Why has my credit score gone down?

Your credit score is a complex metric, with a multitude of factors that shape it. These are some of the most common reasons you may have recently seen a drop in your credit score.

You’ve Missed a Payment

Making timely repayments on credit cards and loans is one of the most important things you can do to keep your credit score healthy. On the other hand, missing a payment can quickly send your credit score into free-fall and can be visible on your credit file for as long as six years.

To learn more about how missing a payment impacts your credit score, check out our guide on the topic.

Your Credit Utilisation Ratio Increased

Credit scoring formulas place a lot of emphasis on your credit utilisation ratio, which refers to how much of your available credit you are using. It is calculated by dividing your total outstanding balances by your total available credit.

A lower utilisation ratio signals to lenders that you're managing your credit responsibly and aren't overly reliant on borrowed money.

For example, if you have a total credit limit of £1,000 and you're using £500, your credit utilisation ratio is 50%.

Credit experts recommend keeping your utilisation below 25% of your total available credit, and ideally under 10% for the best impact on your score. A credit utilisation ratio above 25% can have a negative impact on your credit score, so double check that you’re making payments before your account's balance reaches that point.

You’ve Recently Moved

While the act of moving itself doesn’t negatively impact your credit score, there are a few things associated with moving that can affect your credit:

1. Electoral roll registration: Credit reference agencies use the electoral roll’s database to verify your identity, including your address. If a lender finds a discrepancy between your information on a credit application and your information on the electoral roll, it could make them hesitant to lend to you. To keep your credit score in good shape, update your information on the electoral roll after you move.
2. Additional credit checks: If your landlord checks your credit as a part of their affordability check, this could briefly damage your credit. Similarly, utilities and service providers might run checks of their own before starting service.

Keep in mind that these drops in your credit score are short-lived in most cases. If your credit has been in good health, you can expect it to return in time.

You Applied for a New Line of Credit

When you apply for a new line of credit (like a credit card or loan), your lender will pull a hard credit check. This can cause a brief dip in your credit score because it can indicate that your credit situation could be about to change.

Typically, a hard search’s impact is short-lived, and your score should recover within a year if you haven’t added any other negative markers. However, keep in mind that having multiple hard credit searches pulled in a brief period can lead to a larger decrease.

You Opened a New Account

One factor that influences your credit score is how old your credit is. This is important for your credit score because of what it tells lenders: the longer you’ve had credit going, the longer they can see how you’ve handled it.

Opening a new account will lower the average age of your credit accounts, which can have a negative impact on your credit score. However, if you make regular payments, this impact should fade with a bit of time.

You Closed an Old Account

If you close an old account, such as a bank account that you don’t use anymore, this can cause a dip in your credit score.

One of the factors that influence your credit score is how old your credit is. This is important for your credit score because of what it tells lenders: the longer you’ve had credit going, the longer they can see how you’ve handled it. Closing an old account will lower the average age of your credit accounts, which can have a negative impact on your credit score. 

Another factor that influences your credit score is credit mix. Having a mix of credit can tell lenders that you’re able to manage different types of credit responsibly. If you close an old account, you could be left with a single type of credit and can can indicate which creates an imbalance in your credit mix.

If you maintain healthy credit habits, your credit score will likely recover from these drops over time. The key thing to keep in mind is that although you might not use an account or card, it will contribute to your credit score as long as it’s open. So if there are no annual fees or late payments, keeping old accounts open is usually beneficial.

You No Longer Have a Revolving Credit Account

A revolving credit account is a type of credit where you're given a set credit limit. The most common example is a credit card.

This means when you open a new revolving credit account, you receive an additional credit limit. This increases your total available credit, which can lower your credit utilisation ratio if you maintain the same level of debt.

A revolving credit account impacts your credit score significantly because it is closely tied to the factors that most influence your credit score, like payment history and credit utilisation ratio, which can give credit reference agencies a clearer picture of how well you manage debt over time. Non-revolving credit accounts such as phone contracts and small loans don't have a credit limit so they don’t impact your credit utilisation ratio.

Without a revolving credit account, you miss the opportunity to demonstrate your ability to maintain a low utilisation ratio, make on-time payments, and handle short-term borrowing and repayment. It also reduces your credit mix, which can lower your score because it shows lenders that you haven’t demonstrated the ability to manage different types of credit.

You Received a CCJ

A CCJ (County Court Judgment) is a legal judgment issued by a court when you fail to repay money you owe, usually after multiple missed payments. It’s seen as a major red flag to lenders, as it suggests you didn’t resolve the debt with the creditor and required legal action. This shows poor financial management, which can severely impact your creditworthiness. A CCJ remains on your credit report for six years, even if you repay the debt in full. 

If you received a new CCJ, you have to act quickly:

• If you don't owe the debt, you must notify the court immediately. If you have strong evidence, the court may agree to remove the CCJ from the Public Register.
• If you pay off the debt in full within one month of the judgment, the CCJ can be removed from your credit report.
• If you pay after one month, the CCJ will still appear but will be marked as "satisfied," which is slightly better than leaving it unpaid, but it will still impact your score for six years.

By monitoring your credit score, you can notice drops when they happen and more easily identify what caused it. From there, you’ll know what actions you can take to improve it.