Why Did My Credit Score Drop? 5 Possible Reasons and How to Fix Them

Hey, credit heroes. Have you ever checked your credit score and found that it dropped by 20, 50, or even 100 points for no reason at all? Well, today I'm going to reveal the causes of these mysterious drops and what you can do about them. So you better stick around. My name is Daniel Rosen, and welcome to Credit Repair Business Secrets. Over the years, I've had a lot of people reach out to me in a panic because their scores dropped by 50 or 100 points overnight. In my experience, when one of these sudden and unexpected credit score drops happens, most people assume it's a sign of a financial disaster. They think it's a major bank error like the one that almost cost me my house, or they think it's a sign of fraud. And while that sometimes is the case, more often than not there is a simple explanat and the problem can be easily fixed. The key is to not panic. And if you act calmly and quickly to review your credit report and identify the cause, you can address the issue and bounce back fast. Here's how this relates to us. For anyone new to credit repair, the factors determining your credit score are usually split into five payment history, credit credit utilization, length of credit history, new credit, and credit mix. Changes to any of these factors can cause your credit score to drop. When a drop is sudden and unexpected, there are several common reasons why. The first is a reporting error. 79% of all credit reports have errors, and different errors can do different levels of damage to score. For example, if a payment was incorrectly reported as late or an account had the wrong balance details, it can cause an unexpected sudden drop. The second is an account that you didn't know about that went to collections. If, for example, you have medical debts that you didn't know about or thought that your insurance company already paid, your score can take a steep drop when that debt goes to collections. The third is identity theft. If someone opens a line of credit in your name, maxes it out, and then doesn't pay the bill, that's a serious problem. The sudden drop in your credit score becomes a blessing in disguise because it acts like an alarm, letting you know to review your credit report immediately. The fourth is credit utilization. Other than a reporting error, it's the most common reason for credit scores to drop unexpectedly. The good news is that it's the easiest problem to fix. An example of this just happened to a friend of mine. My friend recently called me because her credit score dropped 56 points overnight. She said she worked for over a year to boost her score from the 500s to the 700s. She had a few credit cards, but her utilization was below 30%. She was paying her bills on time and she didn't apply for any new lines of credit. So we pulled up her three bureau report and we reviewed it looking for errors and signs of fraud. But everything looked normal except for one thing. One of her credit card balances was much higher than the previous month. In fact, most of her credit cards had zero balances and the only one with a balance was nearly maxed out. I asked her about it and she said she used the card to pay for a trip, but she thought that was okay because she already made her first month minimum payment and her overall utilization was still below 30%. Bingo. I explained that even though her overall credit was below 30%, that 30% was all on one card and the high credit utilization on the one card was probably the reason why her score dropped. I warned her about the trap of making minimum payments and I helped her to form a plan of action. She adjusted her repayment strategy. I had her apply for credit limit increases on her card, especially that one. And guess what? Her scores were back above 700 within a month. Here's a thing to remember. Credit scores are very sensitive to certain types of changes. Payment history and credit utilization alone makes up 2/3 of your entire credit score. So even if you think you're doing everything right, all it takes is one or two minor changes to your recent activity to trigger a drop. Although these sudden drops in credit scores can be scary, the sooner you respond and pinpoint the cause and address it, the faster you can recover. The cause of an unexpected credit score drop determines the solution. If you review your reports, know how credit scores work, identify the cause, and take simple actions to resolve the issue. You can bounce back and avoid any serious long term effects. If you aren't applying for credit or making a major purchase anytime soon, you might think an unexpected 50 point drop is not a big deal. But until you learn the cause of the drop, you don't know how serious the situation is. Every month, your credit profile has new information reported. Any negative items added to the report can damage your financial health and they need to be investigated immediately, especially if it's from out of nowhere. Here's what you need to know. If you find yourself in a situation where your credit score drops suddenly and unexpectedly, there are five simple steps for how to respond. Step 1 Review your credit reports for any new negative items that could drop your score. If you know your credit score dropped, you probably already have access to your most recent credit reports, but if you don't, you can request free copies@annualcreditreport.com when you have your reports, compare them and note any changes, increased balances, new late payments, collection accounts, or hard inquiries that you weren't expecting. Step 2 if you notice any reporting errors, even if they aren't the cause of the unexpected drop, flag them and begin the dispute process immediately. And if you're thorough, you might end up with a higher credit score than the one that you started with. If you see an error that you don't know how to dispute, you can scroll through my channel and find a video that tells you exactly how to remove it. Step 3 if you see any suspicious activity or names or addresses that you don't recognize, or accounts that you don't remember opening, that may be a sign of fraud or identity theft and you want to report that immediately. For more information, check out my episode on how to respond to identity theft in eight simple steps. Step 4 Reduce the amount of available credit that you use, also known as your credit utilization. You want to get it below 30% overall and if possible, reduce it to below 30% of each line of credit. Paying down credit card balances and requesting credit limit increases will help reduce your utilization rates. Step 5 Hold off on applying for any new credit until your score recovers. To avoid further hard inquiries, check your credit score monthly to to make sure that it rebounds. You should see improvements within one or two billing cycles. If you stay calm and act quickly and follow these steps, you can minimize any long term damage and get your credit score back on track fast. And if you want 6 months of credit repair cloud software for free plus access to our advanced disputing and business courses, go to creditrepaircloud.com and sign up for our masterclass. Here's my final point. An unexpected credit score drop can be scary, but with some credit knowledge and a plan of action, you can undo the damage just as fast. Don't let a minor setback keep you from reaching your credit goals and I'll end by saying if you want to learn how to spot errors and dispute them even faster, check out my episode Credit Report 101. And if you'd like to get certified in disputing and gain confidence and grow your very own credit repair business, check out our Credit Hero Challenge. Doors are closing soon, so sign up right now@creditherochallenge.com and start changing lives.