4 Reasons Your Credit Score May Actually Be Lower Than You Think

Like a goalkeeper, you fiercely guard your credit score. No unpaid bills are getting past you and landing in collections. Maxed out credit cards? Not on your watch. 

But then you do a monthly check-in with your credit score and, to your surprise, that three-digit figure is lower than you were expecting. Here are four reasons that may be the case:

You just made your final student loan payment. Or, maybe you paid off your mortgage early. You have proven that you’re fiscally responsible; you borrowed money and diligently paid down your debt until you got it to a $0 balance. This may seem counterintuitive, but paying off an installment loan—like your student loans or a car loan—may cause a drop in your score of 10 or 15 points. 

Here’s what’s going on: First, credit mix makes up 10 percent of your credit score, so removing an installment loan from your credit history could cause a slight dip. Plus, paying off a loan could lower your average age of accounts, especially if your student loan or mortgage was one of your oldest accounts with a long history of on-time payments. 

“In the grand scheme of things, this payoff is a welcome event for you and your credit score because it demonstrates creditworthiness, the ability to repay a line of credit, and the timely nature of your debt management,” says Riley Adams, a licensed Certified Public Accountant and senior financial analyst for Google, who runs a personal finance blog Young and the Invested.

If you can pay the balance off on your credit card each and every month, perfect! That’s one step that will inch you closer to an 850 credit score. But if you do need to carry a balance, be sure to keep your credit utilization under 30 percent.

Now, say you’ve been doing exactly that, but you are still seeing an unexplained drop in your score. You may want to check in with your credit card company to find out the date that they report to creditors. 

While you’d think the dates when your credit card companies report your usage information to credit bureaus would sync up nicely with your due dates, that’s not always the case, experts at Equifax confirmed for us.

You monitor your credit like a hawk on a site, like Credit Karma. But when you go through the pre-approval process to get a mortgage, your lender comes back and tells you that your score is a little lower than the one you self-reported. What gives? The short answer: Negative information could have been reported to one of the bureaus that the third-party site you check religiously doesn’t actually work with, and thus your score seems inflated. (Additionally, many times, the third-party site might even be serving you up a different credit score altogether: something called an “informational score” as compared to your FICO score—which 90 percent of lenders use.

As an example, Credit Karma says it works with two of the three bureaus (TransUnion and Equifax, but not Experian). The site says the information you see on Credit Karma should accurately reflect the credit information reported by those bureaus. But if a collection account only got reported to Experian, that ding wouldn’t be showing up on Credit Karma.

You got the balance down to $0 and you’re ready to snip up the card and close it out. Think twice!

“The longer the history you have with financial accounts, the more trustworthy you seem to lenders,” says Rod Ebrahimi, CEO of Upturn Credit, a company that helps people dispute errors on their credit reports. Not only will closing out a card negatively affect the age of your credit, it could also increase your credit utilization ratio, even more reason to keep old accounts, he says, open even if you’re making small purchases each month and paying them off quickly.

Eyeing that 800 club? Here, 23 of the greatest (and expert-approved!) credit score tips of all time.

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