6 Credit Hits That Can Lower a Credit Score by 100 Points or More

Written by , March 7, 2013

6 Credit Hits That Can Lower a Credit Score by 100 Points or MoreYour credit score is quite possibly the single most important measure of your creditworthiness when you’re applying for a new loan or credit card. Home mortgage lenders and credit card companies will not only use your score to determine whether or not to extend you credit, but also what interest rate you’ll pay for that credit.

While the exact formula used to calculate your credit score is not known, and contains a number of different components, we do know that certain types of activities can result in a significant drop in your score.

Here is some credit card advice on six credit hits that could cause your score do drop by at least 100 points.

  • Going Over Your Credit Limit. It’s important to always know how close you are to your credit limit on each of your credit card accounts, since going over your stated limit could cause a big credit score drop. Ideally, of course, you want to be far below your credit limits, since carrying large balances could end up costing you thousands of dollars in interest.
  • An Increase in Your Credit Utilization Ratio. A significant negative change in your credit utilization ratio can cause a sizable drop in your credit score. Your “credit utilization ratio” is calculated by comparing the outstanding balance you carry on a particular line of credit to the maximum amount of credit you have available. Running up the balance on a credit card, and not paying that balance down quickly, will likely damage your credit score.
  • A Missed Payment. Even a single missed payment on a credit card or other revolving line of credit could significantly lower your credit score. For individuals with strong credit scores, missing a payment by more than 30 days could easily cause a decrease exceeding 100 points.
  • A Bankruptcy. Declaring personal bankruptcy is generally the single event that does the greatest amount of damage to your credit score. Depending on the number of accounts and amount of debt that you have discharged through a bankruptcy proceeding, you might even expect your credit score to decline by much more than 100 points. Even a business bankruptcy can reflect negatively on your credit score, depending on how you were involved with the failed business, and how it was structured.
  • A Home Foreclosure Action. Not being able to meet your home mortgage obligations, and allowing your home to go into foreclosure will also result in a significant hit to your credit score. As with a personal bankruptcy, the fact that you’ve been subject to a foreclosure will remain in your credit file for many years. Note that even if you avoid foreclosure and persuade the bank to enter into a “short sale” your credit score will still experience a sizeable drop.
  • Settling a Credit Card Debt. Settling a credit card debt for less than the original debt amount will remove that debt obligation, but it will also cause your credit score to drop significantly.
  • Different agencies use different methods, and those methods can yield different scores. Make every effort to avoid the credits described above so that your credit score stays as high as possible.

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