- Although a small credit score drop may not have much of an impact, a 100-point drop could have more intense repercussions.
- It's important to know what might cause a drastic drop -- and how to avoid it.
A 100-point credit score drop could have severe consequences.
If you're the type of person who checks their credit score regularly, you may notice the number fluctuates from month to month, or quarter to quarter. There are different factors that can cause your credit score to rise and fall to varying degrees.
If you apply for a new loan or credit card, it will result in a hard inquiry on your credit record that will generally drop your credit score by five to 10 points. Meanwhile, if your credit card balances increase over time, it could cause your credit utilization ratio to rise, bringing your score down. Similarly, if you manage to pay off a chunk of credit card debt, that ratio could fall, helping your score increase.
But while smaller fluctuations in your credit score are pretty common, it's less common to see your score plunge by somewhere in the ballpark of 100 points. If that happens, the consequences can be severe.
What causes a 100-point credit score drop?
Your credit score might gradually fall by 100 points due to things like increasingly racking up credit card balances, applying for new credit cards and loans, and closing older accounts. But if you see your score plunge by 100 points quickly, usually, it's because you were flagged as being 90 days late or more with a debt payment.
You'd think that a single late payment wouldn't be able to cause so much credit score damage. But of the various factors that go into calculating that number, your payment history carries more weight than any other. A single late payment could cause a serious drop in your score, even if you've always been timely with your bills.
In fact, the higher your credit score to begin with, the more damage a single late payment might cause. That may seem counterintuitive, but unfortunately, that's the way credit scores tend to work.
What happens if my credit score takes a 100-point hit?
A 10- or 20-point drop in your credit score may not make a big difference when it comes to your ability to borrow money or qualify for a new credit card. But a 100-point drop could spell the difference between getting approved for a loan or credit card, or getting rejected.
Imagine you're interested in a great credit card offer. If that offer is reserved for applicants with high credit scores and yours goes from a 750 to a 650, you may be denied.
Furthermore, you'll need a minimum credit score of 620 to qualify for a conventional mortgage. If you have a score of 700 but that number then plunges by 100, you'll be below that threshold. A 100-point drop in your credit score could also mean getting stuck with a higher interest rate on a mortgage, making that loan more expensive.
How to avoid a drastic credit score drop
Generally, the only thing that will cause your credit score to fall by 100 points quickly is a late payment. If you avoid those, you'll usually manage to avoid drastic credit score drops.
To be clear, your credit score might decline by 100 points over time due to other reasons. But if you want to avoid such a rapid, seemingly instant hit, make sure to pay all of your bills in a timely manner. And if you think you'll be late with a payment due to not having the funds, reach out and ask for some leeway. You never know when a lender or credit card company may be willing to work with you, and having that conversation could spare you a world of credit score damage.
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