Fico score dropped by 40 points - Citi Simiplicity card 0% APR offer

[Anonymous]

Citi Simplicity card offered 0% APR for 21 months.

Didn't need credit card, but still opted for. Goal was -
1. use upto full credit for new purchases for 20 months.  
2. pay minimum due every month
3. pay off the credit card in the last week of 20th month
4. invest own saving for returns during that period

Went to bank to confirm that new purchases will not damage my credit score if I keep paying minimum due for promo period of 21 months. Which bank confirmed.

Currently in 3rd month of use after approval. Paid minimum dues on time for 3 months. Credit utilization ration was as below -
1. 50% - after first month
2. 90% after second month
3. 90% after 3rd month .. and goal is to keep it that way till 20th week

What happened to my credit score -
Before I started using the card it was 800
1. after first month of using the card - 800
2. after second month of using the card - 800
3. after third month 760 - drop of 40 points

Nothing else has changed about my credit profile - No new cards. no new hard hits. no missed payments. no disputes. nothing - I never like to miss payment. that's how I built it to 800. Experian report shows all OK (green) - even the record for Citi simiplicity account is green ok.

So wondering -
1. Why did my credit dropped by whopping 40 points . it will take at least two years to build that up

2. Will my credit score drop further, if I continue to maintain 90% utilization ratio ? I would not like to pay it off until 20th month. Or there is no use of this card for me. At this point, don't need credit, if no additional benefits.

3. Should I dispute it with Citi - they mentioned no impact on my credit score as it's 0% APR card for 21 months. I believe there is some issue on how they report it to credit scoring agencies.

4. Does credit utilization ration on a 0% APR card also impact credit score ? If I continue to carry the same ratio for 20 months, will it keep impacting my credit score ?

Appreciate any help!!
 

[Anonymous]

This thread is likely going to be moved.

A 40 point drop is not surprising...firstly, the inquiry for the new account probably lost a few points and then anytime a new account is added to your file, your Average Age of Account (AAoA) gets lowered. Age is (I believe) 30% of your score. Do not fret, this will usually correct itself within a year. 

Utilization is also a huge factor in FICO scores. You did not mention what your overall available credit lines are and what your other balances are; however, you should generally never go over 30% of your available credit line across all cards or even with a single card. You state that you are at 90% with Citi now; that will effect the score. 

Time heals all wounds (provided you do not go on wild app sprees). Within a year you will see things correct themselves. A 760 bureau score is nothing to sneeze at, you will be fine. 

[Anonymous]

+1 to the last post.

A 90% individual utilization on a single card will hurt your score significantly.  If it also causes your total utilization to cross a critical threshold, that will hurt you further.  (Critical thresholds are 8.99%, 28.99%, 48.99%, 68.99%, etc.).

The good news is that the scoring harm done will disappear as you pay off the card. 

The bad news is that other creditors can see that you have a maxxed out card and that you are only making the minimum payment on it.  Maxxing out a card and only making the minimum payment for months in a row is associated with significant risk of default.  Thus one or more of your other creditors could get worried and start lowering your credit limits (this is one example of something called "adverse action" or AA). 

I suggest you carefully do the math and figure out exactly how much money you are saving as a result of this strategy.  For example, if your card has $1000 on it, that's $1000 you can place in the bank and earn interest.  The best bank accounts typically earn 1.3%.  Some of that you'll lose in taxes.  So let's say you make 1%.  This strategy will earn you in this case $10 per year.  Is that really worth it?  You can make more by skipping ordering out at Pizza Hut once a year.

Let's assume that you have some way to make a lot more than that and that it therefore makes sense to pursue this as a strategy.  If so, you can reduce the chance of AA (though not eliminate it) by always making more than double the minimum payment and also keeping the card at lower than < 88.9% individual util at all times. 

[HeavenOhio]

A single maxed out card can clobber your score. 50 points isn't uncommon. Worse, it can potentially cause adverse action, either from the card issuer or from your other banks. That's much more likely to happen if you have a baddie on your report, and your card would likely need to be maxed for more than a month for AA to happen. But it's something to keep in mind.

Also, paying only the minimum — even during a 0% promo — can make lenders nervous. General advice here is to pay at least two or three times the minimum. A better way is to take your total balance, divide it by a reasonable number of months to pay it down, and pay at least that amount per month.

Generally speaking, utilization thresholds work like this:

• 8.9% will maximize your score.
• 28.9% is considered responsible borrowing.
• 48.9% is something you can probably get away with.
• 68.9% might be considered worrisome.
• Above 88.9% is considered maxed out and sends up fireworks.

The moral of the story is that you can't rely on customer service reps, bankers, or loan officers to know anything about scoring. Citi doesn't control FICO, so you can't complain directly about your score. But if you'd like, you can complain about the advice you've received. As stated above, if you brought your balance down tomorrow, you'd gain your points back except for the temporary ding for the inquiry and the new account.

That said, your score is good despite the maxed out card. I think you'd have your bases covered if you brought your balance down to 48.9% and paid more than the minimum each month. Your plan makes sense financially, and as humans, we can tell that you're not irresponsible. But computers will see the maxed out card and think of you as a high risk.

[Anonymous]

PS.  A helpful "lesson learned" here is to assume that all advice you get about FICO scoring outside this forum is likely to be wrong.  That includes CC issuers and mortgage lenders.  I wish this weren't true, but we have seen it over and over and over again.

Also worthwhile is to consider, when you are asking a salesman about his product: "Have I just indirectly communicated to him Give me answer X to my question and then I will buy your product."  If so, do not be surprised when the rep gives you the answer you clearly want to hear.  The CC rep's job is to sell credit cards and they will be unlikely to tell you something that will kill the sale.

Both things (ignorance about FICO scoring and the pressure to sell) may have affected the answer you got, though ignorance alone would explain it.

[Anonymous]

---

@Anonymous wrote:

This thread is likely going to be moved.

A 40 point drop is not surprising...firstly, the inquiry for the new account probably lost a few points and then anytime a new account is added to your file, your Average Age of Account (AAoA) gets lowered. Age is (I believe) 30% of your score. Do not fret, this will usually correct itself within a year. 

Utilization is also a huge factor in FICO scores. You did not mention what your overall available credit lines are and what your other balances are; however, you should generally never go over 30% of your available credit line across all cards or even with a single card. You state that you are at 90% with Citi now; that will effect the score. 

Time heals all wounds (provided you do not go on wild app sprees). Within a year you will see things correct themselves. A 760 bureau score is nothing to sneeze at, you will be fine. 

---

Age IS NOT 30% of your score. 

It is 15% of your score.

UTILIZATION IS 30% OF YOUR SCORE.........

[Anonymous]

One more point to the OP.  Utilization is based on a single point in time.  So, if your score dropped 40 points due to bringing that revolver to 90% utilization, your score will gain 40 points if you were to return your utilization back to where it was.  You also asked if you keep your utilization at 90% on that card if your score will continue to drop.  The answer to that is no.  Your score is what it is with that card at 90% utilization once it reports, which it already has.  Your score won't change any more with respect to that card if your utilization on that card remains constant.