It's not a big drop, but it may be annoying to see.
It's a good idea to have a sense of what your credit score looks like at all times. The higher that number, the more likely you are to get approved for a new credit card or loan. And if you're taking out a large personal loan or a mortgage, a strong credit score could spell the difference between being offered a favorable interest rate and a more expensive one.
At times, you may notice that your credit score has taken a hit -- even if you didn't do anything careless, like skip a bill or pay it very late. But there's a good reason why you might notice a five point drop in your credit score. And for the most part, it's really nothing to worry about.
What causes a minor credit score decline?
If you're delinquent on a bill or rack up a very high balance on your credit cards, then you might see your credit score drop quite a bit. If you're only seeing a five-point drop, however, then chances are, it's because of a hard inquiry on your credit report.
Whenever you apply for a new loan or credit card, the lender or company in question will pull your credit report to make sure you're not too risky a borrower. When this happens, it's considered a hard inquiry.
Usually, a hard inquiry will cause your credit score to drop by about five to seven points -- sometimes a little bit more. And so, if you see that your score has taken a mild hit, there's a good chance it's because you recently applied to get a new credit card, finance a car, refinance a mortgage, or borrow money in some other way.
Should you worry about a five-point credit score drop?
In most situations, a five-point drop in your credit score won't impact you in any way. Say your credit score is an 815, and it takes a five-point hit. A score of 810 is still considered exceptional, so that's not something to lose sleep over.
Furthermore, let's say your credit score is 680, which is considered good but not excellent. If your score drops to 675, you're still in that same category. With a good credit score, you're likely to get approved for a loan. However, you may not qualify for the lowest interest rate a given lender is offering. But chances are, five points won't make a difference there.
Now in some situations, a five point drop in your score could have an impact. It takes a minimum credit score of 620 to qualify for a conventional mortgage. If your score is sitting at 620 and it drops by five points, you may need to wait to apply for a home loan and work on bringing that number up. But most of the time, a five point decline isn't something to stress over -- especially if you have great credit to begin with.
How to avoid a modest credit score drop
If you don't want to see your credit score sustain any damage, make a point not to apply for any new loans or credit cards for a while. But rather than fixate on avoiding a move that might result in a five point drop, a better bet is to work on boosting your credit if it clearly needs work.
That could involve paying off a chunk of existing debt to lower your credit utilization ratio and paying incoming bills on time to establish a more favorable payment history. If you're able to raise your credit score by 100 points, you'll buy yourself more leeway to withstand a five point drop without worry.
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FAQs
Credit scores can drop due to a variety of reasons, including late or missed payments, changes to your credit utilization rate, a change in your credit mix, closing older accounts (which may shorten your length of credit history overall), or applying for new credit accounts.
Why would my credit score drop by 5 points? ›
Reasons why your credit score could have dropped include a missing or late payment, a recent application for new credit, running up a large credit card balance or closing a credit card.
Why has my credit score gone down by 5? ›
Key points on why your credit score could go down
Things like new credit applications and missed payments may impact your credit score. You may be able to improve your credit score in a number of ways, including making sure you're on the electoral register, managing accounts well and limiting new credit applications.
Why did my credit score go down 5 points when nothing changed? ›
Closed accounts and lower credit limits can also result in lower scores even if your payment behavior has not changed. However, if you are certain it is for no reason, check to be sure there is not a mistake in your credit reports or that you're not a victim of identity theft.
How do you investigate a drop in credit score? ›
Check Your Credit Report
You can use the "see what's changed" feature to easily spot new information on your report. It points out updates to your overall debt level; the opening and closing of accounts; changes to your total credit card borrowing limit; new inquiries; new collection accounts and more.
Why did my credit score randomly drop 6 points? ›
Credit scores can drop due to a variety of reasons, including late or missed payments, changes to your credit utilization rate, a change in your credit mix, closing older accounts (which may shorten your length of credit history overall), or applying for new credit accounts.
Who do I contact if my credit score dropped? ›
Anytime you notice inaccuracies on your credit report, you should immediately contact the credit bureau.
What is a big drop in credit score? ›
It's common for credit scores to fluctuate in small increments. However, if you see a large drop of at least 15 to 20 points, you should find out the cause. This can help you determine whether it fell based on your actions, a credit reporting error or possibly identity theft.
Why is my credit score going down if I pay everything on time? ›
It's possible that you could see your credit scores drop after fulfilling your payment obligations on a loan or credit card debt. Paying off debt might lower your credit scores if removing the debt affects certain factors like your credit mix, the length of your credit history or your credit utilization ratio.
How do I contest a credit score drop? ›
If you identify an error on your credit report, you should start by disputing that information with the credit reporting company (Experian, Equifax, and/or Transunion). You should explain in writing what you think is wrong, why, and include copies of documents that support your dispute.
The good news is that many credit score dings are temporary and can be easily recovered. And oftentimes, actions like paying off a loan or applying for a new credit card will benefit you in the long term once you get past the initial fluctuation.
Why does my credit score fluctuate by a few points? ›
Think of it as a moving target. It is calculated based on the most recent and up-to-date credit information available. It could change every day because lenders, collection agencies and public records are reporting new data. Even the passage of time could cause your credit score to fluctuate.
What is a normal credit score drop? ›
According to FICO data, a 30-day missed payment can drop a fair credit score anywhere from 17 to 37 points and a very good or excellent credit score to drop 63 to 83 points. But a longer, 90-day missed payment drops the same fair score 27 to 47 points and drops the excellent score as much as 113 to 133 points.
Why did my credit score suddenly drop 100 points? ›
For your credit score to drop 100 points at once, you're most likely talking about being 90 days late or more on a loan or credit card payment you're on the hook for. Believe it or not, a single late payment could cause damage in that ballpark, especially if your credit score is higher to begin with.
Why is my credit score low when I have no debt? ›
You have little or no credit history
This is referred to as having “thin credit” and can give you a lower score than you'd like. Thin credit can mean you have a low credit score, despite having no debt. Your score is based on your credit history in the UK over the past six years or so.
