Why has my credit score gone down?

There are many factors that could cause your credit score to drop. In this guide, we’ll cover some common things that could cause a dip in your score, and how to avoid them.

What is a credit score?

Your credit score is an indication of how lenders may view you. It’s based on your credit history and is one factor lenders may look at when you apply for credit products such as a loan, mortgage or credit card. Your score is a representation of your ‘creditworthiness’, which means how likely you are to repay money. A higher score could increase your chances of being approved for credit. It could also affect the amount you can borrow and the interest rate that you’ll get.

How are credit scores calculated?

Credit scores are calculated by Credit Reference Agencies (CRAs). In the UK, there are three main CRAs: Equifax, Experian and TransUnion. CRAs gather various information about you, which they keep on your credit report. They then use the information on your report to generate your credit score.

The information gathered by CRAs may be from:

• your payment performance with other credit products you’ve had
• court records (for example county court judgements or individual voluntary arrangements)
• public data (such as electoral roll information)
• organisations that you have held financial accounts with (for example banks, utility companies and lenders)
• other CRAs

CRAs use information like your history of borrowing and paying back money, along with other information from the sources above, to generate your credit score. Lenders may use your score as an indicator of how likely you are to repay them. If your score is low it could make lenders think you are less likely to pay them back. This could lead to lower chances of being accepted for credit.

Do I have one credit score?

The short answer is no. It’s a common misconception that you have one universal credit score. Each CRA has their own individual way of scoring you, which means that your score could be different with each agency.

Lenders use information from one or more of the CRAs when looking at your credit application. However, they also use their own scoring system, which means your credit score might be just one of several factors in their decision-making process.

7 common reasons your credit score may have dropped

1) You’ve recently applied for credit

When you apply for credit, lenders might carry out a ‘hard search’ on your credit report. They do this as part of their assessment of your creditworthiness (how likely you are to pay back the money). A recent hard search on your credit report can have a temporary negative impact on your credit score.

TIP: If you go on to manage your new credit account well (for example by making repayments on time), this could show lenders that you can borrow responsibly. This could lead to an improvement in your score.

2) You’ve applied for lots of credit products in a short time

Whether your applications are accepted or not, having multiple hard searches in a short period of time could harm your score. Lots of applications at once could give lenders the impression that you’re becoming desperate for (or reliant on) credit. This could lead them to decide that it wouldn’t be responsible to lend to you.

TIP: It’s a good idea to spread out credit applications, applying once within a six month period, for instance. You could try to check if you’re likely to be accepted before applying (for example by using price comparison sites that perform ‘soft searches’ - these don’t affect your credit score and other lenders won’t be able to see them on your credit report).

3) You’re close to your total credit limit (on your credit cards)

Lenders will look at how much you’re spending on your credit cards and if you’re close to your limit. This is called your utilisation ratio. Having a high ratio (for example by ‘maxing out’ your credit cards) could signal to lenders that you are overspending or becoming dependent on credit. This could make you appear less likely to repay lenders and lower your score.

TIP: To avoid a negative impact on your credit score, consider keeping your credit utilisation under 30% on your credit cards.

4) You’ve recently moved house

Lenders need to check your address and identity. Registering to vote, therefore appearing on the electoral roll, can improve your credit score because it helps to confirm proof of residence. This could mean that you’re more likely to be approved. If you've recently moved house, updating the electoral register as soon as possible could lower the risk to your credit score.

TIP: You can register to vote online, which usually takes around 5 minutes. You can do this even if you don’t intend to vote.

5) You’ve fallen behind on payments

If a lender or service provider (like a utility company) reports late or missed payments, this could damage your score, and stay on your credit report for up to six years. To lenders, this can look like you cannot manage your finances responsibly, which could make you seem risky to lend to.

TIP: Consider setting up Direct Debits to help make your payments on time.

6) You’ve been a victim of identity theft

If your credit score suddenly plummets it could be a sign that you’re a victim of identity theft. This is when someone steals your personal information and then uses it for financial gain. For example, a fraudster could attempt to apply for credit (like credit cards or loans) in your name.

TIP: Regularly checking your credit report from the CRAs could help you identify fraud on your account. You can check your own credit report as many times as you want, and this won’t affect your credit score. It’s free to check your report and you can use services like Credit Karma, ClearScore and Experian to do this.

7) You’re financially linked to someone with a low credit score

If you have shared finance products with someone else (for example if you’ve opened a joint bank account, mortgage or loan together) then they’ll be your ‘financial associate’. This means that they will appear on your credit report, and lenders can check their credit report too, before deciding whether to lend to you.

TIP: It’s possible to end a financial association. To do this, you’d need to close any shared financial products and then contact the CRAs to ask them to remove the association from your report.

How to check your credit score and report

You can request a copy of your credit report for free from: TransUnion, Equifax and Experian. Remember, you can check your credit report as many times as you want, and this won’t affect your score as it’s a ‘soft search’. It’s worth checking your free credit report with each CRA, as they may hold slightly different information. And it’s generally considered a good idea to check your credit reports before any big applications, to minimise your risk of rejection.

Handling a dip in your credit score

It’s not uncommon for credit scores to fluctuate or slightly drop at times. Generally speaking, seeing a minor drop in your credit score is not always cause for major concern. On the other hand, a significant drop could signal a more serious issue, like missed payments or identity fraud, which should be addressed as soon as possible.

Does a drop in my credit score mean I will be rejected for credit?

It’s worth remembering that lenders use lots of information when deciding whether or not to lend to you. So while your credit scores from the CRAs can give you an indication of how lenders view you, this isn’t always the only factor used in deciding whether you’ll be able to borrow money.

Lenders use lots of information to make their decision. This could include:

• The information that they get from the CRAs
• Information that you provided on your application (such as your income)
• Your history with the lender (how well you managed accounts that you held in the past with the lender)

Overall this means that credit scores can help you get a general view on how lenders may view your creditworthiness, but they are not a guarantee that you will be accepted or rejected.