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Have you ever paid off a debt only to find that it caused your credit score to drop? That’s exactly what happened to Lakisher, a listener who graciously sent me the following email:

“I have a question. I think I know the basics of my credit and credit report but I recently paid off my car loan (which I thought was a good thing) but according to creditcard.com, it dropped my score by 22 points. Can you explain why that is? I thought paying off debt was a good thing.”

Paying off debt is absolutely a very good thing. But why would it cause a credit score to drop? If you’re monitoring your credit score, particularly if you’re looking to buy a home or refinance a mortgage, 22 points can be a big deal. And it can be very frustrating, if you monitor your score from month-to-month, to pay off a loan only to see the score drop by 22 points.

I can’t pinpoint the exact reason why Lakisher’s credit score dropped. I do not have any insight into her credit file or history. Furthermore, while the folks at FICO give us a lot of information about how they calculate credit scores, the actual formula remains a trade secret. Evaluating why a score goes up or down by a few points from month to month is very difficult.

There are, however, some common events that can cause your score to change. We’ll look at seven of them.

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7 Reasons Your FICO Score Changes from Month-to-Month

1. Aging of Negative Items in Your Credit Report

Events such as bankruptcy, foreclosure, or late payments are examples of negative items that affect your credit score. These events remain on a credit file for a number of years. A late payment, for example, remains on a credit file for about seven years. As these events age and move into the distant past, hwoever, the affect they have on your credit score diminishes. As a result, as these items age, all other things being equal, your score can go up.

2. Changes in Revolving Credit Balances

Changes in revolving credit balances can cause credit scores to fluctuate. Credit card balances, for example, can change from month-to-month as you use your card, whether you’re paying off your balances in full or not. As your balances go up, your credit utilization goes up.

Credit utilization is calculated by dividing the amount of your debt on a credit card by your credit limit. For example, let’s assume you have one credit card with a $5,000 balance and a $10,000 credit limit. So $5,000 divided by $10,000 is 0.5, meaning you would have a credit utilization of 50%.

FICO looks at credit utilization both on an account-by-account basis and on an overall basis. The lower the utilization, the better. According to Tom Quinn of FICO, it’s best to aim for a credit utilization of no more than 20 to 30%.

One thing to keep in mind is that these revolving balances can change from month-to-month. Hence, your credit utilization also changes. If it goes up over a threshold that FICO finds significant, your score could drop. If it goes down and crosses a threshold that FICO finds important, your score could increase.

3. Age of Accounts in Your Credit History

As your credit file and accounts age, your score can improve. FICO looks not only at your oldest account, but also at the average age of your accounts. While this factor may not have a significant affect in any given month, it can cause scores to increase when accounts cross an age threshold that FICO finds significiant.

4. Changes in the FICO Formula

FICO changes its formula periodically. FICO is continually trying to improve its formula to make it a more accurate indicator of credit risk. The same is true for non-FICO credit scoring formulas. The result is the multiple versions of the FICO formula are in use at any one time. When a new version is applied to your credit file, it can result in changes to your score.

5. Applying for New Credit

Applying for new credit could lower your credit score. We don’t know if Lakisher applied for new credit. But if she did, this could explain some of the drop in her credit score. Generally, however, inquiries are not a significant factor in the FICO formula.

6. Scorecard Hopping

Another explanation to changes in a credit score is that you may have been placed in a new scorecard. Called, scorecard hopping, this occurs when FICO places a consumer in a new scorecard. FICO doesn’t simply lump every consumer into the same pot and evaluate us all equally. They put us in what they call different scorecards.

FICO provides very little information about its scorecards. One scorecard that most believe exists, however, is for those who have a bankruptcy on their record. Scorecards enable FICO to evaluate the risk of similarly situated consumers. Your credit score depends in part on which scorecard you are in (and there’s no way to know which one

Now, scorecard hopping occurs when FICO moves a consumer from one scorecard to another. For example, if a bankruptcy is removed from a consumer’s credit file, they will be moved out of the bankruptcy scorecard into another scorecard. What’s interesting here is that even though you might get moved into a better scorecard, your credit score can actually move lower as a result of that change.

Why? Because you are now being compared to a different group of consumers. You may have done well when compared to others who have filed for bankruptcy. After the scorecard hop, however, you are now being compared to a very different group of consumers. Long term the switch should help, but in the short term it can lower your score.

7. Late Payments

This is the most critical causative factor for credit score fluctuations. Even one 30-day late payment can significantly affect your credit score. A late payment stays on your credit file for up to 7 years. Even if you’re doing everything else right, a single late payment can have a significant, negative impact on your credit score.

3 Tips for Monitoring Your Credit Score

1. Make sure to check your credit report

You can get your credit report for free at annualcreditreport.com. You’ll get your report from each of the three major credit bureaus for free once a year. Check it for errors. One reason your score can go down unexpectedly might be due to misinformation on your report. It happens all the time.

2. Use free services to understand what’s helping and hurting your score

The second thing you can do is use services that provide what are called educational scores. These scores are not calculated using the FICO formula, but by using a variety of other credit scoring formulas. These services do an excellent job of educating you about your credit score. You get pertinent information such as what’s hurting your score and what’s helping your credit score so you can figure out what’s going on and what you need to improve.

Three services I can recommend are Credit Karma, Experian and Quizzle. They’re all free. You don’t need a credit card. I’ve used them all and they’re very easy to use. You may pick one or you could use all three of them if you want to compare them.

True, it’s not your FICO score and people criticize them for that, which is fine. I actually did a comparison and I found that they’re generally pretty accurate. More importantly, the services do a good job of helping you improve your score.

3. Monitor your FICO score

Especially if you get near to buying or refinancing a home, you may want to see your FICO score. You do that by going to myFICO. There are some costs involved but it’s not particularly expensive. They have a credit monitoring service you can continue to use on a monthly basis if you want.

Author Bio

Total Articles: 1083
Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

Article comments

Yasmine Bachir says:

Rob, some good tips here which realm the minds of so many out there. It’s so important to monitor your credit score in hope to avoid the dreaded consequence of debt collectors on your door step. Insightful. I believe everyone should do this even if they believe their money spending habits to be good. Thanks for the read.


Fred Lugo says:

Excellent article! Thank you for taking the time to inform transparent information that helps clarify misleading or incomprehensible information that is fed to us as consumers.

DJ says:

Excellent article Rob! One thing that troubles me are those secret formulas used by the credit reporting agencies. Scorecard Hopping sounds akin to profiling. Is it possible for these agencies to categorize us by race, ethnicity and other discriminating categories? There sounds as if there should be much more transparency within the credit reporting agencies just as it is in your articles.

Rob Berger says:

DJ, they don’t categorize by those factors, although more transparency would be better.

Great article with clear info how ever I found it to be overwhelming. Just to much effort to keep track of a credit score. Yes I order my credit reports once a year and make sure their correct but that’s as far as I go. I do not use credit cards and no longer use debt for consumer items so yes my score may be lower than most but so far I don’t find it has hurt me even when I refinanced my home. I guess I’m saying I’m not willing to exert so much energy on following my credit score. Of course that may change in the future.

Mina says:

Great info. just a question, I receive my updated FICO score monthly on one of my credit card statement which I have no activity on it (just an overpayment of few cents), However I noticed that my FICO score been dropping 3points each month in the past 3 months is that have an explanation??.

Dee says:

Hello Rob.
what is the best way for a person that had good credit 10 years ago, and paid off their credit cards but.. has not used a credit card in 10 years, and now when applying for one cannot get a credit card due to, ” no credit “.


Gary E says:

My credit score dropped 22 points in one day. The only thing that could have happened is a old hospital bill for 30$ dropped off my credit history. Would this cause a drop? And will it go back up later?

Robin says:

My mother had a FICO score in the 800’s for years. She is 84 and on one of her credit cards show it dropped to 708 and said because of a delinquency or lien or something against her (courts or something). Anyways I checked the credit bureaus and all showed her with great credit and nothing like this. How can I find out what it is without it costing her money?

Stephanie Colestock says:


You’ve gotten full reports from all three bureaus, as well as checked her FICO separate from the one provided by the credit card company? If so, I would have her ask her credit card company about which bureau they use as the source for her credit info. From there, you can check with that bureau and, if needed, dispute any erroneous reports. Also, you can often search county records for liens against an individual, as well as call her local courts and ask if they have anything in their records.

Best of luck!
[email protected]

beth says:

if someone recently got married, would it cause a fico score to drop? Know someone who had fico score that dropped 100 pts from Nov to Dec. Nothing on credit has changed, only that they got married. Also, is a fico score as of Dec 31, pulling from month of Dec?

Judy griffin says:

None of this makes sense. Paid $1,000 on my only credit card and charged $400 electronic, as usually recommended for better return coverage. My credit score went down 26 points that month.

Timothy Enbody says:

Lakisher: May have removed the oldest debt by paying it off and thereby decreasing the age of credit. Is that possible?

Joshua Dillard says:

I have been trying to pay down my CC debit one card at a time. I recently made an 800 dollar payment on one of my cards causing my overall utilization to drop below 50%. However i do have 2 cards that are above 90%. For some reason as soon as my payment was reported my score dropped 50 points! Am I going about this the wrong way? What can I do to get my score back up?

Christi a says:

I have worked for twelve years to get my credit score out of the toilet after a divorce where everything was in my name and my ex did not pay our bills and I had no idea until it was too late.Since we divorced II have financed and paid off two vehicles with not one late payment. I opened two credit cards that have never had a late payment and stay at around 32 to 40% utilization with always double of required payments. I have paid off every bad account from my marriage except student loans. I managed to get my score up to 690 with Transunion and 655 with Experian. All of a sudden last month…Transiunion dropped 65 points in one day. Experian went up 2. Then I paid off a third car on the 15th of June. Transiunion dropped another 19 and Experian dropped 2. How in the world is it legal for these companies to drop your score from making positive improvements on your debt? If it only affected your ability to get a credit card I could see that. But, they literally have the power to ruin your life. What you pay for any kind of insurance, or whether you can rent or buy a home is up to these bozos with their “trade secret” formula. It is insane. Can complaints be made to the FTC? I am not a whiner that doesn’t pay my bills. I am someone that worked my butt off only to have them randomly screw up twelve years of very hard work. What can be done?

Stephanie Colestock says:

I’m sorry to hear about your score fluctuating like that — I’m sure that’s incredibly frustrating.

Are you actively monitoring your report with a service like Credit Karma or Credit Sesame, or through the bureaus themselves? If so, are there any new alerts on your report(s) that would explain the sudden decline? While a change of a few points could be explained by monthly credit card cycles and such, 65 points is pretty drastic. Also, have you closed any credit cards after paying them off? Closing an account would change your average age of accounts, which may be a factor.

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Judy B says:

The exact same thing is happening to me. My credit score looks like an ekg. I have zero late payments; credit cards are paid in full; no new credit opened; nothing at all has changed. I know CreditKarma is NOT a legitimate score, but it is beyond frustrating to see my score go from 690 to 617 to 640 to 620 ….. within a month, yet there are no factors listed to cause ANY drop whatsoever..

Andrew Ewers says:

I agree whole heartedly. I have been working Very hard for the past few years rebuilding my credit from a 620 score up to a 760 credit score unfortunately in the past two months my score has dropped 20 points then gone back up 20 points and then down 20 points over and over again with no explanation listed in credit karma. We need a more comprehensive and easily understood credit rating system so people can actually take hold of how they look to creditors . The current system that we have is absolutely bat crap crazy.

CraigW says:

It’s bad enough that we have to endure these crazy fluctuations in our scores, but the worst of it is not being able to get clear, credible explanations of why. Credit is so critical to our daily lives that changes shouldn’t be beyond explanation. It’s ridiculous.

TiVo says:

It’s like they want you in debt isn’t it? Its backwards to benefit lenders and shareholders.

Leo says:

Would spending 1400 in the first month and only paying a minimum of $30 hurt my points. I feel like that’s why mine fico score dropped 28 points.

Rob Berger says:

It could, depending on a number of factors such as credit utilization. That said, it’s very difficult to attribute a 28 point drop to one specific thing.

Gregory Green says:

Not only is what Rob said true but the different financial institutions use different scores. I get a score from my credit card in the 750’s and Equifax score me in the 600’s. If you use the free services they are not the same score a bank would use. They tell you that in the fine print.

Faye says:

I recently dropped 69 points with Experian and 65 points with Equifax. I called both agencies and they stated that there were no new negative items reported. I then asked Experian what accounted for the 69 point dropped, they said they didn’t know. They instructed me to call Fair Isaac Corporation (FICO). I called FICO and asked them the same question. They said they didn’t know, to call Experian, that they should be able to tell me. I called Experian back and again, reported to them that FICO said that they should be able to tell me. Experian said that they just get the into from VantageScore and again, they couldn’t tell me what caused the 65 point dip. I am trying to rebuild credit, in order to apply for a mortgage loan. My average of all three bureaus was 667 and after the 69 decrease with Experian and 65 point decrease with Equifax my average is 622. Nobody can give me insight as to what caused dip, which also includes Lexington Law. How can no one give insight to something that can affect your life like this.

Eugena says:

I too have similar troubles with trans union. I’m trying to rebuild my credit no be penalized because I make on time payments and do not use other credit accounts I can’t afford. Plus they couldn’t satisfy my questions on my account.

Donma M Ares says:

I have been working the last two years to improve my credit score
I have no alerts on the three bureaus
However two days ago I checked my scores. My Equifax score dropped 62 points
Transunion drpped 38 points and experian dropped 30 points. I cannot buy the car I need much less anything else. Called the bureaus they say they don t know why
There needs to be accountability here!

Monique says:

The exact thing just happened to me as well paid my car off last month been checking my credit scores often only to check it today and find out my score dropped by 35 pts.why is that I thought paying your debt off was a good thing it’s very upsetting when your trying to build or rebuild your credit only to get a blow to the face..

crystal says:

Exactly, I was mortified to see my score dropped 30 pts in Sept,and 11 points in August thereby totaling 41 points in 2 months. I mean I was literally pulling my hair out, how could my score drop 41 points when I owe less then $1500 for everything including student loans and a few months back when I owed more then $5000 in student loans was much, much higher.

Dannye Davis says:

I paid off my car loan, early, and the next thing I know, my credit score dropped 100 points! I can’t think of anything else that was going on at the time. That was the only change that happened. Very disappointed. Luckily, I’m not wanting to purchase anything major in the near future, but still…

Amy says:

Same thing happened to my credit score after I paid my car loan off. My score dropped 26 points. I’m disputing it. They have closed, but paid with 100% payment history. Doesn’t make sense. It should have gone up 26 points.

pd says:

The FICO score is an indication to the banks how much money they can get off of you. When you pay off a loan, your worth to the banks just decreased, because you are not making payments any more. Remember FICO always looks for ways to lower your score, not bring it up. Banks pay a ton of money for this information. The exact FICO formula is secret because it is unethical and unfair beyond belief. You know that when you follow all the official recommendations to improve your score, your score will only be upper average at best. Again they have no interest in allowing your score get high. Things such as where you shop, how frequently, how much you spend per transaction and a million other things all affect your score. But they would never admit it. You need to learn to play the system. If they ever made the formula public it would be the end of the three credit companies.

Christine says:

Your score has dropped because you no longer have an account factored into the “mix of credit” category of the FICO scoring model. There are 5 categories and each holds a different weight for scoring purposes…..payment history (35%), utilization (30%), length of credit history (15%), mix of credit (10%) and new credit (10%). Payment history, utilization and mix of credit are calculated using only accounts only. Hope this helps.

Lema says:

Can we get a Twitter feed going or a petition for transparency in this agency? It’s frustrating when you are trying to do the right thing but your score keeps dropping. My score dropped 21 points. The only thing that changed was I paid off a cc and paid down another. It has not even been updated on my CR yet so I don’t see how that should be the cause. Even if they have seen payments but are yet to update,shouldn’t it increase my score instead? They need to be held accountable

Amy says:

I just paid off my car loan with 100% payment history. Within 5 days my credit report dropped 26 points. Doesn’t make sense. It should have gone up. I am disputing. It’s absurd!

Andrew says:

There’s nothing to dispute, you just don’t understand the fico system. You closed an account, a “old” account that was boosting your score. Now that account is gone and so is the boost.

Paying off early is never a good idea. A better one is to open a new bank account and put your pay off money in that and let autopay make the payments. That way you essentially paid the account without closing it early.

If you paid it off on time then that’s just the way things work. Your old consistently paid account is no longer on your file.

Vivi says:

I am experiencing the the blues with this FICO, Vantage, Credit Scores crap. This system is so drastically flawed. I have been told so many different things. CRA give s me a convoluted answer, my credit union another, the credit repair company another. My FICO score was better before I started ‘repairing’ my credit. It has dropped almost 50 points and my credit scores are all over the place. I paid off car two months ago credit score dropped 40 points! Each credit reporting agency has 3 significantly different scores. I was advised by a ‘financial advisor”to get an installment loan to subside the fact that I paid off my car. WHAT! So I need to attain more debt to get a decent credit and FICO score to be able to get a bigger debt like a mortgage??!! I have never been so frustrated. I have been working on my credit for many months and it seems it will never be good enough. This wonderful system is designed to keep the working class in debt. You have to go into to more debt to acquire the credit you really want. Makes no sense. I am just over it! It should not be this hard to do the right thing. May just follow what some of the rich do… LIE, CHEAT, STEAL AND DEFRAUD. I am just saying they do all this and still get all the credit they desire. All I want is a dam house…not a mansion just a house! I am done with my rant for the day! Wish everyone on this forum the very best of luck.

Ronley Runi says:

I had a 610 credit FICO rating and attempting to get a VA home loan (FICO of 620 required). I have no credit so was advised by VA to obtain a CC which ai did! Charged and immediately paid off the approximately $20.00 per month charge I made! My FICO score dropped to 595 putting me further behind to my goal of purchasing a home! WTH?

Dan says:

Here is an inside secret .. when you pay your credit card each month add $5.00 to the amount owed. It is picked up by credit algorithms as a credit balance and it helps increase your credit score!

June says:

Can you explain this in more detail? Am I understanding this correct… pay just $5.00 more to the monthly amount payment? Or $5.00 more to a PAY OFF amount… meaning you’d have a $5.00 credit balance on the paid off card. Just want to make sure I’m understanding the concept here.

1234CreditScore says:

Yes please clarification on this… interesting concept.

Anon says:

no, pay the full balance owed off and add $5, now you have a credit balance on that card, the BS credit scoring agencies pick this up as a cerdit surplus boosting your score

Rich Eubanks says:

These credit bureaus are just plain ignorant. Our score fluctuates weekly based on the amount we charge on our VISA card. Which, btw, we haven’t carried a balance in over ten years. We use it a lot to get the reward points but pay in full every month, on time!

Well, we just purchased a newly constructed house. And, btw, we paid cash for it. But we had to have our credit checked to have the public water turned on. Here’s what that did to our credit;
Hi. Your score’s gone down 21 points since it was last updated as of September 1.

Now we don’t need good credit anymore but it’s really frustrating to see our score go down when we do everything right!

Andrew says:

Just so everyone knows there are 26 different fico scores. And I’m not including “fako” scores like vantagescore.

Here is a list of the names and how many bureaus have scores under that score version. There’s between one and three bureaus that report under each version those are equifax, transunion, and experian

Fico 8- 3
Fico 5- 1
Fico 4- 1
Fico 2- 1
Fico 9- 3
FicoAuto 8- 3
FicoAuto 5- 1
FicoAuto 4- 1
FicoAuto 2- 1
FicoAuto 9- 3
FicoBank 8- 1
FicoBank 3- 1
FicoBank 5- 1
FicoBank 4- 1
FicoBank 2- 1
FicoBank 9- 3

Ross says:

I got a vanquise credit card in January to help improve my credit score , I pay over the minimum payment requirement each month on time , my credit score has dropped from 780 down to 450 I’m puzzled as to why, has anyone got any idea why such a drop ?? Thanks .

Fedguy says:

Get a copy of your credit report and make sure someone hasn’t hacked your identity and opened a bunch of debt in your name. No way getting a new card drops your score like that.

Pati C Page says:

My Credit score has gone down from 871 to 853 from June to August… 18 points. Absolutely nothing has changed in my spending/paying habits, except my wallet was stolen on July 5th and two debit cards were used (about 200.00 each). Would this affect it? I have done all the necessary things to do and check my FICO scores regularly as I’m most concerned about identity theft. I really like the