Why Did My Credit Score Drop? Common Reasons in Canada

When a credit score falls, the cause is almost always something that changed on your credit report: a higher balance, a new inquiry or account, a late payment, a lower limit, a closed account, or an error. Equifax and TransUnion each keep their own report and calculate their own score, so the two can move differently from the same event. This page lists the common causes, how to work out which one applies to you, and what doesn’t affect a score at all. It is one of our credit score guides; for the factors behind every score, see how credit scores are calculated.

The common causes of a drop

A higher balance was reported

The most common cause of a sudden drop, and the quickest to reverse, is a higher balance relative to your limit. Card issuers usually report the balance on your statement, so a large purchase made before the statement closes can show as a high balance even if you pay it in full a week later. The Financial Consumer Agency of Canada (FCAC) notes that lenders can see heavy use of available credit as risk, which “may happen even when you pay off your debts in full every month.” When the next statement reports a lower balance, the score usually recovers. Credit utilization explains the ratio and the statement-date timing.

Your credit limit was lowered

A lower limit with the same balance raises your utilization at once, even though you owe nothing more. Issuers lower limits after account reviews, during long inactivity or when your profile changes; why your credit limit decreased covers the reasons and what you can ask the issuer.

A hard inquiry was added

Applying for a credit card, loan, mortgage or line of credit usually adds a hard inquiry, which can lower a score a little. FCAC says Equifax keeps inquiries for 3 years and TransUnion for 6. When you shop for a car loan or mortgage, FCAC advises getting quotes “within a 2-week period. Credit bureaus treat these as 1 inquiry.” How long a hard inquiry stays on your credit covers the effect over time, and soft vs hard credit checks explains which checks count.

You opened a new account

A new account lowers the average age of your accounts. FCAC’s example is a new card opened for a balance transfer: “This may reduce the average age of your accounts and lower your credit score.” The effect fades as the account ages.

A payment was reported late or missed

A late or missed payment is one of the most damaging items on a report, and FCAC says information about late or unpaid credit cards and loans stays for up to 6 years. A failed automatic payment, a changed bank account or a forgotten small balance can produce a late payment you weren’t aware of. What happens if you miss a credit card payment covers how and when a missed payment is reported.

An account was closed

Closing a card, or having an issuer close an inactive one, removes its limit from your total available credit, which raises utilization on your other cards, and can eventually shorten your credit history. Does closing a credit card hurt your credit score covers when it matters and when it doesn’t.

A derogatory item was added

Other negative items that can appear include:

• A collection account. FCAC lists “accounts that lenders send to collection agencies” among the negative information bureaus keep. Your rights with debt collectors covers how collections work.
• A court judgment. FCAC: “Credit bureaus usually keep judgments on your credit report for 6 years,” longer at TransUnion in some provinces.
• A consumer proposal or bankruptcy, which stays for years after it ends; how long bankruptcy and proposals stay on your report gives the periods by bureau and province.
• A charge-off, where a lender writes off an unpaid debt.

Your credit mix changed

Paying off and closing your only instalment loan (a car loan, for instance) leaves a file with fewer types of credit. FCAC notes that “You may have a lower credit score if you only have 1 type of credit product.” The effect is usually small and isn’t a reason on its own to keep a loan open.

There’s an error on your report

Accounts belonging to someone with a similar name, a paid debt still shown as owing, a closed account reported as open, a duplicated account or a wrong payment rating can all lower a score. An account or inquiry you don’t recognize can also be a sign of identity fraud. How to dispute a credit report error covers the process with each bureau, which is free.

How to find the cause

1. Get the full report from both bureaus, not just the score. Checking your credit score for free lists the free ways to get each.
2. Compare it with what you expected, section by section: new accounts, payment ratings, balances and limits, inquiries, and any collections or public records. How to read your credit report explains each section and the rating codes.
3. Check the dates. A drop that matches a statement date usually points to a balance; one that matches an application points to an inquiry or a new account.
4. Look for anything you don’t recognize. An unfamiliar account or inquiry is worth raising with the lender named on it and with both bureaus.

Once you know the cause, how to improve your credit score ranks the actions by how quickly they work. If the drop came from a bankruptcy, proposal or run of missed payments, rebuilding credit covers the longer path.

What doesn’t affect your credit score

• Checking your own score or report. FCAC: soft inquiries “only appear on the version of your credit report that you can see. They don’t affect your credit score.”
• Your income, job or bank balances. They aren’t part of a credit report, although lenders may ask about them on an application.
• Debit card use. Debit spending comes from your bank account and isn’t credit.
• Rent and utility payments, unless a landlord, utility or rent-reporting service reports them to a bureau.

What hurts your credit score covers the same factors from the other direction, before a drop happens.