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Member
annalog
Posts: 46
Registered: ‎05-04-2011
0

Having Zero Debt Lowers Your Score by 7 points.

I knew this before, but every time I see it, it rubs me the wrong way.

 

I had a score of 803 on Wednesday.  After a payment hit and caused me to have zero debt, my score decreased to 796.

Apparantly, Equifax (and probably TU & EX) give you extra points for being in debt.  Having no debt, causes your credit score to drop by 7 points.

I don't think this is fair to consumers.  It encourages debt.  Your score should go up, not down, when you payoff all your debt.

 

Just my two cents.....

 

 

EX=800, EQ=814, TU=946
Moderator
pizzadude
Posts: 9,674
Registered: ‎01-28-2010
0

Re: Having Zero Debt Lowers Your Score by 7 points.

 

This is clearly a YMMV situation, but in general with revolving credit, carrying a very small balance on one of your credit cards might give a slight FICO score boost.

 

Carrying a small balance demonstrates active ( and presumably responsible ) use of your revolving credit lines.....at least that's my interpretation of how FICO might look at it.

March2010 FICO® ~ 695 TU, 653 EQ, 697 EX
New Member
rebuildernewbie
Posts: 8
Registered: ‎01-04-2012
0

Re: Having Zero Debt Lowers Your Score by 7 points.

Everything I've read says that you do not need to carry a balance to have usage of your credit card reported to the credit bureaus.  This is why you can pay in full every month and there will still be amounts reported.  Once a month, maybe on your statement date, maybe some other date, your credit card company will send the current balance to the credit bureau(s).  As long as you use your accounts you do not need to carry a balance month to month.  This myth hurts people who pay needless interest when they can pay in full and not take a hit on their credit score.


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Current Score: 667
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Valued Contributor
Jazzzy
Posts: 2,679
Registered: ‎07-29-2009
0

Re: Having Zero Debt Lowers Your Score by 7 points.


pizzadude wrote:

 

This is clearly a YMMV situation, but in general with revolving credit, carrying a very small balance on one of your credit cards might give a slight FICO score boost.

 

Carrying a small balance demonstrates active ( and presumably responsible ) use of your revolving credit lines.....at least that's my interpretation of how FICO might look at it.


I agree with this assumption. A FICO score is not meant to show how much a person does or does not owe. Some individuals with excellent credit scores have tons of debt...on purpose. That is how they grow financially. Your FICO score is meant to show how they have handled that debt.

 

That said....to the OP...I understand your frustration. I've been through it as well...where I see my score drop a couple of points because I paid everything off prior to the statement date. (I checked, and last time I showed all zero cc balances my score also went down 7 points.) That is normally not a problem for me because we have several cc's that we use, as well as several AUs on our cards...and some small charge usually manages to squeak through at the last minute. Nothing to worry about unless you are actively trying to squeeze out every FICO point for a new application.

New Contributor
ready13
Posts: 59
Registered: ‎08-07-2012
0

Re: Having Zero Debt Lowers Your Score by 7 points.

if you have a low credit balance every month then thats good if you just paid off a large amount when you usually dont then thats bad if you use more than 15% of your credit availability every month that creates a high credit to debt ratio  which is a major factor that lenders look at even if you paid down your credit cards this month there is no consistency thats more of a red flag to lenders showing that you just want credit not that you consistently pay down your credit the whole thing is to demonstrate the same characteristics of how you balance your finances over time with different factors of life coming against the set amount you agreed upon in the contract. i know people cant stand to know hear understand or want to see that the reality of things is: once you make an agreement with numbers on paper where you sign your  name in the fine black print yodu are agreeing to anything happening your still gonna come through and pay what you agreed on regardless which in term can never be a bad thing and never work against you in the long run the bigger picture because thats what lenders/banks/mortgage companies/debt/utilities/credit cards/school finances are for to keep track of everything you do how much you make/pay/owe/etc.The proof is in what you carry overall in the history of your credit and short credit under 6months is not established enough for them to read and predict well if wanting a higher than 1G loan and having secured 200 etc. amount on your less than established credit but adding and subtracting must be gradual and in a pace that goes well with your reporting finances so that you prove your not able to deduct from your usual ways of living and can still tack on credit to your extra shopping finances you make each month so you show you will stop and do what you have to do gradually to get where you want to go in the long run duh thats safe and thats solid and that makes sooo much sense i agree!!!!:smileywink:


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