With the ease of services like Credit Karma and Credit Sesame, it’s easier than ever to go online to check your credit score. Fluctuations of a few points up or down, say, from 720 to 725, or 680 to 670, are normal, but a sudden massive drop of 30 or more points could be cause for concern. What do you do if you find your credit score has dropped drastically overnight?
First, you have to figure out why your score dropped so you can figure out what to do. There are only three factors that can cause a sudden decrease in your credit score: you didn’t pay your bills, you’re using too much credit, or there’s a security issue. That’s according to Adam Levin, a cybersecurity expert who spoke at CardCon, a conference about the credit card industry that I attended last week.
Let’s break down each one of those potential culprits so you know what to do if you check your credit score online only to find it far lower than you anticipated.
You didn’t pay your bills
Check your inbox and that pile of mail on the kitchen table for any unpaid bills that may have slipped past.
Since credit card issuers, lenders and other companies report your payment status to the credit bureaus monthly, you often have a little leeway with a late bill before it hurts you. But any late payment beyond 30 days is fair game to show up on your credit report. Your credit report will not show your score, but it shows all of the information that’s used to calculate that score, including seriously delinquent bills.
If you haven’t used up your three free passes for the year (one from each of the three major credit bureaus), go to AnnualCreditReport.com to pull a fresh one. If the culprit of your score drop is unpaid debt, you’ll see it on the payment record for the account in question.
If you’ve used up your freebies, a free credit monitoring service will note whether your accounts are in good standing.
What to do: If one of your financial accounts is showing up delinquent when you swear you paid the bill, check with that lender or utility to check your status. If that’s all clear, you can dispute the error on your credit report. If you truly didn’t pay your bills, it’s time to get caught up ASAP. You may see an instant boost to your score by a few points as soon as the lender reports that you’ve paid up, but it could take several months before your score fully recovers.
You’re using too much credit
The second-biggest chunk of your credit score, after your payment history, comes from credit utilization, or how much debt you have. If your ratio of credit used (balances on credit cards, for example) to credit available (what the limit is for all your cards put together) is too high, your credit score will drop. Experts say to keep your utilization below 30%, and the lower that ratio is, the better your score will be.
If you recently put a large purchase on a credit card or recently took out a new loan, you’re likely to see your score drop.
What to do: As you pay your balances down, your score will go back up. If you can pay off large balances in full, that’ll provide the fastest boost to your score and you’ll see that change within three months (delinquencies often show on your credit report faster than paid loans).
When you pay off a credit card, don’t close it! Having that credit available makes you look very attractive to future lenders, and the lower your utilization is, the stronger your score will be.
There’s a security issue
Go back to that credit report you pulled. See anything unusual? An account you don’t remember opening, or a credit card bill that seems unusually high? You may be the victim of identity theft.
What to do: First, call the credit card company or other lender to report the fraud or theft. You’ll want to place fraud alerts on all your other financial accounts. You should file a police report, contact the Social Security Administration and the IRS to report suspected identity theft, and file a police report.
Getting everything straightened out and back to normal will likely take months, so buckle in for a frustrating ride. In the meantime and long after the problem has been fixed, you’ll need to be vigilant, monitoring each of your financial accounts for delayed fraud activity.
If everything looks legit on your credit report, take a moment to make sure your identity and credit are protected from fraudsters by freezing your credit with each credit bureau—it’s free!—to make sure no one opens new credit accounts in your name, and by setting up security alerts with each of your credit card issuers. It may seem like the most boring task now, but it can give you major peace of mind in a world ripe with data breaches.
You’ll have to unfreeze that credit whenever you want to make a big purchase with new credit, and freezing doesn’t prevent criminals from stealing your current credit card info. For that, see if your card issuer allows you to lock your card, which you can do as often as you wish online or through your card’s app. Doing so prevents anyone—including you!—from making purchases on your card unless you unlock it.