Justin Cupler
Contributing Writer at Tally
July 22, 2022
Your credit score measures how you manage debt, giving creditors a way to evaluate the risk of lending you money. If you have a low credit score accompanied by flaws on your credit report, you may find it hard to get approved for a loan or even rent a home.
If you’ve usually had decent or good credit and suddenly notice your credit score dropped 100 points, this is a cause for alarm. Below, we outline why your credit score may have dropped this much and how to recover from it.
How your credit score dropped 100 points
Credit is a finicky thing that can fluctuate over time, as you’ll often see seemingly random rises and falls of 10 to 20 points each month. This fluctuation is perfectly normal and is based on a wide range of variables, including your credit usage, the age of your accounts, credit inquiries and much more.
However, a 100-point drop is something altogether different. This is a sign of severe adverse activity on your credit report. Here are some reasons your credit score may have dropped 100 points.
Missed payment or late payment
Likely the most common reason for this kind of drop is a missed payment or late payment reported to the credit bureaus, such as a loan or credit card payment. The creditor will initially issue you a late fee when you're as little as one day late on a payment. However, once your payment is 30 days late, the creditor can then report your payment as 30 days late to the three major credit bureaus — Equifax, Experian and TransUnion.
While the exact impact to your credit score will vary by what’s on your credit history and your current credit score, the FICO credit scoring model — the model most lenders adhere to — states a 30-day late payment can cost you up to 83 points. If you let that payment remain late for 90 days, it can reduce your FICO Score up to 180 points.
A late payment significantly impacts your payment history, which accounts for 35% of your FICO Score, making it the most important variable in this scoring model.
You can prevent this by setting up automatic payments to cover at least the minimum monthly payment. While making only the minimum payment is not ideal, this prevents you from being late if you forget.
Maxed out credit cards
Your credit utilization ratio is your total revolving debt balances — credit cards, lines of credit and other reusable debt — divided by your total revolving credit limit. It’s a big part of the “amounts owed” variable in the FICO model. This variable makes up 30% of your FICO Score, making it the second most important factor.
If you max out all your credit cards, bringing your credit utilization rate to 100% and available credit to $0, this may cause your FICO credit score to fall by upward of 128 points. The impact on your score could be higher or lower depending on other variables on your credit report.
Avoid this issue by not spending more than you can afford to pay off in full every month. Use your credit cards just like your debit card, then pay them off with cash monthly.
For more immediate relief, you can contact your credit card issuers and request a credit limit increase. If you get approved, this will increase your credit limit and decrease your utilization rate. Most credit cards will allow you to request a credit line increase online or over the phone.
Collections account
Any company you owe money to can place an account in collections or sell your unpaid debt to a third-party collection agency. This means an old unpaid gym membership, a lawn care subscription you forgot about or an old utility bill can suddenly appear on your credit report as a collection account.
A collection account is a serious negative mark on your credit report that could cause a 100-point credit score drop or more. And since these aren‘t always from creditors that slowly hit your credit report with 30-, 60-, 90- and 120-day late payment marks before sending it to collections, the impact can be sudden and dramatic.
You can avoid these rogue collections accounts by responding to letters you receive in the mail about unpaid accounts. It’s easy to disregard these notices as old news, but they can come back to haunt you in the form of collections accounts.
New credit applications
Yes, even applying for new credit can cause a 100-point credit score drop. However, it would have to be a severe case.
In the FICOscoring model, each hard inquiry — when a creditor checks your credit report before approving or denying credit — can cost you up to five points on your credit score. So, if you apply for more than 20 credit cards in one month, you could see a 100-point credit score drop.
Now, you may not be penalized for each inquiry if you’re applying for a specific type of loan, such as an auto loan or mortgage. If you perform these inquiries within a certain window — generally up to 30 days — all these hard inquiries will count as only one. This is called rate shopping.
To avoid this issue, try to avoid applying for more credit than you need. Keep credit card applications to a minimum, and if you plan to rate shop for a car or home loan, do so within a short period so all the credit inquiries count as one.
How to recover after your credit score dropped 100 points
If your credit score dropped 100 points, it’s easy to panic. Fortunately, your credit score is not static. You can fix the problem with time — most negative items only remain on your credit report for up to seven years and have less impact as time passes — and careful debt management. Here are some tips to help you recover after a big credit score drop.
Get credit monitoring
Credit monitoring will keep an eye on your credit report and alert you if there are any changes, like a new account or a late payment. You can get a relatively basic version of this from many of the free credit report sites, such as Credit Karma or Credit Sesame.
You can also get a free copy of your credit report once per year from all three credit bureaus via AnnualCreditReport.com. Use this to get an in-depth view of your credit report and search for any negative items needing your attention.
Use credit cards responsibly
If you have a credit card, now’s the time to practice responsible credit card use. You can try to keep your spending between 1% and 10% of the available credit limit on your credit card to pay for day-to-day expenses and pay off the entire balance every month. So, if you have a $1,000 credit limit, this means only running your credit card balance up to $10 to $100 each month, then paying it in full by the due date.
Using this small percentage will improve your credit utilization rate and your payment history. Both will help you build a good credit score.
If you don’t have a credit card account, you can apply for a new credit card, but only apply for one to avoid excessive hard credit inquiries. If you cannot get approved for a traditional credit card, you may need to settle for a secured credit card for now.
A secured credit card works like any other credit card except you must send the credit card company a security deposit in the amount of the credit limit. This protects the issuer if you default on the credit card payment.
You can also set up autopay for at least the monthly minimum payment to prevent any late payments.
Take out a credit builder loan
If you can‘t secure a credit card, you may be able to get a small personal loan and use that to build a positive payment history and credit score. You won‘t need much — maybe $1,000 or less. You can put the loan proceeds in an interest-bearing savings account, such as a high-yield savings account, and make your monthly payment from that account.
You’ll pay some interest on this installment loan, but the positive payment history may be worth the cost.
If you can‘t get a standard installment loan, you can resort to a credit builder loan. A credit builder loan is a personal loan where the proceeds remain in an escrow account until you pay off the loan. Then, the lender releases the funds to you once you pay off the loan. This can also build a strong payment history on your credit file but will cost you some interest charges.
Talk to your creditors
When you miss a payment to a creditor or wind up in collections, the worst thing you can do is nothing. Instead, actively reach out to your creditors and the collection agencies to see what you need to do to bring the account current.
You can often negotiate a settlement for a fraction of what you owe to collection agencies. You may even be able to negotiate a pay-for-delete agreement, which means the company will delete the collection account from your credit report if you pay what you owe. If the collection agency doesn’t agree to a pay-for-delete, you still want to negotiate and execute a payoff, as a $0 collection account on your credit report is better than one with a balance.
A 100-point credit score drop is serious but repairable
If your credit score dropped 100 points or more, it could be due to a late payment, collection account, tax lien or other reasons. While this big drop is alarming and significant, you can recover with time, responsible credit use, on-time payments and by speaking with any creditors or collection agencies.
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