Why Has My Credit Score Gone Down? [9 Top Reasons]

Why has my credit score gone down? This question can leave you feeling puzzled and worried. Your credit score helps lenders judge your financial health. It can make or break your chances of getting loans.

When your score drops, it can affect many aspects of your life. Have you seen your credit score fall recently? Or do you just want to know what might cause it to drop? This guide will help you understand credit reference agencies, credit accounts, and credit reports.

9 reasons why your credit score has gone down

There are many reasons for a credit score drop. Here are 9 common factors that can affect your credit score:

1. Increased credit card spending

Too much credit card spending can lead to high debt. This can hurt your credit score in the long run. When you max out your cards or can’t make payments on time, your score suffers.

High balances compared to your credit limit raise your credit usage. This makes up a big part of how your credit score is calculated. Credit reference agencies see high usage as a sign you might be in money trouble.

To keep a good credit score, try to keep your card balances low. Pay them off fully each month if you can. This shows you’re handling your money well and can help boost your score over time.

2. Missed or late payments

Your payment history is very important for your credit score. Missing payments or paying late can hurt your score a lot. Credit reference agencies track your payment habits closely. They update your credit report when you miss or delay a payment.

To lenders, missed payments are a warning sign. Financial difficulties missing payments may make them think you can’t or won’t pay your debts. Making payments on time is key to keeping a good credit score.

Late or missing payments on loans, credit cards, mortgages, or household bills can harm your score for up to six years. Even one late payment can cause your score to drop, especially if you had a clean record before.

3. Increased credit utilisation ratio

Your credit utilisation ratio shows how much of your available credit you’re using. You find this by dividing what you owe on your cards by your total credit limit. A high ratio can hurt your credit score.

For example, if you have £10,000 total credit limit and you’re using £5,000, your ratio is 50%. Credit reference agencies prefer to see this below 30%. This shows you’re not too dependent on credit.

Even if you pay your balance in full each month, high usage when your statement is made can still lower your score. Try to keep your credit utilisation ratio below 30% of your total credit limit.

4. Recent credit applications

When you apply for new credit like a loan or credit card, lenders check your credit. These checks are recorded on your credit report as “hard searches.”

One check may only slightly affect your score. But applying for many loans leads to many checks. If these happen in a short time, lenders get concerned.

Many credit applications might suggest money problems. This could make you seem risky to lenders. Repeated credit searches in a short period can greatly reduce your score.

To protect your score, only apply for credit when you really need it. If you’re looking for a specific loan, try to do all your shopping around within a short time (14-45 days). Some scoring models count multiple similar checks in this period as just one check.

Consider using eligibility checker tools that do “soft searches“. These don’t affect your credit score.

5. Negative information on a credit report

Your credit report shows your credit history. It includes marks like defaults, County Court Judgments (CCJs), individual voluntary agreements, or dealings with debt collectors. These bad marks can greatly hurt your score. They make you look like a less reliable borrower.

Such negative information usually stays on your credit file for up to six years. During this time, your score may be lower. You might find it harder to get credit or be offered worse terms.

If you have negative marks on your report, address them quickly. Contact your creditors or debt collectors. Discuss payment options or try to reach a settlement.

Once you’ve fixed the issue, make sure it’s marked as “satisfied” on your report. This won’t remove the entry, but it shows lenders you’ve dealt with the problem. They may view this more favourably.

6. Closing old accounts

Closing an old credit account might seem like a good money move. But it can hurt your credit score in several ways:

1. Less credit history: The average age of your credit accounts matters for your score. When you close an old account, especially one you’ve had for years, you might shorten your credit history. A longer average credit age generally helps your score.
2. Higher credit usage: Closing accounts reduces your total available credit. If you keep the same balances on your other cards, your overall credit utilisation goes up. This can lower your score.
3. Less credit variety: Having different types of credit accounts can help your score. Closing accounts may reduce the mix of credit you have.

If you’re thinking about closing an old account, consider how it might affect your score. It might be better to keep it open with zero balance or minimal use. This is especially true if it’s one of your oldest accounts and has no annual fee.

7. Recent change in address

When you move, it takes time for your new address to be updated across all your accounts. This transition period can temporarily affect your credit score:

1. Address checking: Lenders use your address to verify who you are. A new address hasn’t been established in your credit history yet. This might raise some flags temporarily.
2. Electoral register: Being registered to vote at your address helps confirm your identity to lenders. If you haven’t updated your registration at your new address, this could affect your score.
3. Address links: Your new address might have past financial ties to previous residents. If those people had poor credit, it could temporarily impact your score until records are updated.

Update your address with all your financial companies quickly. Make sure you’re on the electoral register at your new address. This can help avoid problems and reduce the negative impact on your score during your move.

8. Wrong information on your credit report

Errors in your credit report can hurt your score. These errors can range from wrong personal details to incorrect account information. Common errors include:

1. Accounts that aren’t yours: Sometimes accounts belonging to someone with a similar name might appear on your report.
2. Duplicate accounts: The same account might be listed twice, making it look like you have more debt than you do.
3. Paid debts shown as unpaid: Debts you’ve already paid might still show as outstanding.
4. Wrong late payment records: Your report might show late payments when you actually paid on time.
5. Outdated information: Negative items that should have been removed might still be on your report.

Check your credit report regularly to find any errors. If you find mistakes, you can raise a data dispute with the relevant agency to fix them. This is called filing a dispute. Credit reference agencies must investigate and respond to these disputes by law.

9. Having an account with someone with bad credit history

If you share a bank account, mortgage, or other credit product with someone who has poor credit, it can harm your score. When you open a joint account with someone, you create a “financial link” with that person. Their credit behaviour can affect how lenders view you.

Late payments, high credit usage, or defaulted payments on shared accounts can all lower your score. Even if the account is managed well, just being linked with someone who has poor credit can make lenders more cautious about lending to you.

For example, if you share a joint account with someone at the same address who has court judgements or a history of missed payments, lenders might see you as higher risk by association.

Be careful when entering joint credit agreements. Make sure that both people are responsible and good at managing the shared accounts.

If you’ve separated from a partner or no longer share finances with someone, you can request a “financial disassociation” from the credit reference agencies. This removes the link from your credit file.

How to fix your credit score when it goes down

Now let’s look at steps you can take to reduce credit risk. These will help you regain control of your finances and improve your credit profile.

1. Review your credit report

Get a copy of your credit report from each of the major credit reference agencies: Equifax, Experian, and TransUnion. Check the information carefully to make sure it’s correct. Look for any errors or signs of fraud.

When reviewing your report, pay close attention to:

• Personal information (name, address, birth date)
• Account information (balances, payment history, credit limits)
• Credit applications
• Public records (like CCJs or bankruptcies)
• Financial associations

If you spot any errors, contact the credit reference agency right away to dispute the information. Each agency has a process for investigating and fixing errors. Checking your report regularly helps you stay informed and address any issues.

You can get a free statutory credit report from each agency once a year.

2. Pay your bills on time

Making payments on time is one of the most important factors for a good credit score. Make sure you pay all your bills, loans, and credit cards promptly. Consistently making timely payments on your credit accounts is crucial for a good score.

Set up payment reminders or direct debits to avoid missing due dates. This helps you stay on top of your financial duties. Building a history of consistent, on-time payments shows you’re reliable. This positively affects your credit score over time.

Remember that it’s not just credit accounts that matter. Missing payments on utility bills, phone contracts, and household bills can affect your score if the companies share data with credit reference agencies. Regular payments across all your financial commitments help build good credit history.

3. Avoid frequent credit applications

As mentioned earlier, multiple credit applications in a short time can raise red flags for lenders. Be selective when applying for new credit and only do so when necessary.

Before applying, research and compare different options. This helps you choose the best fit for your needs. Consider using eligibility checker tools that do soft searches rather than hard searches. These let you see your chances of approval without affecting your score.

By reducing the number of hard credit searches on your report, you can help keep your score stable. If you’re shopping for a specific type of credit, try to complete all applications within a short period (ideally within 14 days). Multiple similar inquiries in a short time may be treated as a single inquiry by some scoring models.

4. Build a diverse credit mix

Having different types of credit can positively influence your score. It shows you can handle various forms of credit responsibly. Consider diversifying your credit with a mix of:

• Credit cards
• Personal loans
• Mortgage (if applicable)
• Retail accounts
• Other credit accounts

A healthy mix of credit types shows your ability to manage various forms of credit. This can boost your score. However, opening new accounts just to improve your credit mix may not help, especially if you can’t manage them well.

Focus on building a natural and diverse credit history over time, rather than forcing it. Quality is more important than quantity for credit accounts.

5. Address negative remarks

If you have bad marks on your credit report, like defaults or CCJs, it’s important to address them. Contact the relevant parties to discuss payment options or negotiate settlements. Once resolved, keep records and ask for updates to your credit file.

For defaulted payments, try to settle the debt and ask the creditor to mark it as “satisfied” on your report. This won’t remove the entry, but it shows you’ve taken responsibility for the debt. Lenders may view this more favourably.

For more serious issues like CCJs, pay the debt within one month of the judgment to have it removed from your file. If you pay after this period, it will stay on your record but will be marked as “satisfied.” This is better than leaving it unpaid.

Remember that negative information typically stays on your file for six years. Addressing these issues promptly can help your score recover more quickly.

6. Manage your financial associations

Financial links, such as joint accounts or shared credit, can impact your score. If you’re linked to someone with poor credit, reducing or ending these ties may help improve your score.

Check your credit report to identify any financial associations. If you’re no longer financially connected to someone (for example, after a relationship ends), you can apply for a financial disassociation from the credit reference agencies. This removes the financial link between you and the other person. Their credit behaviour will no longer affect your score.

Be careful when closing joint accounts. This should be done with agreement from all parties to avoid potential financial difficulties.

7. Protect your identity

Identity theft can severely damage your credit score. If someone fraudulently uses your identity to open credit accounts or make purchases, it can lead to missed payments and high debt that harm your rating.

Check your credit report regularly for any unauthorised access or suspicious activity. Look for accounts you don’t recognise, inquiries you didn’t authorise, or addresses where you’ve never lived.

Consider these security measures:

• Use strong, unique passwords for all financial accounts
• Enable two-factor authentication where available
• Update your devices and software regularly
• Be careful about sharing personal information online
• Shred financial documents before throwing them away
• Be aware of phishing attempts

If you think you’ve been a victim of identity theft, report it right away to the relevant agencies, your bank, and the police. The faster you act, the less damage it can do to your credit score.

How long does it take for your credit score to recover?

The time it takes for your credit score to recover after a drop depends on many factors. These include the reason for the drop and the actions you take. Recovery times vary based on:

• How severe the negative factor is
• Your overall credit history
• How quickly you take action
• Your ongoing credit behaviour

The good news is that recent information typically has more impact on your score than older information. As you build good credit habits, your score can gradually improve even if past negative items remain on your report.

Remember that your credit score won’t recover overnight. It takes patience and consistent positive financial behaviour over time. Focus on the factors you can control, such as making payments on time, keeping credit usage low, and fixing any errors on your report.

Understanding what affects your credit score

Different aspects of your financial behaviour affect your credit score in different ways. Understanding the weight of each factor can help you focus your efforts:

1. Payment history (35%): Making payments on time is the most important factor. Even one missed payment can greatly impact your score.
2. Credit usage (30%): How much of your available credit you’re using is the second most important factor. Keeping this below 30% is best.
3. Length of credit history (15%): The average age of your accounts, the age of your oldest account, and how recently you’ve used certain accounts all contribute to this factor.
4. Credit mix (10%): Having different types of credit (cards, loans, mortgages) can positively impact your score. It shows you can handle various forms of credit responsibly.
5. New credit applications (10%): How many new accounts you’ve opened recently and how many hard inquiries are on your report affect this portion of your score.

While these percentages give a general guideline, the exact formula credit reference agencies use is private and may vary. Focus on maintaining good habits across all these areas for best results.

Conclusion

A good credit score is important for getting favorable financial deals. However, if you notice a drop in your credit rating, don’t panic. Understanding why has my credit score gone down and taking wise action can help you manage your finances and improve your credit over time.

Remember that your credit score isn’t fixed, it reflects your ongoing financial behaviour. By addressing the factors that caused your score to drop and consistently practicing good credit habits, you can rebuild your credit and achieve a strong profile.

Whether your score dropped due to missed payments, high credit usage, or errors on your report, taking proactive steps to address these issues will put you on the path to credit recovery.

FAQs

Disclaimer: The information given above is provided for informational purpose only. This is not financial advice.