Paying off credit cards dropped my score by 15 points!

[Anonymous]

i recently paid off 2credit card balances in full and my credit dropped by 15 points. How can this be? Everybody says to pay off debt to raise it so I am confused. It also lists in the reasons why my credit score is good the fact that I had used my credit card lately. I am so confused. 

Im trying to get a mortgage. I can't keep having my scores drop. Any advice?

[1eyebandit]

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@Anonymous wrote:

i recently paid off 2credit card balances in full and my credit dropped by 15 points. How can this be? Everybody says to pay off debt to raise it so I am confused. It also lists in the reasons why my credit score is good the fact that I had used my credit card lately. I am so confused. 

Im trying to get a mortgage. I can't keep having my scores drop. Any advice?

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Allow one card to report with a balance between 1 and 9 percent.  Then pay then balance in full.

[takeshi74]

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@Anonymous wrote:

Everybody says to pay off debt to raise it so I am confused.

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Everyone does not.  Be careful with your research.  Always consider your sources, validate, corrborate, etc.

Revolving utilization is a very common topic and the general recommendations are:

• Do not exceed 30%.
• Lower is generally better but you do not want all 0 balances reporting as there is a hit for that.
• To optimize when applying allow only one balance to report at 10% or less.
• You can reduce reported balance by paying prior to report date.  If leaving a balance to report pay the remainder of the statement balance in full by the due date.

 It is also possible that you're assuming causality and other factors may be at play as well.  To understand the cause(s) of any scoring change you have to carefully review reports from before and after the change.

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@Anonymous wrote:

Im trying to get a mortgage. I can't keep having my scores drop. Any advice?

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Don't fret over score changes due to revolving utilization.  Adjust it correctly and it will update next month.  You scores will recover a bit once you're not at all zero balances.

Keep in mind that the scores you're pulling may not be the same ones that a mortgage lender will pull for you.  There can be a significant difference depending on the model you're relying on and the one the lender uses.  IIRC myFICO is offering additional scores used by some mortgage lenders but if you want to rely on scores you need to understand what CRA and scoring model the creditor you're applying to uses.

[Anonymous]

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@Anonymous wrote:

i recently paid off 2credit card balances in full and my credit dropped by 15 points. How can this be? Everybody says to pay off debt to raise it so I am confused. It also lists in the reasons why my credit score is good the fact that I had used my credit card lately. I am so confused. 

Im trying to get a mortgage. I can't keep having my scores drop. Any advice?

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You need to keep in mind the difference between paying in full and letting something hit your statement. Paying in full is done to prevent interest from accruing after the grace period. The grace period lasts from when the statement cuts to when the bill is due, usually 2-3 weeks later. 

What people are recommending is that you pay all but ONE card down to zero before the statement cut date, so that those cards cut at zero. Your ONE remaining card you pay down to between 1% and 9% utilization. That remainder (the 1-9%), you pay after the statement cut date, but before the due date, so that you have "Paid in full" and don't accrue any interest. 

[Anonymous]

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@Anonymous wrote:

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@Anonymous wrote:

i recently paid off 2credit card balances in full and my credit dropped by 15 points. How can this be? Everybody says to pay off debt to raise it so I am confused. It also lists in the reasons why my credit score is good the fact that I had used my credit card lately. I am so confused. 

Im trying to get a mortgage. I can't keep having my scores drop. Any advice?

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You need to keep in mind the difference between paying in full and letting something hit your statement. Paying in full is done to prevent interest from accruing after the grace period. The grace period lasts from when the statement cuts to when the bill is due, usually 2-3 weeks later. 

What people are recommending is that you pay all but ONE card down to zero before the statement cut date, so that those cards cut at zero. Your ONE remaining card you pay down to between 1% and 9% utilization. That remainder (the 1-9%), you pay after the statement cut date, but before the due date, so that you have "Paid in full" and don't accrue any interest. 

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+1

1) Find out the statement cut date for all of your cards

2) Pay off all card balances before their respective statement cut date EXCEPT for one card

3) For this one exception card, make sure that its balance is paid down to between 1%-9% before its statement cut date.  Re-iterating: Do not pay this card down to 0...the balance needs to be between 1%-9% so that when the statement cut date comes, that is the amount that is reported.

4) Once this statement cut date passes, pay this card down to 0.  Do this before the due date so that you do not accrue any interest.

[CraigHwk]

I accidentally let all my cards report 0 and my EX score dropped 18 points today.  Ouch.  At least it'll bounce back immediately when a card reports a balance. 

[Anonymous]

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@CraigHwk wrote:

I accidentally let all my cards report 0 and my EX score dropped 18 points today.  Ouch.  At least it'll bounce back immediately when a card reports a balance. 

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OP, that is the benefit of this probalby being a utilization issue. Utilization has no memory, so once you let a statement cut with a balance, your score will come right back up.