Sudden Significant Drop in Credit Score
November 14, 2022 8:31 PM   Subscribe

My credit score dropped 40 points today due to "increased credit usage" on one of my cards. I purchased a laptop on my Apple Card in October and am carrying a $3k balance since I am paying it off in installments, something I have done with this card before. What's going on that would cause such a huge drop when I have never dropped that much in one go in 20 years of having credit?

First, this does not appear to be related to my most recent Ask, so that's good.

According to Experian, this drop is because I went from using 11% of my Apple Card's credit limit to 95%. Sure. I bought a new laptop in October. It cost money. I'm paying it off per the financing agreement of the card.

But in August of 2021 I a) opened this credit card (hard check) AND b) bought a similarly priced laptop using it, and my score only dipped 12 points due to the hard check, even though my balance on the card was about ~80% of the limit.

Why am I being penalized 40 points now?

Did acquiring new credit in 2021 cancel out having a balance using said new credit?

Is coming that close to one card's limit this bad?

Will halving the balance this month restore part of my score? (Something I *can* do but really would like not to)

I didn't go from Good to Bad or anything, but I am alarmed and annoyed and confused because this is the biggest score drop I have ever had in 20 years of having credit cards.

What the heck???????
posted by The Adventure Begins to Work & Money (10 answers total) 1 user marked this as a favorite
 
It’s a blip. It’s because you went from using 11% of your credit to using 95%. Borrowing and paying back will fix it. In the future, you might need to have slightly more credit.
posted by vunder at 8:37 PM on November 14, 2022 [3 favorites]


Response by poster: More credit on that card, or more credit, period?

I have a lot of credit total relative to the average person, which is why I'm perplexed by this one card tripping up the system.
posted by The Adventure Begins at 8:50 PM on November 14, 2022


I'm not 100% sure if there's any effect based on utilization on one card being particularly high. But, anecdotally, this summer, I paid up front for a work trip and ended up with an unusually high balance on one card. This still only meant 31% utilization on that card, and corresponded to about 13-14% of my total available credit, but Experian knocked me down by 41 points. It bounced back the next month after I got my expenses reimbursed and the paid off balance hit my credit report. Unless you're applying for new credit in the near future, I wouldn't worry about trying to cut the balance fast if it'd be any trouble.
posted by egregious theorem at 9:07 PM on November 14, 2022 [3 favorites]


Are you in a situation where it matters what your credit score is right now? If you don't see any suspicious activity on your credit report I'd just stick with your original plan for repayment and not worry about the number unless you really needed the better score for something specific right away. FICO score is proprietary so while some factors are known publicly, I don't believe all are.
posted by Aleyn at 10:18 PM on November 14, 2022 [8 favorites]


Best answer: This does not seem unusual to me at all. My score has dropped a lot more for a lot less credit use percentage increase. Two things to remember about credit scores is that they do not indicate what most people think they do, and you can not really apply logic to the scores as they apply to your credit usage. Even the three big agencies will calculate different scores based on the same data.

Most people think these scores are an indication of how likely you are to pay money back and that is true to an extent, but it is really an indication of how likely a lender will be to make money off of you if they extend you credit. Part of that is analyzing your credit usage patterns against others with similar credit patterns to you. So if your credit score was 650 or 700 and you almost maxed out a card that you have only had for a year, your score might drop 20 points, because behavior might be typical for someone with that profile. But if your score was 820 and you did the same thing, it could drop 40 points or more because that might not be typical for someone with that profile and might indicate a troubling shift in behavior. The ironic thing is, once you were to pay that balance off, it will likely spike your score a little higher than it was before because they made money from that purchase, even if you didn't pay a penny of interest. The card issuer still got their cut in fees to the vendor. These algorithms do not factor in that you may have maxed out that card with a $2,500 because it was 0% interest, because your card with a $15,000 limit charges 30.99% on outstanding balances. (All these numbers are of course made up as I have no inside knowledge of the algorithms, only a general understanding of how they work.)

BTW, a lot of card companies have credit score simulators on their websites that estimate what would happen if you made a purchase for $X or increased your limit by $X. Since you say you did not go from a good to bad score, I assume you went from good to slightly less good, so it should not have too much of an impact on your borrowing. Generally the suggestions for raising my score involve decreasing the total debt to credit ratio, not a specific account. So if you wanted to increase your score a bit, you could ask for a limit increase. If you were to apply for a new card it would hit it both ways, help you but increasing the debt to credit ratio, but decrease for inquiry and new account.
posted by Short End Of A Wishbone at 10:34 PM on November 14, 2022 [1 favorite]


Hitting a high percentage of a single credit card will cause a drop in your credit score, even if your total credit usage is still low.

Are you financing a new house or car or applying for a high end credit card in the next six months? If not, don't worry about it. Mine fluctuates too and I pay it not mind unless I'm gearing up to take out a big ticket loan for a major item. There's some things like insurance prices or applying for an apartment that look at credit score but that's generally only if they're in the unhealthy range, not a 40 point blip while rated very good etc.
posted by Candleman at 11:15 PM on November 14, 2022 [1 favorite]


Best answer: The 95% usage is enough to make quite a big dip. It's completely temporary, and will go away when you're not using 95% any more.

Credit scores in general get penalised for 30% or more usage on any one card, or 30%+ on all cards in total; whether the score is FICO or Vantage it will happen, though the point numbers will differ a bit. I've seen my score move a little on much less usage than that, in fact, but I think it's worse the higher a percentage you go. It's nothing to worry about if you aren't living beyond your means; when you're paid everything off you will be back exactly where you started.

Also, it doesn't seem to have anything to do with the rate of payment. If you pay it over 24 months or pay it all back tomorrow your score will get all its points back.
posted by How much is that froggie in the window at 11:48 PM on November 14, 2022 [1 favorite]


Best answer: Seconding the general advice above, don't worry too much about it.

One possible way to smooth these types of dips out in the future is to see if you can raise your credit limits higher for all of your cards (assuming you have more than 1).

These will reduce the percentage of debt you have relative to your credit availability. Just keep in mind that the request for a credit increase may also trigger a temporary dip if the company does a hard check (which I think depends on the company and/or how long you have been with them).

Also, be careful about requesting too high of an increase. Most CC companies won't outright tell you what they think your max limit should be. Instead they will force you to request it and then either accept or deny it.

Credit is all a dumb game, whee!
posted by jeremias at 3:23 AM on November 15, 2022


You maxed out a card and are paying it off on installments. You also did the same thing before. It's a red flag (however temporary) and reflected as such in the score. You know your reasons and they are financially sound, but the hit simply reflects the general circumstance: you maxed out a card and aren't paying it off immediately and now it's a pattern. That's also what people who are having some sort of financial difficulty that constitutes a credit risk do.

You hit a certain threshold *and* a pattern.
posted by desert exile at 6:30 AM on November 15, 2022


Response by poster: Oh man, I feel so much better. Thanks, all.
posted by The Adventure Begins at 4:53 PM on November 20, 2022


« Older Want to configure VPN on Mac so that bittorrent...   |   I'm not sure how I fit into that scanner, but I... Newer »
This thread is closed to new comments.