it would lower the average age of your accounts. Creditors like to see a long credit history so lowering the average age would cause a decrease in your credit score.
Finally, closing an account could hurt your score if it reduced the mix of credit. Creditors also like to see a mix of different accounts. This is why people with installment loans like student loans often see a drop in score when they pay off their loans. It reduces the types of credit you have history with and can cause a drop.
If you closed an account, your best bet is to just be careful moving forward. Never close a credit card account unless it has an annual fee. Try to use zero balance accounts once a year to keep them from being closed by the creditor.
Also, if closing your account has increased your credit utilization, consider opening a new revolving credit account or asking your current credit card companies for a credit line increase.
4. You made a late payment.
A late payment will have a pretty drastic effect on a credit score. Usually, a 30 day late payment on a loan payment or other account will drop your score by more than 20 points though.
It is possible for a reduction of that level though if your score is already low. The higher your credit score is, the more a late payment will affect you. The higher you are, the more you have to fall.
Scan your credit report to see if a late payment has been posted to any of your accounts.
To remedy this situation, pay your bills on time from this point forward. If memory is the issue, set up bill email reminders and/or use automatic payments to get the job done. Over the course of the next year or so, you should see your score gradually begin to rise as it recovers from the late pay.
If you believe the late payment was posted in error, contact the creditor in question and also file a dispute with all three bureaus. You should do this in writing and they have thirty days to investigate
Tina’s Final Thoughts
Credit scores are fluid and can vary several points in either direction. Fluctuations of 20 points or more however are usually caused by something. It is a good thing that you caught the change so that you can rectify the situation.
If you do not have a credit monitoring service, you should get one as soon as possible. They are easy to sign up for and can keep you in touch with your credit. Check out services like Credit Karma or Credit Sesame as they are free and quite useful.