Why has my credit score gone down?

Daniel Timblick, Senior Credit Risk Analyst, Thursday, 29 June 2023
Updated: Tuesday, 2 January 2024

If you’ve recently checked your credit score and been surprised to see that it has gone down, you’ll probably be wanting to know why. Figuring out the cause of the drop can help you decide what to do next and take action to improve your credit score going forwards.

In this guide:

What is a credit score?

A credit score is a number that shows your ‘creditworthiness’. This is an indication to potential lenders of how likely you are to make your repayments on time and in full, based on your financial history.

Your credit score differs between the three credit reference agencies (CRAs) in the UK:

  • Experian’s range goes from 0-999
  • Equifax’s range goes from 0-1000
  • TransUnion’s range goes from 0-710

As the CRAs have different scoring models, it’s important to know that your credit score isn’t one set number. It will be different depending on which CRA you check with.

Having a higher credit score is an indicator that you might be more likely to get approved for credit. If you are considering applying for credit or car finance, your credit score is one of the factors that lenders use to assess your application.

Learn more about credit scores with help from our guide – what is a credit score?

Why has my credit score gone down?

There are lots of reasons why your credit score could have dropped or you may have bad credit. We’ll explain some of the most common reasons:

Missing or late payments

A missing payment is different from a late payment. A late payment is where you have paid your bill late, but before the next billing cycle, while a missed payment is where you completely miss a month’s bill altogether. Both can cause your credit score to go down.

To avoid affecting your credit score, you should ensure you make repayments in full and on time. Setting up a direct debit can help to make sure all your payments go out on time and can prevent you from missing any payment dates.

If you are struggling to make your payments, contact your lender and they will be able to discuss the options available to you.

Applying for credit too often

If you’ve recently applied for multiple forms of credit or have applied for one kind of credit multiple times, you might have seen a drop in your credit score. Applying for credit too often can make it seem that you are reliant on borrowing money.

Many lenders use a hard credit check when you apply for finance. Having lots of hard checks may cause your credit score to drop. According to Credit Karma, a hard search can lower your credit score and can stay on your credit report for 12 months, so it might be best to limit how many applications you make to not drastically affect your credit score.  

Before applying for finance, you could do some research to see which lenders use a hard search and which use a soft search. If you’re still not sure, some lenders may have an eligibility checker which can give you an indication of how likely you are to be accepted.

Other lenders have affordability calculators, for example, you could use a car finance calculator to get an idea of how much your monthly payments could be before you make an application.

Financial difficulties

Missed payments and falling into arrears will impact your credit score. Further financial difficulties might have a greater impact on your score, including the following:

CCJ

A County Court Judgement (CCJ) can be issued against you if you fail to repay the money that you owe.

If you pay off your debts immediately, the CCJ won’t appear on your credit report, although any defaults that have resulted in a CCJ will still be visible on your report. If your CCJ does appear on the Register of Judgments, Orders and Fines, then it will remain on your credit report for up to 6 years, even if you pay off the debt during this time.

A CCJ will usually reduce your credit score, and it can be difficult to get credit while you have one. If you’re looking for car finance with a CCJ, you might find it hard to get approved by mainstream lenders and have to use a specialist lender such as Moneybarn.

Representative 30.7% APR.

IVA

An Individual Voluntary Arrangement (IVA) is a legal agreement you can make with your creditors, which will allow you to pay back any outstanding debts over a set period of time, usually through monthly payments.

An IVA will appear on your credit report for up to 6 years. Your credit score will likely decrease because of an IVA, and you might struggle to get accepted for a loan or finance agreement.

If you are currently in an IVA and looking for car finance, it can be difficult to get approved by a lender. You would also have to get approval from your insolvency practitioner, as you can only take up to £500 without their written approval.

Bankruptcy

Bankruptcy is a way for individuals to deal with debts that they cannot afford to pay, usually as a last resort if other ways of managing debt aren’t suitable.

When bankruptcy is declared, creditors can no longer take legal action to recover any debts owed. They must also stop adding interest or additional charges and can no longer contact you for payment.

If you have declared bankruptcy, this will stay on your credit report for up to 6 years and will be visible to lenders when applying for a loan or finance agreement, potential employers, or even landlords before letting you a property.

Closing accounts

Closing a credit account can impact your credit score, especially if the account being closed is older. Credit reference agencies consider the age of credit accounts you have. Closing an older one will usually lower your credit score.

It may also affect your credit utilisation ratio, which can also negatively affect your credit score. We’ll explain what credit utilisation is later on.

When the account is removed from your credit report, the credit limit will also be removed from your report. This can increase your average credit utilisation based on the remaining credit you have. Having a higher credit utilisation may cause your credit score to drop.

Moving home often

If you move address regularly, you might find it harder to get finance. Having a stable address history shows stability, and frequently moving homes can cause your credit score to drop.

Also, if you aren’t already registered on the electoral roll, you will find it harder to get credit. For more information, see the UK Government’s page which explains how you can register.

Decrease in credit limit

You might decide to reduce your credit limit, or the lender might have lowered it for you for example on a credit card. This might cause your credit score to drop. This is because it will increase your credit utilisation and it will reduce the amount of credit you have available to you.

Being financially linked to a bad borrower

If you are financially linked to someone (such as a partner or family member), their bad borrowing could affect your credit score. If they have missed payments of have taken out lots of credit in a short space of time, even though it has nothing to do with you, it could affect your credit score.

If it’s appropriate for your situation, you could apply for a ‘notice of disassociation’ to show future lenders that you are no longer connected with this person.

Inaccurate information

Checking your credit report regularly and with the three main CRAs (Experian, Equifax, and TransUnion) can help to identify and resolve mistakes.

Wrong information might impact your credit score, so if you spot a mistake, contact the credit reference agency and they should be able to resolve it.

Being close to your credit limit

Your credit score is affected by your credit utilisation.

Credit utilisation is the percentage of credit you use, out of the total amount available to you. For example, if you use £400 of the £1000 available on your credit card, your credit utilisation would be 40%.

A low credit utilisation can help show lenders that you can handle credit responsibly and that you aren’t reliant on it. Experian recommends that you use no more than 30% of the credit available to you.

Having a high credit utilisation could negatively affect your credit score, so if your score has dropped recently, you might want to check what your credit utilisation is.

Is a drop in credit score something to worry about?

A drop in your credit score might indicate a change in your situation, but a slight drop of a few points might not be anything to worry about. This is because your credit score might fluctuate naturally over time, as you use, repay, and apply for new types of credit.

If you notice a large drop and none of the factors above apply to you, you might want to check your credit file with each of the credit reference agencies to check there isn’t any incorrect information affecting your credit score.

Why is a good credit score important?

Having a good credit score shows lenders that you can handle credit responsibly. It can also help increase your chances of getting finance. You might also have access to more lending options and might be offered more favourable interest rates.

If you have a bad credit score, there are some things you can do that might improve your credit score, which can help when applying for credit. These include ensuring you make your payments on time and in full which can show you are a reliable borrower. For example, if you needed a new car so you got car finance, and you make your monthly repayments on time and in full, this may be an instance in which car finance may improve your credit score.

FAQs about why your credit score has dropped

There will always be a reason why a credit score has dropped. Checking that your credit report is accurate and exploring the reasons listed above should help you identify the cause.

The most common reasons why your credit score could have dropped include a missing or late payment, a recent application for new credit, or closing a line of credit such as a credit or store card.

For example, if you pay off and close a credit card, your credit score could drop even though you’ve been repaying it on time. Closing it decreases your total available credit and could result in your overall credit utilisation increasing.

Also, if you regularly max out your credit, even if you pay it on time your credit utilisation will be high. Using a high percentage of credit available can show that you are desperate for credit, so it’s best to try and keep your credit utilisation below 30%.

Your credit score will naturally go up and down. This happens as you repay credit, build your credit history, and apply for new credit. Each of these things, and other factors that we explained earlier, may affect your credit score.

Whether or not you have a good credit score will differ depending on what credit reference agency you are using:

  • Experian: a good score is 881-960 while an excellent score is 961-999
  • Equifax: a good score is 671-810 while an excellent score is 811-1000
  • TransUnion: a good score is 604-627 while an excellent score is 628-710

The above information on Experian, Equifax, and TransUnion credit ranges is accurate as of 15 May 2023.

There is no set answer to the question of what credit score is needed for car finance, but as with all lenders, having a good credit score may improve your chances of being accepted. Car finance providers will also take multiple other factors into consideration, like the car you are looking to finance, your income, and affordability.

If you’ve recently checked your credit score and been surprised to see that it has gone down, you’ll probably be wanting to know why. Figuring out the cause of the drop can help you decide what to do next and take action to improve your credit score going forwards.

In this guide:

What is a credit score?

A credit score is a number that shows your ‘creditworthiness’. This is an indication to potential lenders of how likely you are to make your repayments on time and in full, based on your financial history.

Your credit score differs between the three credit reference agencies (CRAs) in the UK:

  • Experian’s range goes from 0-999
  • Equifax’s range goes from 0-1000
  • TransUnion’s range goes from 0-710

As the CRAs have different scoring models, it’s important to know that your credit score isn’t one set number. It will be different depending on which CRA you check with.

Having a higher credit score is an indicator that you might be more likely to get approved for credit. If you are considering applying for credit or car finance, your credit score is one of the factors that lenders use to assess your application.

Learn more about credit scores with help from our guide – what is a credit score?

Why has my credit score gone down?

There are lots of reasons why your credit score could have dropped or you may have bad credit. We’ll explain some of the most common reasons:

Missing or late payments

A missing payment is different from a late payment. A late payment is where you have paid your bill late, but before the next billing cycle, while a missed payment is where you completely miss a month’s bill altogether. Both can cause your credit score to go down.

To avoid affecting your credit score, you should ensure you make repayments in full and on time. Setting up a direct debit can help to make sure all your payments go out on time and can prevent you from missing any payment dates.

If you are struggling to make your payments, contact your lender and they will be able to discuss the options available to you.

Applying for credit too often

If you’ve recently applied for multiple forms of credit or have applied for one kind of credit multiple times, you might have seen a drop in your credit score. Applying for credit too often can make it seem that you are reliant on borrowing money.

Many lenders use a hard credit check when you apply for finance. Having lots of hard checks may cause your credit score to drop. According to Credit Karma, a hard search can lower your credit score and can stay on your credit report for 12 months, so it might be best to limit how many applications you make to not drastically affect your credit score.  

Before applying for finance, you could do some research to see which lenders use a hard search and which use a soft search. If you’re still not sure, some lenders may have an eligibility checker which can give you an indication of how likely you are to be accepted.

Other lenders have affordability calculators, for example, you could use a car finance calculator to get an idea of how much your monthly payments could be before you make an application.

Financial difficulties

Missed payments and falling into arrears will impact your credit score. Further financial difficulties might have a greater impact on your score, including the following:

CCJ

A County Court Judgement (CCJ) can be issued against you if you fail to repay the money that you owe.

If you pay off your debts immediately, the CCJ won’t appear on your credit report, although any defaults that have resulted in a CCJ will still be visible on your report. If your CCJ does appear on the Register of Judgments, Orders and Fines, then it will remain on your credit report for up to 6 years, even if you pay off the debt during this time.

A CCJ will usually reduce your credit score, and it can be difficult to get credit while you have one. If you’re looking for car finance with a CCJ, you might find it hard to get approved by mainstream lenders and have to use a specialist lender such as Moneybarn.

Representative 30.7% APR.

IVA

An Individual Voluntary Arrangement (IVA) is a legal agreement you can make with your creditors, which will allow you to pay back any outstanding debts over a set period of time, usually through monthly payments.

An IVA will appear on your credit report for up to 6 years. Your credit score will likely decrease because of an IVA, and you might struggle to get accepted for a loan or finance agreement.

If you are currently in an IVA and looking for car finance, it can be difficult to get approved by a lender. You would also have to get approval from your insolvency practitioner, as you can only take up to £500 without their written approval.

Bankruptcy

Bankruptcy is a way for individuals to deal with debts that they cannot afford to pay, usually as a last resort if other ways of managing debt aren’t suitable.

When bankruptcy is declared, creditors can no longer take legal action to recover any debts owed. They must also stop adding interest or additional charges and can no longer contact you for payment.

If you have declared bankruptcy, this will stay on your credit report for up to 6 years and will be visible to lenders when applying for a loan or finance agreement, potential employers, or even landlords before letting you a property.

Closing accounts

Closing a credit account can impact your credit score, especially if the account being closed is older. Credit reference agencies consider the age of credit accounts you have. Closing an older one will usually lower your credit score.

It may also affect your credit utilisation ratio, which can also negatively affect your credit score. We’ll explain what credit utilisation is later on.

When the account is removed from your credit report, the credit limit will also be removed from your report. This can increase your average credit utilisation based on the remaining credit you have. Having a higher credit utilisation may cause your credit score to drop.

Moving home often

If you move address regularly, you might find it harder to get finance. Having a stable address history shows stability, and frequently moving homes can cause your credit score to drop.

Also, if you aren’t already registered on the electoral roll, you will find it harder to get credit. For more information, see the UK Government’s page which explains how you can register.

Decrease in credit limit

You might decide to reduce your credit limit, or the lender might have lowered it for you for example on a credit card. This might cause your credit score to drop. This is because it will increase your credit utilisation and it will reduce the amount of credit you have available to you.

Being financially linked to a bad borrower

If you are financially linked to someone (such as a partner or family member), their bad borrowing could affect your credit score. If they have missed payments of have taken out lots of credit in a short space of time, even though it has nothing to do with you, it could affect your credit score.

If it’s appropriate for your situation, you could apply for a ‘notice of disassociation’ to show future lenders that you are no longer connected with this person.

Inaccurate information

Checking your credit report regularly and with the three main CRAs (Experian, Equifax, and TransUnion) can help to identify and resolve mistakes.

Wrong information might impact your credit score, so if you spot a mistake, contact the credit reference agency and they should be able to resolve it.

Being close to your credit limit

Your credit score is affected by your credit utilisation.

Credit utilisation is the percentage of credit you use, out of the total amount available to you. For example, if you use £400 of the £1000 available on your credit card, your credit utilisation would be 40%.

A low credit utilisation can help show lenders that you can handle credit responsibly and that you aren’t reliant on it. Experian recommends that you use no more than 30% of the credit available to you.

Having a high credit utilisation could negatively affect your credit score, so if your score has dropped recently, you might want to check what your credit utilisation is.

Is a drop in credit score something to worry about?

A drop in your credit score might indicate a change in your situation, but a slight drop of a few points might not be anything to worry about. This is because your credit score might fluctuate naturally over time, as you use, repay, and apply for new types of credit.

If you notice a large drop and none of the factors above apply to you, you might want to check your credit file with each of the credit reference agencies to check there isn’t any incorrect information affecting your credit score.

Why is a good credit score important?

Having a good credit score shows lenders that you can handle credit responsibly. It can also help increase your chances of getting finance. You might also have access to more lending options and might be offered more favourable interest rates.

If you have a bad credit score, there are some things you can do that might improve your credit score, which can help when applying for credit. These include ensuring you make your payments on time and in full which can show you are a reliable borrower. For example, if you needed a new car so you got car finance, and you make your monthly repayments on time and in full, this may be an instance in which car finance may improve your credit score.

FAQs about why your credit score has dropped

There will always be a reason why a credit score has dropped. Checking that your credit report is accurate and exploring the reasons listed above should help you identify the cause.

The most common reasons why your credit score could have dropped include a missing or late payment, a recent application for new credit, or closing a line of credit such as a credit or store card.

For example, if you pay off and close a credit card, your credit score could drop even though you’ve been repaying it on time. Closing it decreases your total available credit and could result in your overall credit utilisation increasing.

Also, if you regularly max out your credit, even if you pay it on time your credit utilisation will be high. Using a high percentage of credit available can show that you are desperate for credit, so it’s best to try and keep your credit utilisation below 30%.

Your credit score will naturally go up and down. This happens as you repay credit, build your credit history, and apply for new credit. Each of these things, and other factors that we explained earlier, may affect your credit score.

Whether or not you have a good credit score will differ depending on what credit reference agency you are using:

  • Experian: a good score is 881-960 while an excellent score is 961-999
  • Equifax: a good score is 671-810 while an excellent score is 811-1000
  • TransUnion: a good score is 604-627 while an excellent score is 628-710

The above information on Experian, Equifax, and TransUnion credit ranges is accurate as of 15 May 2023.

There is no set answer to the question of what credit score is needed for car finance, but as with all lenders, having a good credit score may improve your chances of being accepted. Car finance providers will also take multiple other factors into consideration, like the car you are looking to finance, your income, and affordability.

 
Daniel Timblick, Senior Credit Risk Analyst
Bringing you guides that simplify the world of credit and answer common vehicle finance questions.
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