Debt Paydown and FICO Score Disconnect

[DD60]

In August 2010 my overall debt was about $104,000.  In September my FICO score topped out at 816, with a comment on the alert to the effect that paying down debt could be the reason for the increase.  That sounded reasonable.  However, in November I paid off the mortgage on my home and my FICO score dropped ten points.  It did rebound a bit in December, but again, in January, I paid off almost $50,000 of the overall debt and made sure all my cc accounts were either zero or credit balances before their February closing dates,  My FICO score dropped again.  So, reducing my overall debt from $100,000 to $50,000 and my revolving credit usage from 16% to 0% resulted in a drop of 4 points in my FICO score, from 816 to 812.  Makes me wonder if FICO is picking numbers out of a jar.  If not, I would love to see the algorithm that can interpret my debt reduction actions as a negative.

[MarineVietVet]

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@DD60 wrote:

In August 2010 my overall debt was about $104,000.  In September my FICO score topped out at 816, with a comment on the alert to the effect that paying down debt could be the reason for the increase.  That sounded reasonable.  However, in November I paid off the mortgage on my home and my FICO score dropped ten points.  It did rebound a bit in December, but again, in January, I paid off almost $50,000 of the overall debt and made sure all my cc accounts were either zero or credit balances before their February closing dates,  My FICO score dropped again.  So, reducing my overall debt from $100,000 to $50,000 and my revolving credit usage from 16% to 0% resulted in a drop of 4 points in my FICO score, from 816 to 812.  Makes me wonder if FICO is picking numbers out of a jar.  If not, I would love to see the algorithm that can interpret my debt reduction actions as a negative.

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This could be one reason for a small drop. Some folks (not all) report losing a few points if they have no revolving utilization reporting. I would suspect that if you let one of your CC's report a tiny balance next month you'll get those few points back. But everyone's situation is different.

By the way congratuations on the debt pay down. In my opinion that comes before any kind of score.

From a BK years ago to:
EX - 9/09 pulled by lender 802, EQ - 10/10-813, TU - 10/10-774

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

[Lel]

Keep in mind that the FICO score is not an assessment of someone's debt level.  It's how that person manages that debt.  Persons with no debt and minimal history of credit management are not going to have good scores.  Conversely, a person who has a long and pristine credit history but has a $500,000 mortgage and balances on a handful of credit cards can have an excellent credit score.

Also, persons with very high FICO scores like yours have noticed that their score can be rather sensitive to even small changes in their credit report.  The absence of revolving balances may cause a score drop.  If your mortgage was your only installment loan, then no longer having an open loan may also cause a small decrease in score.

In the grand scheme of things, a 4 point drop in the face of these fairly significant changes to your credit profile is not bad.  And at 812 with no other debt, you shouldn't have any problems when you do decide to seek credit again.

[ficonightmare]

Something similiar happened to me with TU. Paid down my util to 3% and my score dropped 4 points.

Just pulled my report again, score is back up and higher than the original one. I think when a score is at your level, it becomes impossible to figure out the fine tuning that goes into it.  But I'd bet that in a few weeks, your score rebounds and will probably be even higher.

[DD60]

I inadvertently tried the "tiny balance" approach in February.  I charged $27 on a card I hd not used for three months, just to have it report some activity for February.  The charge was placed on the 10th, the account closed on the 12th, and I paid it off on the 15th.  I then received alerts from both Equifax and FICO about my "increased balance on an account" and my score dropped two points.  I am tempted to let the $5,000 outstanding on my VISA slide until after the closing date in March just to see FICO's reaction, but my subscription to SW will be up the same day, so I would never know.