What Can Drop Your Credit Score Down 60 Points in Less Than a Year?

Sixty points could be enough to cost you thousands of dollars on a loan and you might lose these points with just one negative item. You can ding your credit in far less than a year, maybe even in just one month. With time, you can reverse the effect of something causing 60 points of damage.

Considerations

The Fair Isaac Corporation (FICO) credit scoring algorithm can be very temperamental, so you cannot precisely predict the number of points any negative item can cost. In some cases, a negative can improve a credit score. The Fair Isaac Corporation keeps its scoring formula under a tight seal, which means the best you can do is estimate how variables will change your score. Also, negative items have a reduced impact on already low scores, so a seriously negative item on one person's report may have an insignificant effect on another credit profile.

Maxing out a Credit Card

The amount of debt you owe makes up 30 percent of your score, but within this variable is credit utilization, or how much of a credit line you use. Maxing out just one card can result in a loss of up to 45 points. This can easily happen when you have a low-limit credit card and rack up everyday purchases without paying off the balance in full each month.

Late Payments

A 30-day late payment rarely does less than 60 points of damage to the average score of 680, according to Bankrate. Higher scores lose even more points. If the borrower cannot pay for 90 days, the damage then goes up to at least 70 points and as much as 85 on that same credit profile.

Debt Settlement

You can negotiate with a lender to pay less than what you originally borrowed in less than a year. The creditor, however, will likely report your the account as a debt settlement. This does between 45 and 65 points of damage on an average score and more than double that on a very high score.

Considerations

It takes far longer to recover from a negative incident than to cause the damage. If you have an average to above-average score and see a 60-point drop, there is little you can do, unless it a maxed out card and you just need to pay off the balance. Fortunately, negative items become much less important after two years, and some lenders do not even look at items older than this.