Imagine getting a nightmare notification that your credit score dropped 100 points–nearly overnight! You’re baffled, stressed, and trying to figure out how this happened and what to do.
First, take a deep breath and know that you can improve a credit score in despair with a few tips. Join us as we go over what causes a credit score to drop and how to resurrect your credit score from its ashes!
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Why My Credit Score Dropped
In 2020, the average U.S FICO score increased to 711 according to Experian. If you fall into this category, we can understand why any significant credit score drop can leave you feeling unsettled. Take a closer glance below at a few factors of why your credit score dropped 100 points.
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 overnight.
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.
Opening up any new credit account generally requires a hard inquiry, which can ding your credit score a few points temporarily. After about two years you should the inquiry 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 and indicated financial stress and put up 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. If you’ve has a credit card for awhile, closing this line of credit can actually decrease your credit age– which accounts for 15% of your overall credit score.
At all costs, try to avoid this by paying down balances, ask for a credit limit increase, or slowly open new credit files with lower interest rates making it easy to pay monthly payments.
Thinking debt consolidation might be your solution? Check out these 4 ways to safely consolidate your credit card debt without damaging your credit.
Paid Off Loans
Although this seems backwards, 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 deduction in your credit score deter you from paying off loans though, the credit decrease is normally just a few points and normally will bump back up within a few months.
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.
An easy way to reduce this ratio is by asking for an increase on your credit cards. As long as you do not use the extra credit, an increase will put more separation between what you own and what’s available.
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.
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.
Negative marks on your report can linger for 7-10 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 cannot 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, give your credit card company a call and ask them to increase the limit again.
Victim of Identity Theft
Falling victim to identify 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 I Recover?
Restoring your credit after a massive plummet is possible with a Credit Builder Loan from MoneyLion. Not only will you get same-day funding, but you’ll have exclusive access to 24/7 credit monitoring, 0% APR cash advances, and user-friendly budgeting tools. All while enriching your credit score up to 60 points within 60 days–without a hard credit pull!
Credit Builder Loan: The Solution To Your Financial Woes
Improving damaged credit takes time and by practicing mindful spending, cautious borrowing, and monitoring your credit you will eventually see improvement in your score.
When you become a MoneyLion member you can stay on top of many of your financial accounts all in one place! Gain access to a RoarMoney account and set up autopay to any of your creditors – that way you’ll never get a credit ding for a missed payment. Need to improve your score quickly? The Credit Builder Plus membership can get you started.