Q&A: Sudden spike in credit utilization can cause major score drop

The good news is your score can recover quickly – as long as late payments are not the issue

Speaking of Credit columnist Barry Paperno
Barry Paperno is a freelance writer and credit scoring expert with decades of consumer credit industry experience, serving as consumer affairs manager for FICO (formerly Fair Isaac Corp.) and consumer operations manager for Experian. He writes "Speaking of Credit," a weekly reader Q&A column about credit scoring and rebuilding credit, for CreditCards.com. His writings about credit scoring have appeared in The Huffington Post, MSN Money, CBS Money Watch and other consumer finance websites.

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Dear Speaking of Credit
I have always had a 0 percent credit utilization on my credit card. This month it was at 92 percent because the payment cleared the day after it was reported. My credit score dropped about 100 points.

My question is, when the credit card company reports again and my card is back to 0 percent utilization, will my credit score rebound by about 100 points, or will it slowly creep back up? – Amanda


Dear Amanda,
Hats off to you for being willing and able to pay your card in full (almost) every month. There is nothing better for your credit score and your bank balance.

No doubt you had a high credit score prior to that 100-point loss, thanks to your 0 percent credit utilization – the amount you have borrowed compared to your credit limit – and the clean payment history that went along with it.

Fortunately, the answer to your question of whether to expect your score to jump or creep back up should be good news.

In all likelihood, if more than 30 days have passed since just missing that intended statement date (same as closing date), your score may have already recovered every one of those lost points by now.

Or it may have fallen just short of a complete recovery. Or then again, your new score might be even higher than before that huge spike in utilization hit.


Video: What is your credit utilization ratio?

A common thread in all cases
Predicting a future credit score recovery first requires we identify the cause of the credit score drop. Typically, large losses of points, such as the one you have experienced, tend to result from either late payments or high utilization, or both. We know yours is that quick 0-to-92-percent credit utilization jump.

An important common thread you’ll see throughout all credit-scoring scenarios is that credit utilization and other “amounts owed” calculations consider only the last reported card balances and credit limits.

At the same time, late payment calculations evaluate your payment track record over as many years as are represented on your credit report.

Together, though calculated quite differently, your credit utilization and payment history make up almost two-thirds of your credit score.

In any score recovery, you can expect to see:

  • Points lost to high utilization being recouped as soon as a high balance is brought back down and updated at the credit bureau.
  • Points lost to delinquent payments (more than 30 days late) often requiring years of rebuilding.

Recovering only some lost points
If you recently opened or closed an account, or raised the credit utilization on another card, your score could fall short of a complete recovery and require more time to reach that previously high score.

For example, recovering from a recent inquiry and a new account opening is likely to require a different timetable than just reducing your credit utilization to 0 percent. 

Recovering all lost points
Regaining every one of those points lost last month will require your credit report to look essentially like it did before the drop – or better. For you, this might mean:

  • Showing 0 percent credit utilization on all cards.
  • Leaving all cards open so that their credit limits and $0 balances continue to be included in credit utilization calculations.
  • Avoiding hard inquiries and new account openings.

Recovering all lost points and more
And then there’s the best of all worlds in which you not only make up for all lost points, but you add some more.

If this is you, congratulations, as your credit report has probably experienced one or more of the following “aging” changes, along with payments in full:

  • Increased length of credit history since your last score.
  • Latest hard inquiry or account opening no longer considered too recent.
  • Older late payments having less negative impact over time.

Above all else, the lesson here is don’t despair if temporarily high utilization lowers your credit score. As long as late payments are not the issue, a full recovery can occur in as little as 30 days.

Compare this to the years often required to fully rebound from a late payment, and you will have good reason for optimism – and for always paying on time.

In fact, knowing what you now know, simply identifying the reason your score dropped can mean the difference between, well, jumping and creeping.

See related: Forget the 30 percent credit utilization 'rule' - it's a myth, Three errors that could cause a 100-point score drop

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Updated: 11-16-2018