6 second take: Checking your credit score can be daunting, but it’s more important than ever to be keeping a close eye on your credit.

If you’re wondering why your credit score dropped, then take heart. You’re not alone. I still remember the day I received a notification that my score had dropped 30 points. I’ve never felt so judged by an email in my life.

There are a number of factors that impact your credit score. Some are small and can’t be helped, but others could cause your score to drop by over 100 points.

6 Possible Reasons Your Credit Went Down

If you want to improve your credit score, you need to know what’s causing your credit score to drop in the first place. Below are some of the most common reasons why you may be seeing a credit score drop on your account.

1. Your Credit Utilization Ratio Went Up

One of the most likely reasons that your credit went down is that your credit utilization went up.

Your credit utilization is a ratio of how much of your available credit you’re using. You can easily calculate it by taking your total credit card account balances and dividing it by your total credit limit. Then multiply that number by 100. This will give you the percentage of credit that you’re using.

Lenders pay special attention to your credit utilization because it represents risk.

If someone is using 100 percent of their available credit, they are likely in a bad situation with their finances. Compare that to someone who is using 10 percent of their credit limit.

Your credit score is a measure of how risky you are in the eyes of a lender. Therefore, the lower your credit utilization is, the better your credit score will be.

Anything over 30 percent will usually cause a credit score drop. The closer you get to 100 percent usage, the bigger the impact will be. If you can keep this ratio under 30 percent, then you’ll be in good shape.

If your credit utilization ratio is over 30 percent, there are a few things you can do to lower it.

• Create a budget and lower your monthly spending.
• Make frequent payments on your credit cards. This will lower the amount of debt you have at any one point.
• Request a credit limit increase on your current credit cards.

2. You’ve Missed a Payment

Your payment history is the single most important factor when it comes to calculating your credit score. It contributes up to 35 percent of your FICO® score and is one of the most common reasons that you may be seeing a credit score drop.

Your credit score is basically a grade of how likely you are to be able to pay back your debt on time.

A late payment is a big black mark on your credit history.

There is some good news, though. Your payment will only count as late if it was made 30 or more days past the due date. According to FICO® data, this could cause your credit score to drop by 90 to 110 points. The longer you take to make your payment, the more your credit score will continue to fall.

Not only will the missed payment cause your credit score to drop, but you’ll also get hit with a late fee and be stuck paying interest on your account balance. These missed payments could stay on your account history for up to seven years.

The easiest way to avoid missing payments is to automate them. If you have the means, try setting up your bank account to automatically pay off your credit card balance before the due date. That way you’ll never have to worry about a missed payment again.

3. You’ve Recently Applied for More Credit

Whenever you apply for a loan or a new line of credit, the company lending you money will usually run a credit report to check out your trustworthy you are. This will create a hard inquiry (also known as a hard pull) on your account history.

These hard inquiries will stay on your credit report for up to two years, but they are pretty low impact. These new inquiries will hurt temporarily, but lenders like to see a variety of accounts when they run your credit. As long as you aren’t applying for several lines of credit in a short amount of time, then any drop in your credit will quickly reverse.

Be warned though, these hard pulls will affect your credit even if you don’t end up taking on a loan or signing up with the new credit card.

Applying for new lines of credit will temporarily hurt your score, but the increased credit limit is actually a good thing for your credit score.

Assuming that you don’t increase your spending, then your utilization ratio will drop, which will likely help your credit score.

The hard inquiries will eventually roll off your report and you’ll have an older, more diverse set of accounts.

4. A New Derogatory Mark Hit Your Credit Report

If you’ve had a major drop in your credit score, then you may have had a derogatory mark hit your credit report. A derogatory mark will cause your credit score to drop more.

Here are the most common derogatory marks:

• Defaulting on loans: Occurs after 120 to 180 days of non-payment on loans.
• Collections: After 120 days, your lender may sell your loan to a collections agency, which will create a derogatory mark.
• Bankruptcies: A declared bankruptcy will stay on your credit report for seven to 10 years.
• Foreclosures or repossessions
• Tax liens: When you fail to pay your taxes, the government puts a lien against your house.
• Civil judgments: Any lawsuit that results in you owing a debt to a plaintiff.

These derogatory marks can stay on your credit report up to seven to 10 years, but their negative effects go down over time.

It’s good to get in the habit of checking your credit every few months to make sure there are no derogatory marks hitting your account.

5. You Closed One of Your Credit Cards

If you’ve recently closed one of your credit cards, then that is most likely the reason your credit score went down.

You might be surprised to hear that, but closing a credit card can actually hurt your credit score in two ways.

Closing the card would lower your total available credit. If the amount of credit you use each month stays constant but your limit goes down, then this will cause your credit utilization to go up.

Closing an old card can also negatively impact the age of your account history. This plays a smaller role in your credit score, but it’s important to keep in mind.

As long as your credit card doesn’t have an annual fee, you may be better off locking it away and never using it instead of closing it out. You’ll keep your credit limit high, and it won’t cause a drop in your age of account history.

6. You Paid Off a Big Loan

If you’ve recently paid off a big loan, congratulations! Paying down your debt is one of the best things you can do to improve your financial situation.

You might be surprised to hear, but paying off a loan (student, auto, mortgage, etc.) could be a reason your credit went down. When you pay off a loan, that is one less account on your credit report. Lenders like to see diversity and several different account types. By eliminating one of those accounts, your credit score may take a small dip.

Credit Score FAQs

If your dropping credit score still worries you, the following questions and answers may give you some peace of mind.

How Do I Check My Credit Score for Free?

Most credit experts recommend checking your credit report at least once a year (and your credit score more often than that) to make sure you don’t have any outstanding issues or derogatory marks. The last thing you want is for someone to steal your identity and take out a loan in your name.

More than one in five Americans have experienced identity theft, and 30 percent of cases involve credit card fraud. Checking your credit report more often is one of the easiest ways to protect yourself.

If you want to check your credit score for free, try signing up for a free credit reporting tool like Credit Sesame. The Credit Sesame app is one of the best tools on the market for checking your credit score for free. They update your score regularly and even provide tips on how you can improve your credit score.

Why Did My Credit Score Go Down When Nothing Changed (For No Reason)?

Credit scores have a lot of moving parts. The question of why a credit score drops for no reason commonly surfaces. But remember that there is a reason behind each movement in your credit score, and that something did change. Understanding the reasons could help you avoid them in the future.

Why Did My Credit Score Drop After Paying Off Debt?

As previously discussed, 30 percent credit utilization is the absolute maximum before it will negatively affect your credit score. But not as commonly heard of, a nonexistent credit utilization can also hurt your credit score. The result of paying off debt quickly may lead to a slight drop in your credit score.

Credit Scores are Important, But They Aren’t Everything

Maintaining and building your way to a great credit score is an awesome goal. It will help you save money on interest, qualify for rewards credit cards, and these days employers often run a credit report on potential candidates.

If you make on-time payments, check your score regularly, and avoid some of the big mistakes outlined here, then your credit score will improve over time.

While your credit score is an important piece of the financial picture, your time will be better spent paying down your debt, managing your budget, and investing for the future than agonizing over small changes in your credit score.