Why Did My Credit Score Go Down? 9 Possible Reasons

A drop in your credit score can be a cause for concern, as it directly impacts your ability to secure loans, mortgages, and other credit facilities. Understanding the reasons behind a decrease in your score is crucial for taking corrective actions and maintaining your financial health. 

Start by checking your credit reports to determine why your credit score has dropped. Below are nine common reasons why, along with actionable tips to help you fix it.

Payment history is one of the most significant factors influencing your credit score in Singapore. Lenders view your payment history as a strong indicator of your reliability in managing debt. 

Therefore, even a single missed payment can have a detrimental effect on your score. This applies to various types of financial obligations, including;

• Credit card bills

• Personal loan repayments

• Housing loan instalments

• Utilities bills

• Telecommunications bills

The negative impact on your credit score generally worsens with each subsequent missed payment or if you develop a pattern of paying late.

Tips for addressing it

To avoid the negative consequences of missed payments and maintain a healthy credit score, consider these strategies:

• Set up reminders: Utilise calendar reminders, phone alerts, or banking app notifications to remind yourself of upcoming due dates.

• Automate payments: Enrol in auto-pay or GIRO arrangements with your banks or service providers to ensure timely payments. This eliminates the risk of forgetting or overlooking due dates.

• Prioritise essential bills: If facing financial difficulties, prioritise paying essential bills like housing loans and utilities to minimise severe repercussions.

• Contact creditors: If you anticipate difficulty making a payment, contact your creditors beforehand to explore potential solutions or payment arrangements.

A significant factor that influences your credit score in Singapore is your credit utilisation ratio. This ratio represents the amount of credit you are currently using compared to your total available credit. For example, if your credit card has a limit of S$10,000 and you've charged S$8,000 to it, your credit utilisation is 80%.

Lenders in Singapore view a high credit utilisation ratio as a potential indicator of financial strain, because;

• It suggests a higher reliance on borrowing, which can raise concerns about your ability to manage debt. 

• Even if you consistently make the minimum payments, carrying a consistently high balance can negatively affect your credit score over time.

Tips for addressing it

To avoid damaging your credit score due to high credit card balances, implement these strategies:

• Keep credit utilisation low: Aim to maintain a credit utilisation ratio below 30%. This demonstrates responsible credit management to lenders.

• Pay off outstanding balances quickly: If possible, pay off your credit card balance in full each month. If that's not feasible, make payments that exceed the minimum amount to reduce your outstanding debt.

• Increase available credit (cautiously): If you consistently manage your credit responsibly, you might consider requesting a credit limit increase from your bank. However, only do this if you won't be tempted to overspend.

• Prioritise high-interest debt: Focus on paying down credit card debt, which typically carries high interest rates, to save money and improve your financial standing.

Errors in your credit report can unjustly lower your credit score. This is why it's crucial that you regularly check your credit reports from the Credit Bureau Singapore (CBS). These inaccuracies can misrepresent your credit-worthiness and hinder your ability to obtain loans, credit cards, or even housing.

Common types of errors to watch out for include;

• Incorrect personal information (e.g., misspelled name, wrong address)

• Accounts that don't belong to you (indicating potential fraud)

• Inaccurate payment history (e.g., payments shown as late when they were on time)

• Closed accounts incorrectly listed as open

Tips for addressing it

If you find mistakes, dispute them with CBS without delay. Here’s how:

• Obtain your credit report: Get a copy of your credit report from the CBS.

• Document the errors: Carefully note down the specific inaccuracies, providing supporting documentation if available (e.g., bank statements, payment confirmations).

• Submit a dispute: Follow the CBS's official procedure for submitting a dispute. Make sure to have your credit report enquiry number and supporting documents ready..

• Follow up: Track the progress of your dispute and provide any further information requested by the CBS.

Correcting errors on your credit report can take time, but it's an essential step to ensure your credit score accurately reflects your financial responsibility.

While not a direct ‘mistake’ on your part, identity theft poses a serious threat to your credit score. It occurs when someone illegally obtains your personal information (e.g., NRIC details, credit card numbers) and uses it to commit fraud.

This can result in:

• Fraudsters opening new credit cards, loans, or other accounts in your name.

• Unpaid bills and late payments incurred through these fraudulent accounts, severely damaging your credit score.

• Inflation of your overall debt levels due to unauthorised spending through fraudulent accounts, increasing your credit utilisation ratio.

Tips for addressing it

Protecting yourself from identity theft and mitigating its damage involves proactive measures:

• Monitor credit reports regularly: Vigilantly check your credit reports from the CBS for any unfamiliar accounts or transactions. The CBS offers My Credit Monitor (MCM), a service that automatically notifies you of any activity on your credit report – including unauthorised self-enquiries that could indicate identity theft.

• Be cautious with personal information: Avoid sharing your NRIC, credit card details, or other sensitive information unless absolutely necessary and with trusted entities.

• Strengthen online security: Use strong, unique passwords for online accounts, enable multi-factor authentication (MFA), and be wary of phishing attempts.

• Report identity theft immediately: If you suspect you've been a victim, report it to the police and the CBS without delay. The CBS can place an identity theft flag on your credit report to inform lenders of the situation.

Taking these steps can help minimise the impact of identity theft on your credit score and financial standing.

Even if you haven't experienced full-blown identity theft, the spending habits of an authorised user on your credit card account can still indirectly affect your credit score.

Here's how;

• An authorised user's spending adds to the total balance on your credit card. If they spend heavily, it can push your credit utilisation ratio above the recommended 30%, which negatively impacts your score.

• While you're ultimately responsible for the bill, disagreements or misunderstandings about repayment with an authorised user could lead to late payments, which directly harm your credit score.

Tips for addressing it

To manage the potential risks associated with authorised users and protect your credit score:

• Clear communication: Establish clear spending limits and repayment agreements with any authorised user on your account.

• Regular monitoring: Monitor your credit card statements and online account activity closely to track both your own and the authorised user's spending.

• Consider alternatives: If you're concerned about an authorised user's spending, explore alternative solutions like prepaid cards or supplementary cards with strict spending limits.

• Remove authorised users: If necessary, you have the right to remove an authorised user from your account to regain full control over your credit card's usage.

By taking these precautions, you can mitigate the potential negative impact of others' spending on your credit score.

In Singapore, co-signing a loan or credit card application can create significant risks for your credit score. When you co-sign, you're essentially agreeing to be legally responsible for the debt if the primary borrower fails to repay it.

This means:

• If the borrower misses payments or defaults on the loan, these negative marks will appear on your credit report, damaging your credit score.

• The outstanding debt is also factored into your overall debt obligations, which can affect your ability to obtain credit for yourself.

Tips for addressing it

To protect your credit score when considering co-signing:

• Thoroughly assess the borrower: Carefully evaluate the borrower's financial stability, income, and credit history before agreeing to co-sign.

• Understand your legal obligations: Be fully aware of the legal responsibility you're assuming as a co-signer. You are not just a reference; you are liable for the debt.

• Explore alternatives: If possible, encourage the borrower to explore alternative options, such as secured loans or improving their credit-worthiness.

• Limit co-signing: Avoid co-signing loans or credit applications unless you are absolutely confident in the borrower's ability to repay.

Co-signing should be approached with extreme caution to safeguard your financial well-being and credit score.

Applying for multiple credit facilities, such as credit cards or a loan, within a short time can negatively affect your credit score in Singapore. This is because each application triggers a ‘hard inquiry’ on your credit report, where a lender or financial institution checks your credit history to assess your credit-worthiness. 

While a single hard inquiry has a minimal and temporary impact, several in quick succession can raise concerns among lenders. They may interpret this behaviour:

• as a sign of financial distress, or 

• an attempt to take on excessive debt. 

Tips for addressing it

To minimise the negative impact of credit applications on your score:

• Space out applications: Avoid applying for multiple credit facilities simultaneously. Allow several months between applications to allow your credit score to recover.

• Apply only when needed: Only apply for credit when you genuinely need it, rather than applying for the sake of it.

• Pre-qualify: Where possible, use pre-qualification tools offered by some lenders. Pre-qualification usually involves a ‘soft inquiry’, which does not affect your credit score.

• Research the best credit card: Before applying for a credit card, carefully research and compare options to find the best credit card that suits your needs, reducing the need to apply for multiple cards.

Cancelling an old credit card account, even if you no longer use it, can sometimes lead to a decrease in your credit score in Singapore. This might seem counterintuitive, but here's why:

• The length of your credit history is a factor in credit score calculations. Older accounts demonstrate a longer track record of responsible credit management. Closing an old card reduces the average age of your accounts.

• Closing a credit card decreases your total available credit. If your spending remains the same, your credit utilisation ratio will increase, which can negatively affect your score.

Tips for addressing it

While closing a credit card may be necessary in some situations, consider these alternatives to minimise any negative impact on your credit score:

• Keep old accounts open (responsibly): If possible, keep older credit card accounts open, even if you rarely use them. This helps maintain a longer credit history and higher available credit.

• Use old cards occasionally: If you're concerned about inactivity fees, use the old card for a small, recurring purchase and pay it off in full each month.

• Prioritise newer cards: Focus on actively using and managing your newer credit cards responsibly to build a positive credit history.

• Assess the reason for closing: If you're closing a card to avoid the temptation to overspend, address the underlying spending habits rather than simply closing the account.

It might seem strange, but paying off a loan, while generally a positive financial achievement, can sometimes cause a temporary dip in your credit score.

This can happen because:

• Lenders often like to see that you can responsibly manage various types of credit, such as credit cards, personal loans, and housing loans. Paying off a loan reduces the diversity of your credit mix.

• If the loan was a long-standing account, paying it off can shorten your average credit history length, which is a factor in credit score calculations.

Tips for addressing it

While you shouldn't avoid paying off debt to maintain a credit score, here's how to view the situation:

• Long-term benefits outweigh short-term dip: The positive impact of being debt-free on your financial stability and overall financial health far outweighs any potential temporary decrease in your credit score.

• Maintain responsible credit habits: Continue to use other credit accounts responsibly, such as making timely payments on credit cards, to rebuild your credit score.

• Focus on the bigger picture: Prioritise financial well-being over solely optimising your credit score. Paying off debt is a crucial step towards financial freedom.

In the long run, consistently managing your finances responsibly will lead to a healthy credit score.

Your credit score reflects your credit-worthiness, essentially a lender's assessment of how likely you are to repay borrowed money. A lower score signals higher risk to lenders, leading to several negative consequences:

• Difficulty obtaining credit: You may find it challenging to get approved for new credit cards, personal loans, car loans, or even a mortgage for a home in Singapore.

• Higher interest rates: If you are approved for credit, lenders are likely to offer you less favourable terms, including significantly higher interest rates. This means you'll pay more over the loan's lifetime.

• Lower credit limits: Lenders may offer you lower credit limits, restricting your purchasing power.

• Impact on other financial aspects: A poor credit score can sometimes even affect non-lending decisions, such as your ability to rent a flat or secure certain jobs.

Conversely, maintaining an excellent credit score opens doors to better financial opportunities, including access to the best interest rates and loan terms.

To raise your credit score after understanding the cause of the drop, focus on consistent on-time bill payments and maintaining credit utilisation under 30%. While progress may be gradual, these are the most reliable methods for credit recovery.