Are you worried about why your score might be going down and what it could mean for important purchases like a home or car? Credit scores are an important part of your financial health — after all, it’s how lenders decide whether they should lend money to you. It’s not good news when your credit score goes down — especially 100 points! In this article, we’ll discuss some of the most common causes of a falling credit score and how to help fix your credit.
Why Your Credit Score Dropped
From missed payments to maxed-out credit cards, there are a number of reasons you may see your credit score plummet 100 points fast. It’s sometimes easy to overlook the impact just one late payment can have on your overall score. Even the smallest mistake can have lasting credit consequences. Take a closer look at some of those reasons below.
Missed Payment
One of the biggest reasons for a credit score drop is a missed or late payment. If you have perfect credit and hit a financial roadblock, a 30-day late payment can drop your credit score by up to 100 points.
Typically, creditors won’t report a late payment until it’s at least 30 days late. Once a missed or late payment is reported, expect to see a mark on your credit report for up to seven years.
New Credit
The age of your credit accounts for 15% of your credit score. A longer, established credit history shows lenders you’re reliable, but new credit hasn’t had a chance to build a positive payment history. When you open a new credit account, it lowers the overall age of your credit.
In addition to the age of credit, opening up any new credit account generally requires a hard inquiry, which could ding your credit score a few points temporarily. After about two years, the inquiry should drop off.
Although it’s good to have a credit mix, you shouldn’t apply for too many lines at once. Too many inquiries of different credit types indicate financial stress and could raise a red flag for creditors. Stay on top of payments and aim to keep your credit utilization below 30% on your overall credit file.
Closed Credit Card
Being debt-free is an accomplishment — but think twice about closing a credit card if you have a $0 balance. Closing the account will raise your utilization ratio because you won’t have that amount of available credit any longer. If you’ve had the card for a while, closing this line of credit can decrease your credit age, too.
Help avoid this by paying down balances or asking for a credit limit increase.
Thinking debt consolidation might be your solution? Check out these four ways to safely consolidate your credit card debt with little or no damage to your credit.
Paid Off Loans
Although this seems backward, paying off any form of credit could lower your credit score a bit temporarily. This is because paying off loans like auto, home or student loans will typically close your account with the creditor. If you close accounts your credit mix (10% of your score) and credit age (15% of your score) might decrease.
Don’t let a few point deductions in your credit score deter you from paying off loans though. The credit decrease is normally just a few points and typically climbs back up within a few months.
High Balance
The higher the balance, the greater your credit utilization ratio is and less credit availability. Card issuers report your balance every month, and this makes up 30% of your credit score. To calculate your ratio, divide your credit card balance by your credit card limit and multiply by 100 to view as a percent.
Example:
Credit Card Limit: $1,000
Credit Card Balance: $758
$758 ÷ $1000 = 0.758
Move the decimal point 2 places back, and you will have your credit utilization rate.
0.758 X 100 = 75.8
Add the percentage sign and you have your credit card balance ratio. In this example, the ratio is 75.8%.
An easy way to reduce this ratio if you have an average or above score, is by asking for a credit increase on your credit cards. Keep in mind, asking for a credit increase may require a hard credit pull which can knock a 5 -10 points off your score. If you are able to justify the credit score decrease and you do not use the additional credit, you’ll automatically lower the ratio.
Not available for a credit increase? Find a side gig to supplement your income and pay down your debts. Uber, DoorDash, and Instacart offer a flexible way to make extra cash that works around your schedule.
Derogatory Mark
A derogatory mark on your credit score is when a creditor reports a delinquent or late payment. A few examples of derogatory marks that would negatively impact your credit are missed payments, collections accounts, repossession, and foreclosure.
Some negative marks on your report can remain for 7 to 10 years. If you’ve found a derogatory report that’s a mistake, you can file a dispute with the credit bureaus.
Credit Limit Lowered
A credit card issuer can lower your credit limit at any time for any reason. If this has happened to you, these are the three main reasons why your credit limit was lowered:
- Card inactive or rarely used
- High credit utilization
- Missed or late payments
The credit card issuer can’t charge you over-the-limit fees or penalty fees until after 45 days of a limit decrease notification. Once you notice a credit limit decrease, work on paying balances down and on-time.
After you’ve made timely progress, you could consider calling your credit card company and ask to increase the limit again.
Victim of Identity Theft
Falling victim to identity theft happens more often than you might think. Regular credit monitoring, locking credit, and freezing credit can help safeguard any sensitive personal information and give immediate information to dispute possible data breaches.
How Can You Recover?
Helping to restore your credit after a plummet is possible for Credit Builder Plus members with MoneyLion. Members get access to a Credit Builder loan and other benefits like user-friendly budgeting tools and weekly reports about your credit— all while helping more than half our members raise their score by up to 27 points within 60 days!
Dips are normal
Credit scores fluctuate. While it’s upsetting to see your score drop drastically, it doesn’t mean it has to stay down. If you continue to pay your bills on time, keep your utilization low, monitor your credit report regularly, and avoid opening too many accounts, you’ll should see your score increase. It may take a little while, but good credit habits can last a lifetime.
Why did your credit score drop 100 points after paying off a car?
There may be other factors involved but when you pay off a car, you may see your credit score drop because the account closed.
Why did your new mortgage drop your credit score by 100 points?
Your new mortgage can cause your score to drop because it’s a new account and likely a significant debt added to your credit history. Once you establish a positive payment history, your score will likely increase.
