Score Dropped 60 Points from paying off loan

[MrE]

I had two college loans.  Nelnet - 40,000 and KeyBank - 30,000 (Default)  Had a family member Pledge money into a loan for myself and I paid back Nelnet for the full amount and settled with KeyBank for 70% (around 20,000)  Two months later I ran another report and my score dropped from 672 (Started at 400 from five years ago) and dropped down to 612.  No way my wife and I can get a house.  I knew it could drop but not 60 points!  It's going to take another year to bring it back up to the 670-680 range that I really needed to make a mortgage work.   My tracking the last 2 years had been great.  Each score was going up each 3 months and we've put a lot into savings and everything has been great.  Very depressing to hold my family back like this. 

I also knew I would be applying for a mortgage at this time so about 6 months ago I opened my first credit card (Capital One QuickSilver -$2,000 limit) SO I have made weekly payments (I emotionally feel better making weekly payments for some reason) and wonder if asking to increase my limit would help or hurt my score.

Thanks everyone.

[StartingOver10]

---

@MrE wrote:

I had two college loans.  Nelnet - 40,000 and KeyBank - 30,000 (Default)  Had a family member Pledge money into a loan for myself and I paid back Nelnet for the full amount and settled with KeyBank for 70% (around 20,000)  Two months later I ran another report and my score dropped from 672 (Started at 400 from five years ago) and dropped down to 612.  No way my wife and I can get a house.  I knew it could drop but not 60 points!  It's going to take another year to bring it back up to the 670-680 range that I really needed to make a mortgage work.   My tracking the last 2 years had been great.  Each score was going up each 3 months and we've put a lot into savings and everything has been great.  Very depressing to hold my family back like this. 

I also knew I would be applying for a mortgage at this time so about 6 months ago I opened my first credit card (Capital One QuickSilver -$2,000 limit) SO I have made weekly payments (I emotionally feel better making weekly payments for some reason) and wonder if asking to increase my limit would help or hurt my score.

Thanks everyone.

---

The score drop is temporary. You might not need to wait a year - unless you feel better waiting a year. If you are looking for property that can be financed FHA - you can get a good loan with a good rate if your mortgage mid-score is 620 or above with many, but not all, mortgage lenders. Naturally if you are in an area where FHA loan limits are too low, then you would need to have your mid-mortgage score above 680 (min) and preferably above 720.

Check your mortgage scores to see where you are now. They are completely different from your FICO 08 scores - you may be in position now (or soon). Your mortgage scores are on the 3 B reports here on MyFICO.

Not trying to derail the thread at all, just trying to hold out hope for you.

[ezdriver]

There is usually a score drop when a tradeline is closed ... how much of a drop depends on what the rest of your credit profile looks like. From your post, it seems like you have just one active tradeline with only 6 months of payment history. You need about three active tradelines with 12 months or so of ontime payment histiory to impress an underwriter and to have a decent foundation on which to continue building a robust credit profile. Get yourself two more tradelines asap and work them for the next 12 months and you will be in a good position to be approved for a mortgage. All the best to you.

[Anonymous]

---

@MrE wrote:

I had two college loans.  Nelnet - 40,000 and KeyBank - 30,000 (Default)  Had a family member Pledge money into a loan for myself and I paid back Nelnet for the full amount and settled with KeyBank for 70% (around 20,000)  Two months later I ran another report and my score dropped from 672 (Started at 400 from five years ago) and dropped down to 612.  No way my wife and I can get a house.  I knew it could drop but not 60 points!  It's going to take another year to bring it back up to the 670-680 range that I really needed to make a mortgage work.   My tracking the last 2 years had been great.  Each score was going up each 3 months and we've put a lot into savings and everything has been great.  Very depressing to hold my family back like this. 

I also knew I would be applying for a mortgage at this time so about 6 months ago I opened my first credit card (Capital One QuickSilver -$2,000 limit) SO I have made weekly payments (I emotionally feel better making weekly payments for some reason) and wonder if asking to increase my limit would help or hurt my score.

Thanks everyone.

---

Asking for CLI won't hurt, but it won't really help either. You should get two more Credit cards. I would suggest a second Cap One card first, and shop around for your third one. Barclays, Discover, or a CU such as SDFCU would be good starting points. Your scores will rise faster with the added cards.

[MrE]

I REALLY really don't want to push this back a year.  My wife and I (and 2 year old son) live with my folks to help save money for the last year and a half.  We've put a lot away for a downpayment, closing costs etc so we were feeling very positive to be able to pull this off by midway through the summer.  I would be extremely nervous to apply for any cards though especially now that my score dropped to 612.   When I applied for my current card, my score was at around 640 and I immediately saw a jump of about 20 points.  I also had a positive historical payment (of a current loan) for my two college loans.  So I had recent acitivity.  Do you think applying for another card would be helpful?  I mean, what if my score climbs back up to 645-660 in the next three months and we want to apply for a mortgage.   Now I will have another new credit card within months of applying which I have always read would look bad.

[superdad]

Where the student loans in default?  If they were you could of started rehabing them a 6 months ago. You can still get a home loan with student loas in rehab.  Also if you open another CC your scores will take another hit.  I think you might of put yourself in a bad spot by paying them off compleatly.  I would only open more CC if your able to wait another year. 

[Anonymous]

You usually get an immediate score boost from the first account you open, and a smaller boost (or a neutral affect) from the second. The third and any subsequent accounts will usually cost about 5 points or so initially. Where the third card helps is when you want to maximuze the UTI portion of your score, you can carry a small balance on one card without getting hit with a penalty for half of your accounts carrying a balance.

I would definitely suggest apping for a Cap One QS card. I know you're currently looking at a 3 month timeline, but that may not be realistic - I would plan for 6 months out at this point.

Is the 612 your mortgage scores or your FICO 8 scores?

[MrE]

They were in default from a long time ago.  I had 2 loans.  One was with Nelnet and in good standing.  I had 5 years of good payments on time (this was after a rehab program from back in 2010) So, the Nelnet one looked great and was helping a lot.  The second one was in bad standing as a default but even with the default I had been paying it every month for 5 years as well.   I had brought up the issue with a finance manager and they said we should get them all paid off and done.  They didnt realize the impact it was going to have.  I opened my first real credit card on december 31st 2014 and have had perfect usage/payment for the last 6 months and just had a credit increase about three weeks ago.  I am suppossed to get another credit update today at which point I will purchase another report.  Still incredibly frustrated.  The finance manager works for a large investment company and I really thought they would have more awareness on credit impact with this stuff but I guess they are used to dealing with more affluent clients. 

[MrE]

I opened up my first credit card on dec 31, 2014 (about 7 months ago) and immediately got a score increase (about 25 points) and then in april when the large payment went through to pay off my loans my score dropped down.  The card I opened in december was the Capital One Quick Silver card (Mastercard) and it originally had a 2000 dollar limit.  About three weeks ago I requested a limit increase and got a 6000 dollar limit.  So I had to make a quick large payment on a car repair so it really all worked out.  My utilization is at exactly 25%.  Would applying for a Visa card help or not at this point?  

My Fico 8 TransUnion score is 612 but the Score 4 Mortgage is 705.  I'm not sure what the specific Fico 8 Mortgage score would be.  

[rockbttm442]

If I understand correctly there isn't a FICO 8 mortgage. The 795 TU is good may need to see what EQ and EX are.