If you’re like me, you check your credit score on a frequent basis. I know that a perfect 850 can never be achieved, but the occasional drop of a few points is no big deal. Unless those few points become a whole lot of points for some reason, in which case something might be wrong.
Let’s explore some common reasons why your credit score will drop 100 points (or more) overnight, and how to fix it:
- You went overboard with credit cards
- You closed an account that had an excellent utilization ratio
- Your utilization ratio has gone up
- You maxed out a card
- You missed a payment or made one late (even by a minute)
- You co-signed for someone else’s debt
- You’ve only been building your credit for a short time
- There was an error on your report (it happens)
- There is fraud in your account
10 Reason Why your credit score drops 100 points for no reason
You went overboard with credit cards
The main reason for a low credit score is having too many credit cards or opening too many in a short time. You only have so much available credit at any given moment, and the more you use it, the less available. If you apply for a mortgage or car loan and they check your credit report before approving you—which they almost always do—they may lower their offer based on what they see there. To protect yourself from this situation (and to keep your score high), make sure that:
- You’re not overusing your cards; close accounts when necessary
- You don’t open too many accounts all at once
- You keep balances low on each card
You closed an account that had an excellent utilization ratio
If you have a credit card with an outstanding balance and close it, your credit score will drop. A good utilization ratio is considered to be less than 30 percent of your total available credit. If you have $10,000 in available credit and use $2,000 on that card, that’s 20 percent. So if you only use 10 percent of your total available credit, that’s considered very low utilization (good!). However, if you close the account with this good utilization ratio and take the money out of it and put it (in another bank account), then when the time comes for you to get another line of credit after six months or so from now—that’s when this will hurt your chances at getting approved because now all they see is that there are no accounts being used for any sort of purchases whatsoever!
Your utilization ratio has gone up
The utilization ratio is the percentage of the credit limit that you’ve used. For example, if you owe $50k on a credit card with a $100k limit, your utilization ratio is 50%. If you have several credit cards with low limits and one with a high limit, the utilization ratios are likely to be higher if the amount owed is close to or even exceeds that card’s limit.
A high utilization ratio can negatively impact your credit score because it shows lenders that you may not be able to pay off all of your debts in full each month. This indicates risk for lenders as they may have to collect from collectors before collecting from you if there are late payments due to missed payments resulting in being over-budgeted by using more than what’s available on a card should something happen, such as an unexpected bill coming up or someone stealing money (which happens).
You maxed out a card
While it’s true that cards can be used for emergencies, you should never use them to pay for day-to-day expenses. The best way to use a card is when you know you’ll be able to pay the balance in full every month before your next statement if possible, before the grace period ends. This is because interest charges add up fast and have an exponential effect on your debt over time.
If you don’t think this will be possible with your current income, then it’s not a good idea to open any new lines of credit (including store or gas cards). You should also avoid using multiple credit cards at all times: having too many accounts can lead creditors and lenders alike to think that there are suspicious patterns involved with how frequently they’re used as well as whether an individual account might have been maxed out recently or whether there are other signs indicating potential fraud going on within their accounts.
You missed a payment or made one late (even by a minute)
Credit card companies are very strict when it comes to payments. Even a minute late can hurt your credit score and stay on your report for years. If you’re paying off a bill, your payment must be made by the due date, or else it will appear as a late payment.
Credit card companies offer many ways to make payments, such as online or mobile apps. Unfortunately, those methods may not always be available at the last minute if the merchant doesn’t have internet access or an internet connection isn’t working properly on their end. For example, if you’re at work and trying to make a payment using their app, but there’s no WiFi available because of network problems on their end (or even though they have WiFi), then this could result in a late fee being applied by default because they couldn’t send confirmation that they received your payment before the deadline passed.
You co-signed for someone else’s debt
When you co-sign, your credit report will show the loan as being in both names. If that person doesn’t pay their bills on time, it can affect your credit score. Even if they don’t live in the same state as you and never have any contact with you after they get their loan, they could sue you if they default on the payments! And remember: Credit card debt is never your fault—it’s always theirs. So if someone else has a bad track record with paying back their debts and asks to borrow money from you? Say no every single time.
You’ve only been building your credit for a short time
A good credit score takes about 7 Months to build. So, if you’ve only been building your credit for a short time and your score has dropped, don’t worry about it. The main things that can affect your credit score include the length of your credit history, the types of accounts on which you have used credit and the number of new accounts opened in a short period of time.
There was an error on your report (it happens)
It’s easy to blame your credit score on the agencies that report it. It can be frustrating when you receive a notice from one of them saying there was an error on your report—or that someone has pulled your file and wants to send you pre-approved offers for credit cards or other financial products.
But keep in mind: Credit bureaus are not perfect, nor do they always get things right. They aren’t always accurate or fair either. Or consistent or transparent about their reporting methods or standards for what’s included in your file.
There is fraud in your account
The main reason for a sudden drop in your credit score is fraud on your account. Credit card fraud can take up to 6 months before the error is corrected and your score returns to normal.
Whenever you use your debit or credit card, there are many ways that criminals can steal money from you. For example, they may make purchases using a stolen card and return the item for cash or gift cards online. Or they might open an online store with stolen information, selling products at much lower prices than other stores offer, using fraudulent checks or money orders as payment methods when paying for merchandise from vendors who don’t require identification verification during transactions. It can be difficult for consumers unaware of this type of fraud because thieves often use fake names and addresses when making purchases online; therefore, victims don’t realize what happened until after criminals’ accounts have been drained of funds!
If this happens to you:
- Contact the top three major credit bureaus (Equifax®, Experian®, TransUnion®) immediately so they can investigate whether someone has been stealing your data by opening new accounts in their name! This is called identity theft because criminals may even set up utilities such as electricity/gas/telephone service under their names too, but these bills will go unpaid, causing problems later down the road if not caught right away!
All these things will bring your credit score down fast
The first thing to look at is whether you’ve been using credit cards more than you should. If you’re approaching the maximum limit of your cards, that’s a red flag for lenders. They can see that you’re maxing out your cards and think it could be an indication of trouble down the road.
Another reason why your credit score may have dropped is that you just signed up for a new card and now have more open accounts than before. Open accounts are one factor used by lenders to determine your overall creditworthiness, so if they see too many new ones on top of older ones, it will lower your score substantially in their eyes even if all other elements remain unchanged or improved!
Conclusion
If your credit score is suffering, don’t worry. There are many ways to get it back up again. You need to keep an eye on things and stay disciplined about how you use your credit. Pay down those balances, pay all your bills on time, and make sure that you aren’t using all of your available credit at once and didnt pay back before you statement date. Trust us—with these methods in mind, getting that number back above 700 won’t be a problem for long
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