@cluessJohn wrote:Folks,
In June 2014, I looked to refinance my existing mortgage and made applications. At that time, my FICO for the 3 agencies averaged 795. I decided to pay off the mortgage and now own my home free and clear.
After the payoff, my only open credit consisted of Chase Freedom (~$2 to $3K/mo; $17.5K limit; open since 2005) and TD Bank Rewards ($0/mo; $10K limit; open since 1995). Any monthly charges were paid in full and on time. Closed credit was the mortgage, 2 car loans and several predecessor cards. All payment history (open or closed) is clean.
Recently, I applied and was approved for an AMEX Preferred Cash card (I liked the points and “free” $150 for meeting 3 month spending minimums.) AMEX was going to be my primary card and Chase my back-up. I cancelled the TD Bank card without knowing that was a mistake.
I got the AMEX plastic and paperwork and found that my FICO (Experian) per AMEX was 680. I was shocked; I pulled my Experian credit report, got free ones from the other 2, and have done research. I didn’t realize paying off a mortgage would hurt your FICO. There is one other item. A disputed $500 medical bill went to collection and hit the report 10/2014.
I am now on a mission to restore my FICO. I did call Chase and they bumped my limit to $30K over the phone. I should have asked for more. I tried to get AMEX to increase their limit but they said no, citing a 60 day moratorium on new cards. I will aggressively go for an increase in December. I will also look into the $500 dispute and probably pay it.
My questions are:
Does this 100 point FICO hit make any sense? I had 4 HP's (3 for the refi inquiries and 1 for a phone) and it just doesn't seem right given my sole "blemmish" is a $500 dispute.
How long does it take to recover?
Maybe I am not playing the utilization game correctly. Should I apply for more cards? (I’ve got a handful of monthly expenses (Netflix, HVAC contract, etc) that were automatically charged to Chase. Would getting a couple of cards and charging a small monthly amount to each of them help long term?)
Any thoughts are appreciated.
The hit is almost entirely becuase of the medical collection. I'm actually surprised that you have a current, recent collection and still have a score almost 700. You need to PFD the collection, and then your score should go back up. Don't worry about getting another card to compensate for TD, that card will still report for another 10 years even though you closed it.
Welcome to the forums!
For a clean file near 800ish, a new derogatory can easily be a 100 point swing. The size of the collection doesn't matter at all (well, more modern FICO's discount collections <$100).
Also when we're talking new models such as Amex in my estimation is using, if the mortgage was the last open installment loan on your credit report, that is a negative as well. For whatever reason FICO has found that people without open loan types are higher risk of default.
Anyway, don't open any more accounts, possible exception of an installment loan (secured to keep it cheap financially if you don't have an auto or mortgage in the near future), and absolutely don't pay that collection without doing some research over in the Rebuilding Your Credit board for what's termed as a Pay For Delete (PFD). For everything current in the market, a paid collection is identical to an unpaid one score wise, you want to get it removed completely which usually isn't a huge hurdle on disputed medical debts. IF you pay it, you lose your entire negotiating position and are stuck for 7 years with it on your credit report... which sucks, trust me 
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@akula wrote:
@cluessJohn wrote:
After the payoff, my only open credit consisted of Chase Freedom (~$2 to $3K/mo; $17.5K limit; open since 2005) and TD Bank Rewards ($0/mo; $10K limit; open since 1995). Any monthly charges were paid in full and on time. Closed credit was the mortgage, 2 car loans and several predecessor cards. All payment history (open or closed) is clean.
Recently, I applied and was approved for an AMEX Preferred Cash card (I liked the points and “free” $150 for meeting 3 month spending minimums.) AMEX was going to be my primary card and Chase my back-up. I cancelled the TD Bank card without knowing that was a mistake.
From my understanding, this was not really a mistake - or shall I say a mistake that results in an instant impact. It will report for 10 more years and still be used in your AAoA, so who cares - I doubt there is much difference between an AAoA of 10 and 20 years. Now for the mortgage, it still will be reported for 10 years as well. However, I am interested to know if the state changing from open to closed has an impact?
Open vs closed does indeed have an effect. FICO considers having a mix of credit (such as installment loans) when scoring, and a person's score will reflect that. Therefore, if someone has one installment loan open like a car or house, and then they pay it off completely, their score will go down.
On the TD thing, I know the history stays, I was thinking it hurt in terms of current UTIL. I made that up by increasing Chase and thought it wouldn't hurt by adding a couple of no fee cards with ~$5K limits and using them at very low levels.
I read somewhere in the past few days that having no debt against my real estate was somehow a negative. Makes no sense to me.
I have no doubt my solid history helps a great deal but it makes you wonder how a single $500 disputed/neglected medical bill can blow all that to hell.
Its not right,
@akula wrote:
Thanks for the clarification on the closed/open question. However, I assume even though it is closed installment, it will still be included in AAoA?
Yes that is correct.
@jamie123 wrote:You are running the risk of really weakening your credit profile. It happens to a lot of people during their lifetime. (I can speak from experience!) As you get more settled and have a higher income you lose the NEED for credit and stop using it.
My suggestions for you in order of importance:
1. You MUST have the medical collection removed from your reports! This is a HUGE hit to your scores right now because it is so recent but will be a drag on your scores for 7 years if it is not removed. It is not difficult to have it removed if you attack the problem now. Do it. Pay for delete. -- This is definitely the biggest factor, and should be the first thing addressed.
2.You should get one or two more credit cards every year for the next few years until you have 5 to 8 credit cards. You have a very thin credit report now with only two open credit cards. Sure, you have a pretty thick file now but as everything ages your file will become thinner and thinner. Credit cards are the only form of credit that you can keep open for life and you need to do that to maintain a thick credit profile. Credit card credit limits have ABSOLUTELY nothing to do with your credit scores! A $500 and a $30,000 credit card credit line are seen EXACTLY the same in FICO scoring. More cards equals better scoring . -- Not sure where the 5-8 cards comes from. Credit limits don't directly affect your credit scores, however higher credit limits do minimize your UTIL once you are using your credit, which is a good thing. Lastly, more cards don't specifically equal better scoring. If one person has five credit cards and another person has ten, with EVERYTHING else including AAoA, UTIL, credit history, etc being the same, I don't see why their scores wouldn't be the same.
3. This is optional and if you plan on getting an auto loan in the next year or two you really don't need it. Open a shared secured loan at SDFCU or Alliant Credit Union. FICO has a "mix of credit" scoring portion and having an open installment loan will boost your scores a bit. Your mortgage also figured into this calculation and you see how you lost points once it closed. -- Having a mix does indeed affect your score.
Closing credit cards is a bad idea unless they have an annual fee. Credit cards are the building blocks to a great credit score and will help you absorb the hits your scores take from adding new credit from time to time. (Auto loans, mortgages, etc.) They are a necessary evil. You should have from 5 to 8 open credit cards that you can keep open for life.
Having said the above in red, just worry about the collection for right now, and do everything possible to address it and get it removed. Priority number one.