Your credit score i a very important number in your life. It dictates how much interest you get on loans, what you pay for car insurance and even if you get a new job. Fair or not, this number is going to affect you all of your life, so you need to take care of it.

Knowing how important your credit score is, it can be very troubling to find your credit score drop 20, 25 or even 30 points for seemingly no reason.

No, the credit companies do not have it out for you. Your score is based on a mathematical formula that takes into account several factors. There is a reason that your credit score dropped, so take a look at some of the possibilities.

Reasons For A 20 to 25 Point Drop

There are so many factors that could make your credit score drop. It could even be a combination of factors. Here are some examples.

Your Credit Utilization Increased

This is the ration of available credit to used credit. If you have 10,000 dollars in credit and have balances totaling 3,000 dollars, you have a credit utilization ratio fo 30 percent.

For your credit utilization to be considered good, it needs to be under 30 percent. To be considered great, it needs to be under 10 percent.

The more credit that you are using, the riskier you are to a lender. So, if your credit utilization was sitting at 20 percent and it increased to 40 percent, your score would certainly be reduced. A 20 to 25 point reduction is certainly possible.

The fix, to this drop would be to lower your revolving credit account balances. Try to get them under 30 percent for a good boost and under 10 percent for an even better one.

Your Credit Diversity Decreased

Creditors like to see that you can handle a variety of different kinds of credit. You need a mix of different accounts including revolving and installment accounts. If this diversity decreases, your score can go down, even if you are handling your other credit accounts responsibly.

A change in credit diversity is a very common cause of a decrease in credit scores. College graduates often are faced with this problem after paying off student loan debt. The proud and victorious feeling of paying off a huge debt is often countered by a big let down when they see their credit score dive 20 points in a few months. This is because their credit diversity decreased.

Fixing this problem would involve taking on another type of loan. This is not to say that you should take on debt in order to increase your credit score though. If you have a way to add a different type of credit account without affecting your debt however, you should do so.

One possible solution, if you already have credit card debt, is to take out an installment loan to pay it off. Your cards would get paid off which would bump your score and you would open another type of account which would boost your score. To top it off, you might lower the interest that you are paying on that revolving debt.

Your Credit Got Younger

Another little factor in your credit score that you might not be aware of is credit age and average age of credit. Creditors like to see a lengthy credit history so that you can demonstrate your responsibility over time.

If you have recently opened a new account, it could lower your average age of credit. In addition, if you closed one of your oldest accounts, it could have lowered both your credit age and average age.

The solution to this is two fold. First, you should never close your oldest accounts if it is not necessary. If it is a credit card with no annual fee, keep it open and use it once or twice a year to prevent the creditor from closing it. Should this card have an annual fee, call the issuer and ask to have it eliminated or waived.

If the problem is that you opened a new account, your best option is to just wait it out. Your credit will get better with time.

You Made A Late Payment

Usually a late payment would cause a more significant drop to a credit score but if your score was already a bit low, a 25 point drop is possible.

Making timely payments is one of the biggest factors affecting your credit score. It represents roughly one third of your number.

If you are unaware of a late payment, you should check your credit report and see if an error has been made, mistakes are made all of the time. If you find an error, dispute it with the credit bureaus, all three. They then have 30 days to investigate the matter.

What should you do if you did make a late payment though? For starters, you need to get caught up with the creditor. You can then ask them to remove the strike from your report. They usually will not but it is worth trying. Barring that, you just need to make payments on time going forward. Over time, the late payment will affect your score less.

A Number Of Factors Affected You

Since your credit score is the combination of factors, your decrease of 20 to 25 points could be from a variety of factors.

Perhaps your credit utilization went up a bit, you got a few inquiries on your report and you closed an old credit card. A few points here and a few points there can really add up in a hurry.

The only way to counter this type of decrease is to get a copy of your report or a credit summary from a place like Credit Sesame. Take a look at the overall picture and see how things have changed. You can then take the steps you need to change the credit score decrease trend.