You don’t need to panic if you notice a drop in your credit score. It is pretty normal to see small score changes, whether it is a drop or an increase. This is because credit report details are updated on a regular basis, all of which can affect your score.

This can also be because of the fact that a single definitive credit score doesn’t exist. Credit scores may change a bit based on the credit reporting agency that calculated them and the scoring model used. However, if the drop in your credit score is big or significant, it can be the result of other reasons.

During the calculation of credit scores, different information and details taken from your credit report regarding your finances are being used. These will include several factors such as your history of payment, the current amount you owe, the number of open accounts you have, and your credit utilization.

This means that if your score drops, it is possible that there was a change in one of those or one of the other various factors that can affect credit scores.

Below are some of the common reasons why credit scores may drop:

Your Credit Report Has Derogatory Remarks

Foreclosures, overdrafts, late payments, and bankruptcies are considered as negative information or derogatory remarks. These may hurt your score if your credit report has listed these things. A record of these things may also remain on your credit report for several years.

You Got a High Credit Utilization

When you speak of credit utilization, this is the measure of the amount of available credit that you are using. This is often referred to as credit utilization ratio although this is usually expressed in the form of a percentage. If you use more of the available credit you have, the more chances that it will have a negative effect on your credit score.

You Have Applications for New Credit

An application for new credit can also affect your credit score. This is because new credit applications create a hard inquiry and this may remain on your credit report for a maximum of two years. Also, having several credit applications within a short span of time may be seen by lenders as a red flag. These applications may indicate that there is a change in your financial situation and this may put a significant dent on your credit score.

The Drop is the Result of Your Payment History

It is only normal for people to miss a payment every now and then. If you got a positive and long history of payment, this might not be a big deal. However, if you miss payments or you are late several times, it will likely end up hurting your credit score.

Always remember that there are numerous factors that may affect your overall credit score. This means that improving only one factor may not boost your credit score if you don’t pay attention to the rest of the factors as well.