Loans and Credit Cards Paid Off Yet Credit Scores Still Dropping

[Anonymous]

If you paid your credit cards down to zero every month before the balance is due, then that means that over all of those months, it wasn't ever reported that you were using any credit. The credit report has to show that you are using the credit. 10 to 30 percent is ideal. 5 percent is not ideal. 0 percent is not ideal. 50 percent is not ideal. 99 percent is also not ideal.

You have to have within 10 to 30 percent of your balance showing as utilized on the day your statement generates. So, that's one thing.

Paying off those loans affects your credit mix now. A credit report with a loan that's been around for 7 years but with good payment history is going to look better than an account that borrowed and paid their loan off in one year.

Now that those loans are gone, it affected your credit mix so there's less to judge you off of. Which is what is causing the score to drop.

Somehow your score was better the way it was.

[Anonymous]

FICO scores are a joke! I've subscribed to their silly service (still am and will be for some time) and I've played around balances, inquiries, canceling/renewing my membership and on and on. I could go deep into details about their flawed point system but don't wish to make the time to write a "term paper" on this.

IMO, the very best thing about myfico.com is the probably the mod @%#&*#$ -who requested my account to be muted for over a day. S/he makes using this site worth it. 

[CH-7-Mission-Accomplished]

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@Anonymous wrote:
If you paid your credit cards down to zero every month before the balance is due, then that means that over all of those months, it wasn't ever reported that you were using any credit. The credit report has to show that you are using the credit. 10 to 30 percent is ideal. 5 percent is not ideal. 0 percent is not ideal. 50 percent is not ideal. 99 percent is also not ideal.

You have to have within 10 to 30 percent of your balance showing as utilized on the day your statement generates. So, that's one thing.

Paying off those loans affects your credit mix now. A credit report with a loan that's been around for 7 years but with good payment history is going to look better than an account that borrowed and paid their loan off in one year.

Now that those loans are gone, it affected your credit mix so there's less to judge you off of. Which is what is causing the score to drop.

Somehow your score was better the way it was.

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This is not quite correct.  Your credit reports show the balance as of the statement date.  Paying off cards by the due date prevents paying interest and is a smart move, but you must pay off most of your charges before the statement cut date.  So if you charge $500, pay off all but $5 a couple of days before the statement date.  Let the statement report $5.  Then pay off that $5 by the due date.

Also, ideal is not 10% to 30%.  This is wrong.

What is best is to let one (and only one) credit card report a balance.  $5 is great.  

You want your overall reported utilization to be between 1% and 10%.  I find 3% to 5% is best.   

If you just let one card report a $5 to $20 amount due, that's great.

Do not ever pay interest or you are doing it wrong.

[Anonymous]

Oh yeah you're right. It is between 1-10 percent. It slipped my mind.

[Anonymous]

"I am confused right now I have paid off 2 loans this month (February 2016) to zero and I have my credit cards have a zero balance but yet I got an alert today stating that my scores across the board by 40 points from from 740 to 700 across the board...WHAT IN ALL THE HELL IS GOING ON HERE? My resolution is to be debt free this year and now I am sufferning for it. When will my scores increase again what is this tactic? Why does this happen? When I use my credit card I PAY THEM OFF every month if I use it that month before the payment date is due. I am just confused right now...Something just doesn't feel right...SIGH...."

FIrst, welcome to my pain.  The way the credit world works is that it assumes you're less likely to overextend yourself if you're a heavy credit user.  That is, of course, just asinine. Unfortunately that's the case.

I would get at least one more credit card.  It will, and I know it's dumb, increase your credit score.  Find someone with 0 fees and use it.  Just put your netflix account on it or use it for something once a month.  Same with your other card.  Don't carry a balance.

I would suggest also getting a loan that's outstanding and, again I know this is dumb (I didn't make the rules) don't pay it off.  Just keep making your monthly payments. 

I bet if you added a loand and a card you'd see a big jump in your score.