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Credit Building

Why your credit score may have dropped (and how to fix it)

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In a surprising twist last year, the average American credit score took its first dip since 2009—a slight but significant shift, marking a moment we haven’t seen in nearly fifteen years.

A credit score is much like your financial report card, getting adjusted (albeit sometimes subtly) with each report from your creditors. While credit scores typically update once per month, more frequent reporting can occur if you’ve recently acquired new credit or missed a payment.

While seeing your score decline can be unsettling, it’s important to remember that these are common fluctuations that can be corrected with the right approach and some dedication.

What is a Credit Score?

Your credit score reflects your borrowing habits. It is a three-digit number ranging from 300 to 850, providing a snapshot of how responsible you are with money to potential lenders, landlords, and (sometimes) employers. Of course, the higher the score, the better. 

Read more: How to build your credit from scratch

There are three primary credit bureaus that creditors report to, FICO, Experian, and TransUnion. Despite each having their own method of tallying up your financial behaviors, they're all scanning the same areas: your bill-paying consistency, the portion of your available credit you're tapping into, and the total percentage of your debts.

FICO scores are referenced by 90% of top lenders, and according to Experian data, the average American FICO score in 2023 was 715. Scores above 720 are considered “good” and can smooth the path to better loan and credit card approvals, while those below this threshold may require more legwork to obtain.

Factors That Influence Your Credit Score

Now that you know what a credit score is, let's talk about the secret ingredients of calculating it. According to both the FICO and Experian models, five main factors influence your credit score:

Payment History (35% of your score)

Your payment history is the biggest contributor to your credit score. Lenders are interested in whether you have consistently paid your bills on time. Any delay in payments, missed payments, or debts sent to collections can negatively impact your score.

One of the simplest ways to improve your payment history is to set up automatic payments or reminders that help you stay on track.

Read more: Best time to pay your credit card bill

Credit Utilization (30% of your score)

The second biggest contributor to your credit score is credit utilization, which refers to the amount of credit you currently use. A good rule of thumb is to keep it under 30%, but under 10% is ideal. For instance, if your credit card has a limit of $1,000, keeping your balance below $300 is recommended, but under $100 is even better.

Length of Credit History (15% of your score)

Lenders prefer to see that you have a track record of managing credit effectively over a significant period of time. The longer your credit history, the more favorable impression it can create. This factor considers the age of your oldest account, the age of your newest account, and the average age of all your accounts combined.

Credit Mix (10% of your score)

Having different types of credit, such as credit cards, mortgages, and car loans, can slightly improve your credit score. However, you probably don’t want to open new accounts solely to increase your credit mix. It's important only to take on what you can manage responsibly.

New Credit Inquiries (10% of your score)

When you apply for new credit, lenders will do a "hard inquiry" on your credit report. Too many of these in a short time can make you look risky for lenders. However, if you're rate shopping for a mortgage or car loan, multiple inquiries within a 45-day window usually count as just one inquiry.

The Easiest Way to Increase Your Credit

To lift your credit score, it may be wise to focus on two pivotal habits: paying bills on time and monitoring your credit utilization. Initiating autopay for your bills can ensure punctuality without the monthly hassle, while aiming to pay down your balance to less than 30% of your available credit helps signal responsible management to lenders (while 30% is the recommendation, keeping your credit utilization below 10% is even better).

By adopting these strategies—autopay for reliability and disciplined spending for credibility—you're effectively taking steps to a healthier credit score.

The 5 Most Common Reasons for a Credit Score Drop

Now that you get what goes into your credit score, you can better understand what affects it. Let's explore the five most common reasons your credit score may decrease:

1. Late or Missed Payments

Missing the 30-day mark post-due date for a payment might flag your behavior to credit bureaus, which could cast a shadow over your credit score. Finding yourself tangled in bill schedules? It could be helpful to reach out to your creditors. Many are willing to help you form a payment strategy that aligns with your financial situation.

2. High Credit Utilization

Remember the golden rule: keep utilization under 30% (or ideally under 10%). An overzealous spending spree or a trimmed credit limit could inflate your utilization ratio, nudging your score downward. If you want to take a proactive approach, it could be wise to make additional payments within your billing cycle to maintain a lean balance and sidestep mazing out your cards.

3. Closing Old Credit Accounts

It's counterintuitive, but bidding farewell to an unused credit card might dent your score by shrinking your credit pool and abbreviating your credit history's length. Before you cut ties, it could be helpful to weigh if its fees are a financial drain or if it's a “silent credit score champion” worth keeping.

4. Applying for New Credit

A flurry of new credit applications over a short period of time could signal financial stress to lenders. Each application could potentially cause a slight dip in your score due to hard inquiries. It may be beneficial to navigate new credit requests with intention, using them to only make strategic financial moves.

5. Derogatory Marks

Significant financial setbacks like bankruptcies, foreclosures, and collections can deeply scar your credit score, with these blemishes lingering on your report for up to 7-10 years. If you’re in a rocky financial situation, you may want to consider reaching out to a credit counselor who can help map out a recovery course.

How to Improve Your Credit Score

An elevated credit score can be within reach if you approach credit building with patience and the right strategies. While instant fixes are more myth than reality, the journey to a healthier credit score can be paved with consistent, diligent actions. Let's unveil five strategic moves to help usher in positive momentum:

1. Check Your Credit Reports

Begin with self-awareness. Every year, you have the right to a complimentary credit report from each key player—Equifax, Experian, and TransUnion. It may be helpful to seize this annual opportunity to scrutinize your reports for accuracy.

Secure your free reports by visiting AnnualCreditReport.com.

2. Dispute Any Inaccuracies

Stumbled upon discrepancies? Whether it's a mysterious account or a misreported payment, it is important to identify these with the corresponding credit bureau and the creditor. Your dispute should be supported with solid evidence like receipts or bank statements to help bolster your claim.

Read more: How to dispute credit report errors

3. Prioritize Timely Payments

On-time payments can be the linchpin of a robust and healthy credit score. Consider automating your payments or marking your calendar to safeguard against forgetfulness, so your payments are always on time.

4. Reduce Your Credit Utilization

Reducing your credit utilization can go a long way in helping to improve your credit score over time. There are a couple ways to accomplish this. The primary method is to ensure balances paid down below 30% of your limit prior to your due date each month. As you continue to establish a reliable credit history, you can also look into increased spending limits through your creditors, which could allow for more spending without inflating your credit utilization rate.

5. Consider a Secured Credit Card

One of the more effective ways to start your credit comeback is with a secured credit card. Unlike traditional credit cards, secured cards often require an upfront cash deposit that becomes your spending limit. This deposit reduces the risk for lenders, making it easier for people with less-than-perfect credit to get approved and start building their credit safely.

Since most secured cards report your payment activity to all three major credit bureaus, each on-time payment could contribute to a better credit score over time.

Read more: How to choose your first credit card

Here’s to a Higher Credit Score

The Varo Believe Card can be an asset for anyone trying to build their credit. It offers stress-free credit building1 by combining the benefits of a secured card with the convenience of modern banking. With no annual fees, no minimum security deposit, and seamless integration with the Varo Bank app, it can be a powerful tool for helping to improve your credit. In fact, Varo Believe Card customers, on average, see a 42-point increase in their credit score after 3 months of on-time payments.²

To achieve meaningful change, integrating a secured credit card into your toolkit could be complemented with timely bill payments, keeping credit utilization low, and regular scrutiny of your credit reports to correct any inaccuracies.

Improving your credit score is a challenging yet rewarding endeavor. With consistent effort, smart financial habits, and support from Varo Bank, you have all the necessary ingredients to help improve your credit score over time.

Get started today or click to learn more about the Varo Believe Card!


1 Varo Believe is a secured credit card designed to help you build credit; however, a variety of factors impact your credit and not all factors are equally weighted. Building credit may take time and Varo Believe may be able to help when you consistently make on-time payments.

² Customers who had an existing credit score showed an average score increase of approximately 42 points after three months of having Varo Believe and no late payments on their credit. Individual results may vary.

Some customers may not see an increase, but customers with bad or thin credit histories are likely to see the biggest positive impact on their score from using Varo Believe and making consistent on-time payments.

Score increase is based on the VantageScore 3.0, a credit score alternative to the FICO score. VantageScore and FICO use different models and weigh factors differently when determining a credit score.

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