FICO logic - can someone please explain to me

[Anonymous]

I just received an email from FICO Scorewatch informing me that my credit score just dropped 100 POINTS because my Visa balance increased by $629 in one month. While my debt on that card is closer to 50% of my credit limit than to 40%, a drop of 100 points seems excessive in the extreme, given the circumstances. Just about a month ago I reduced two other accounts by $1300, bringing my percentage of debt on those accounts to 36% of available balance. When all my open accounts and my Visa are taken into account, I am using 42% of my available credit.

I have never been late with a payment, never missed a payment. Why would this relatively small increase have such a violent effect on my credit score? Yesterday I was in the top 30% of consumers, today I'm in the bottom 25%. This makes no sense to me. Can someone explain the logic behind such a huge hit in light of my overall situation?

[Anonymous]

In my message above I stated that my total percentage of debt to credit is 42%, but I made a mistake -- it's 36%. I was told by a FICO customer service rep that the threshold is 40%, but it looks from some of the comments on this board that it's more like 30%. Either way, I can't see where this ratio puts me in the bottom 30% of consumer credit scores.

I hope someone can shed some light on this for me, because at this point it seems as though no matter what I do, I can't win.

[Anonymous]

---

minonda wrote:

I just received an email from FICO Scorewatch informing me that my credit score just dropped 100 POINTS because my Visa balance increased by $629 in one month. While my debt on that card is closer to 50% of my credit limit than to 40%, a drop of 100 points seems excessive in the extreme, given the circumstances. Just about a month ago I reduced two other accounts by $1300, bringing my percentage of debt on those accounts to 36% of available balance. When all my open accounts and my Visa are taken into account, I am using 42% of my available credit.

I have never been late with a payment, never missed a payment. Why would this relatively small increase have such a violent effect on my credit score? Yesterday I was in the top 30% of consumers, today I'm in the bottom 25%. This makes no sense to me. Can someone explain the logic behind such a huge hit in light of my overall situation?

---

Okay just because this change was the one reported with your Scorewatch it may not be the only factor in the sore decrease.  Do you remember all of the accounts that were  reporting on your file beforehand.  Pull the full report and compare it to the previous one.  Has an old account fallen off your report?  Even if it was an old colelction it can have an effect on the score.  I've heard of something similar happening when a friend had an old closed  account drop from his report, significantly reaging his credit history.

The increased utilization can definitely ding you.  Are any cards above 90% usage which would read as maxed out?  Do you have balances on the more than half of your cards.  Sometmes the change combined with other factors taken into account by the score can drop you?

We would really need more info, comparing the previous report to the new one to give a straight answer.  In the past three months my score has increased by 60 points by taking utilization from about 40 percent to below thirty waiting for an additional increase as I hit 10% around the 20th of the month.  I also find that the score has a tendency to hit harder on negatives than reward on positives.  Over 50% on a card with multiple balances also combine to double whammy you.

HTH

Message Edited by Brammy on 04-08-2007 08:29 PM

[Anonymous]

Hi Brammy, thanks for responding. To answer your questions, first, I don't have a current report to check, so I don't know if something has fallen off that could have affected my score to this extent. Why would that make such a difference?

Here is some background:

Just 4 weeks ago I got a notification that my score was 762. I don't have any accounts where my balance is greater than 50%, including my Visa. My Visa is the one with the highest utilization -- 47%. The others - one at 28%, another recenlty paid off, a third at 20%. It's possible that they haven't caught up with the payments I made in February that reduced my debt by $1400, and maybe that, combined with the increase of debt on my Visa card lowered my score. But 100 points sounds outrageous to me.

A few weeks ago I signed up with something called LifeLock, a service that puts fraud alerts on all your accounts (which I had already when I discovered that a piece of paper with my SS# had been left exposed for anyone to see in an area where a lot of people pass through) and they requested credit reports from all three bureaus. Could this move have possibly caused this huge drop?

I have no past due accounts, no missed payments, and I haven't maxed anything out, nothing. That's why this seems so extreme to me. If you have any idea what's up, please let me know. I hope I've given you enough information.

[Anonymous]

Okay you have scorewatch.  I would reccommend pulling a full report as that kid of drop can can serious adverse effects on your open accounts.  Credit limit lowering, interest rate increase, card closings, just to name a few.  I think the 10.95 would be well invested.  The only time I ever had a major score drop was when a collection was filed against my report, which I luckily got removed, and that was 50 points. You can compared the new report to the one that your currently have as long as its still viewable.

It could be a case of ID theft or,as I speculated before, maybe an old closed account fell off your report.

[Anonymous]

Ok, I will have to check my actual report. But, I also until a few days ago had the FICO identity alert service so I would have thought that any fraudulent activity would have been reported, plus, I have had fraud alerts on my accounts for the past month, so I don't know how anything could have happened without my knowing.

So you're saying that my current credit is in danger due to this drop, even though I don't know the reason for it?

[Anonymous]

---

minonda wrote:

Ok, I will have to check my actual report. But, I also until a few days ago had the FICO identity alert service so I would have thought that any fraudulent activity would have been reported, plus, I have had fraud alerts on my accounts for the past month, so I don't know how anything could have happened without my knowing.

So you're saying that my current credit is in danger due to this drop, even though I don't know the reason for it?

---

Unfortunately yes your current accounts can be affected by a large decrease infyour fice score.  Lenders generally check periodically or have triggers when accounts reah acertain score.  This aids them in deciding who get CLIs and who pays a higher interest rate based on perceived risk.  If you read your terms and conditions for your credit agreement you may find a phrase when relating to the default APR as to the reason why your rates may be raised.  I try to stick with cards that don't do universal default, in other words as long as my payments are received by them on time, I'm safe.  Both my WaMu and C1 (this is the only thing I've found good about C1) have a no UD clause. Although WaMu goes on to say that they will do periodic reviews and based on those reviewss they may decide on how much to raise the interest rate.

Most will state they can raise your rates based on any change in your credit performance and this is most often done by score monitoring. It would be too much work to pull a hard copy everytime. Something as large as a 100 point drop will bring your account up for review and hopefully they will eyeball it and find no new derogs and see that something old just fell off and spare you the guillotine.

Message Edited by Brammy on 04-08-2007 10:16 PM

[Anonymous]

Even though I recently paid $100 for the LifeLock service, I was so scared  by this that I decided to pay $10.95 to FICO for my current Equifax report, and this is what I found. They DO have the most recent payment information on my accounts although not the most current Visa balance, BUT, a past due Columbia House DVD bill in the amount of $46 (something I did not even realize I owed) is showing up as a "derogatory collection." I paid this bill last August when I first got the notice. Then they sent me another notice in January of this year. I sent them a copy of the canceled check and said that I paid it already. Now it's showing up as an unpaid collection.

Here is what it says in the credit report explanation of why having a relatively new derogatory report is bad:

"For consumers with derogatory public records or collection agency references on their credit bureau reports, a strong predictor of future repayment risk is the recency of the item. Federal law requires that most derogatory public records and collection items remain on your credit bureau report for no more than seven years (there are items which could remain longer). Note that satisfying or paying off a collection item or derogatory public record does not make it disappear from your credit report. Research shows that the fact that it occurred is still predictive of future repayment risk, and thus it will still be considered by the score."

This is one huge joke. With all the accounts I've had where I've owed significantly more money than this and paid on time, FICO is saying that because I didn't pay somebody $46 that I'm a credit risk? I would like to know who is formulating the standards that they use to arrive at our scores. Apart from the fact that I DID pay the bill, why would this be reason enough to lower my score  by 100 points?

Also, here's another funny joke:

"The proportion of balances to credit limits on your revolving accounts is too highThe proportion of balances to credit limits (high credit) on your revolving accounts is 38%. The average proportion of balances to credit limits on revolving accounts carried by U.S. consumers is around 40%. Click here to review your Accounts Summary."

Ok, if my proportion is 38%, and the average is 40%, what, exactly, is the problem here? Something is very wrong, and I don't think it has anything to do with credit card fraud. Looks like I'm going to be on the phone with Equifax tomorrow.

[Anonymous]

---

minonda wrote:

Even though I recently paid $100 for the LifeLock service, I was so scared  by this that I decided to pay $10.95 to FICO for my current Equifax report, and this is what I found. They DO have the most recent payment information on my accounts although not the most current Visa balance, BUT, a past due Columbia House DVD bill in the amount of $46 (something I did not even realize I owed) is showing up as a "derogatory collection." I paid this bill last August when I first got the notice. Then they sent me another notice in January of this year. I sent them a copy of the canceled check and said that I paid it already. Now it's showing up as an unpaid collection.

Here is what it says in the credit report explanation of why having a relatively new derogatory report is bad:

"For consumers with derogatory public records or collection agency references on their credit bureau reports, a strong predictor of future repayment risk is the recency of the item. Federal law requires that most derogatory public records and collection items remain on your credit bureau report for no more than seven years (there are items which could remain longer). Note that satisfying or paying off a collection item or derogatory public record does not make it disappear from your credit report. Research shows that the fact that it occurred is still predictive of future repayment risk, and thus it will still be considered by the score."

This is one huge joke. With all the accounts I've had where I've owed significantly more money than this and paid on time, FICO is saying that because I didn't pay somebody $46 that I'm a credit risk? I would like to know who is formulating the standards that they use to arrive at our scores. Apart from the fact that I DID pay the bill, why would this be reason enough to lower my score  by 100 points?

Also, here's another funny joke:

"The proportion of balances to credit limits on your revolving accounts is too highThe proportion of balances to credit limits (high credit) on your revolving accounts is 38%. The average proportion of balances to credit limits on revolving accounts carried by U.S. consumers is around 40%. Click here to review your Accounts Summary."

Ok, if my proportion is 38%, and the average is 40%, what, exactly, is the problem here? Something is very wrong, and I don't think it has anything to do with credit card fraud. Looks like I'm going to be on the phone with Equifax tomorrow.

---

Most definitely glad to see no fraud involved but a collection is a collection.  I would contact the collector and Columbia house with an intent to sue if it is not removed.  The impact of a new collection varies depending on your previous score.

That being said.  I know the balances too high thing will throw you off, however, the recommended revolving balance is 10- 30% the average thing is all account types, good, bad and ugly.  I still get that message at 24%.  Trust me if you get it down under 30 % and have that collection removed completely, you may recover your score.  I just read an article on msn money that a simple recent 30 day late notice can drop your score 100 points, goodness only knows what a colelction can do no matter the amount.

Get the collection off.  I had a bogus one that caused my card to rate jack me to the default and even after I had it removed they refused to lower it.  That's when I got tired of subprime treatment.  Act BEFORE it messes up anything else.

On the balances too high thing. I no longer get that since my balances are now reporting what I get now After paying off my car and having a student loan about to come out of deferment is that the balance on installment loans is too high. Never got that as long as the car loan was reporting open because it looked at both. You would think paying off a loan would be a GOOD thing... go figure

Message Edited by Brammy on 04-08-2007 10:45 PM

Message Edited by Brammy on 04-08-2007 10:48 PM

[Anonymous]

Brammy, if I can prove that I paid this bill in August 2006, will they take it off my credit report? Also, why, if I had a score of 762, would an amount of $46 have that profound an impact on my score? If I proved that I was trustworthy enough to pay many times greater amounts, why would $46 be so important? I didn't even know I owed them that money until I received a notice from them last August (I don't remember when I stopped being a member of the Columbia House DVD club, but it had to be years ago. I never got notices or reminders). Also, I paid the bill, so it should never have ended up in collections.

Years ago I had paid off a $1000 account, and somehow forgot to pay $5 of it. This was an account with MBNA. They never notified me that I still owed them $5, and then they posted it on my credit report as over 90 days past due. I got it removed on the grounds that it was ridiculous to penalize me for $5 when I had paid them their $1000.  I guess when it comes to credit scores there is nothing too ridiculous or absurd. It's almost as though they're trying to make it impossible to have a good score.

Thanks for your help and advice.