Why did my credit score drop?

Finding out that your credit rating has dropped can be a bit of a shock to the system. It can also affect your ability to get a loan or other finance. But how does it happen? And what can you do about it? Here’s what you need to know.

Written by

The Editorial Team

Experts in personal finance, insurance and utilities

Posted

19 APRIL 2022

5 min read

Why has my credit score gone down?

If you find out that your credit score has dropped, don’t panic – many credit rating drops are only temporary. Having said that, it’s important to find out why it happened. That way, you can hopefully do something about it.

What factors affect my credit score?

To understand why you suddenly have a lower credit rating, you need to know what factors can impact your credit score. Here are some of them:

Late payments
Missing a loan repayment or direct debit will adversely affect your credit score. That’s why you should always make payments on time, if you can.
Getting too close to your credit limit
Just because you can spend lots of money on credit cards, or using an overdraft, doesn’t mean you should. If you find yourself creeping ever closer to your credit limit, lenders may take it as a sign that you’re in financial difficulties.
Having no credit history
Students and young people sometimes find themselves landed with lower credit scores simply because they don’t have a credit history. This may seem unfair, but it’s because you haven’t yet proved your creditworthiness to lenders. Taking out a finance agreement, like a phone contract or credit card, can actually help boost your credit rating.
Setting up lots of new accounts and credit cards
Opening a new bank account or entering into any kind of credit agreement may cause a temporary drop in your credit rating. But applying for lots of new accounts and credit cards will have a bigger impact on your score and ability to get credit.

What happens when you miss a payment?

If you miss a payment on your loan, credit card or mortgage, then lenders will record it as a default on your account. This is bad news for your credit rating and may mean you struggle to get credit in future.

Will making mortgage and credit card applications affect my credit score?

Applying for a mortgage or credit card won’t in itself cause issues with your credit rating. But if you apply for lots of mortgages and credit cards within a short time, these applications will show on your credit report and will put off other lenders, who’ll take it as a sign that you’re struggling financially.

Ideally, you want to make sure your credit rating is in a good place before you apply for any credit. That way you’re putting your best foot forward and maximising your chances of being accepted.

When you use our credit card eligibility checker or loan eligibility checker we’ll show you cards and loans you’re likely to be accepted for before you apply. We carry out what’s called a soft search, which doesn’t leave a mark on your credit record, so you can compare without damaging your score.

Will closing a credit card affect my credit rating?

You wouldn’t think that cancelling an unused credit card could negatively impact your credit score, but it might. If it means you end up spending more on other credit cards, you’ll be using a higher proportion of your available credit – known in the business as credit utilisation – which could be flagged on your credit report.

One way around this is to keep your credit cards open, even if you don’t use them. If you want to simplify your finances and close down your credit card, it’s better to close a new one than an older one, as older cards show you have a longer credit history, which can positively impact your credit score.

What happens if the information on my credit report is wrong?

Errors on credit reports are rare, but they do happen: for instance, if your bank makes a mistake with your account balance.

If you think there’s inaccurate information on your credit rating, you should contact the bank or credit card provider that made the error and ask them to update their records. If that doesn’t help, contact the credit reference agency. They’ll have a process for looking into and correcting possible mistakes.

What’s a good credit score range?

In the UK, there are three main credit rating agencies (CRAs). These are Experian, Equifax and TransUnion. They each have different assessment criteria and different measures of scoring, so there’s no one good credit score. For a score to be ‘good’ or ‘excellent’, it will be in the upper range of whatever system the CRA uses.

How will a poor credit rating affect me?

If your credit rating drops too much, there’s a few ways it might affect you. You may be:

Charged higher interest rates
Offered lower credit limits
Refused credit
Offered a smaller choice of mortgages and loans

Frequently asked questions

What are soft and hard credit checks?

Whenever you apply for finance or a loan, the lender will take a detailed look at your credit report. This is called a hard credit check and it will leave a mark on your credit report and could affect your credit score. This is one reason why you should avoid applying for lots of credit at once.

A soft credit check is carried out when a lender shows you if you’re eligible for a loan, before you’ve actually applied. This type of check doesn’t show up on your credit report and won’t affect your credit score.

What should I do if I’m refused credit?

If you’re refused a loan, mortgage or credit card, be patient. Wait a little while – two or three months, if you can – before applying for more credit. During this time, check your credit score and, if possible, take steps to improve it.

What’s credit utilisation?

Credit utilisation is a way of describing how much of the overall credit available to you that you use. Basically, if your credit card has a limit of £2,000, but your balance is £1,000, then your credit utilisation is 50%. Ideally, you should try to keep yours below 30%.

Looking for a credit card?

Compare credit cards quickly and easily. Use our eligibility checker to find a credit card deal that suits you – and find out if you’re likely to be approved without it affecting your credit score.

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