Lots of Open Accounts - $0 Balances on Most - What's Next?

[daudi81]

So we're buying a home - within the next month or so and I want to make sure I'm doing the right things.

My current score: 697 (will get the loan once I hit the 700 mid fico mark)

I have a pretty volatile credit history (periods of excellent & periods of multiple lates). My last late was about a year ago, but at that time we had a ton of lates on 2-3 cards multiple times (all 30 day lates). This was not due to lack of funds, but miscommunication between my wife and I. We finally got a handle on it all and set everything up on auto-payments, so all is good now. As a knee jerk reaction, I paid off ALL of my cards at once which seemed to help.

I currently have 7-8 unsecured cards (BoA, Amex, Discover, Paypal, Baraclay, etc), with a average limit of 5-15k each ($0 balance on all but one). We use my Chase Sapphire Preferred for the miles, and just pay it off completey every month. I use it for business as well, so I'm usually putting ~$20k on it, then paying it in full on due date (I'm not sure if this is good or bad). All of the other cards have sat at $0 balance for the last year or so. Other than my Auto payment, I usually have $0 debt.

I have recently started monitoring my credit every month, and realized that sometimes my score shows a balance on my chase card, depending on when it gets paid off and Chase reports to the agency. For the most part, my balance on my report has shown a $2000 - $3000 balance every month ($25k limit), even though I pay it off on due date. So last month I figured out when Chase reported to the agencies and made sure to pay it off before then to see how it would raise my credit.

I eagerly waited for ScoreWatch to update, thinking my score should bump to 700+. To my disbelief, paying it off lowered it by 12 points (no other changes on my Credit for months, so that had to be it). Not a good time for my score to drop, as we're waiting to hit 700+ so we can get lending (as you can see we're on the fringe).

This was enlightening, and after some research I discovered that sometimes it's not always best to keep a $0 balance (contrary to popular belief). 

So my immediate 'knee-jerk' reaction to this little discovery is to start grabbing all my $0 unsecured cards and putting small balances on them $10 - $100 each and make sure they never reach that $0 mark. This should put my credit utilization rate on each card far below 5% (more like 1-2% per card), but still show the agencies I'm using my credit responsibly. The fact that my score dropped by 12 points just from paying off 1 card, I can't imagine how bad it's hurting me by having all of my other credit cards sitting at $0 for this long.

Am I looking at this incorrectly? Should I not be doing this? I mean I have not used most of those cards for almost a year, so I'm guessing they will start to close out which I know I DON'T want. I just don't want to make the wrong decision and waiting another 30-60 days for my credit to recover so I can get a loan. I am just baffled my score dropped so much just because I paid the card off - so that's where my credit stands now.

Any ideas or suggestions?

[SunriseEarth]

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@daudi81 wrote:

So we're buying a home - within the next month or so and I want to make sure I'm doing the right things.

My current score: 697 (will get the loan once I hit the 700 mid fico mark)

I have a pretty volatile credit history (periods of excellent & periods of multiple lates). My last late was about a year ago, but at that time we had a ton of lates on 2-3 cards multiple times (all 30 day lates). This was not due to lack of funds, but miscommunication between my wife and I. We finally got a handle on it all and set everything up on auto-payments, so all is good now. As a knee jerk reaction, I paid off ALL of my cards at once which seemed to help.

I currently have 7-8 unsecured cards (BoA, Amex, Discover, Paypal, Baraclay, etc), with a average limit of 5-15k each ($0 balance on all but one). We use my Chase Sapphire Preferred for the miles, and just pay it off completey every month. I use it for business as well, so I'm usually putting ~$20k on it, then paying it in full on due date (I'm not sure if this is good or bad). All of the other cards have sat at $0 balance for the last year or so. Other than my Auto payment, I usually have $0 debt.

I have recently started monitoring my credit every month, and realized that sometimes my score shows a balance on my chase card, depending on when it gets paid off and Chase reports to the agency. For the most part, my balance on my report has shown a $2000 - $3000 balance every month ($25k limit), even though I pay it off on due date. So last month I figured out when Chase reported to the agencies and made sure to pay it off before then to see how it would raise my credit.

I eagerly waited for ScoreWatch to update, thinking my score should bump to 700+. To my disbelief, paying it off lowered it by 12 points (no other changes on my Credit for months, so that had to be it). Not a good time for my score to drop, as we're waiting to hit 700+ so we can get lending (as you can see we're on the fringe).

This was enlightening, and after some research I discovered that sometimes it's not always best to keep a $0 balance (contrary to popular belief). 

So my immediate 'knee-jerk' reaction to this little discovery is to start grabbing all my $0 unsecured cards and putting small balances on them $10 - $100 each and make sure they never reach that $0 mark. This should put my credit utilization rate on each card far below 5% (more like 1-2% per card), but still show the agencies I'm using my credit responsibly. The fact that my score dropped by 12 points just from paying off 1 card, I can't imagine how bad it's hurting me by having all of my other credit cards sitting at $0 for this long.

Am I looking at this incorrectly? Should I not be doing this? I mean I have not used most of those cards for almost a year, so I'm guessing they will start to close out which I know I DON'T want. I just don't want to make the wrong decision and waiting another 30-60 days for my credit to recover so I can get a loan. I am just baffled my score dropped so much just because I paid the card off - so that's where my credit stands now.

Any ideas or suggestions?

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Unfortunately, you will likely see a score drop in that case, because it now looks like you have too many active accounts.   Optimal UTIL for FICO scoring is <10% overall and on each card.   But also, less than half of your CCs should have any balances.   Some folks here recommend letting only one CC post a balance and letting the rest show $0 balances.   So how you were doing it before was actually better for you.

Perhaps you should try GW efforts with the lenders who show lates to help raise your score.   

[daudi81]

Thank you for responding!

If I need to have half with balances - and I have 7 credit cards. Should I put low balances on 3 of them, instead of all?

Also - why would my score drop just because I paid off the one card that I use? Any idea?

You also said that many people only use 1 card - so is that what I should be doing instead of the latter? Normally I would try different things to see how it affects my credit the next month - but we will be closing on a house in the next 30 - 60 days - so testing the waters is out of the picture.

Unfortunately, I have already put small balances on 3 of the cards last night, so maybe I should pay them off to play it safe? I have them hooked up to auto-pay my utilities, then my bank account is auto pay on the credit cards. So everything is set up to auto charge / auto pay basically.

So I guess my immediate options right now are:

1) Continue to do what I was doing before, and just make sure I carry a small balance on that 1 credit card (instead of paying it off completely). 

2) Put small (1-5%) balances on half my cards, and make sure to make payments every month to keep the balance low.

3) Keep all my current credit cards at 0$ balance (including the one that I use often), and hope that the score drop was a fluke and it will go back up.

The only other revolving debt I have on my credit is some student loans ($800/mo), and my car payment ($1200/mo). So maybe I'm just not utilizing enough credit? Luckily I am in a position to pay everything off, or have balances every month, or whatever it is that I need to do to raise my score. I am also paying a local company to help fix my credit (not a credit repair place, but they help me set up GW letters, etc). So far no luck on getting anything removed, but we'll see.

Let me know what you think. I feel like it's always the small details that get me in trouble (creditscore-wise), so I just want to make sure I'm crossing my T's / dotting the I's, so to speak.

Thanks!!

[clevelandguy]

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@daudi81 wrote:

Thank you for responding!

If I need to have half with balances - and I have 7 credit cards. Should I put low balances on 3 of them, instead of all?

Also - why would my score drop just because I paid off the one card that I use? Any idea?

You also said that many people only use 1 card - so is that what I should be doing instead of the latter? Normally I would try different things to see how it affects my credit the next month - but we will be closing on a house in the next 30 - 60 days - so testing the waters is out of the picture.

Unfortunately, I have already put small balances on 3 of the cards last night, so maybe I should pay them off to play it safe? I have them hooked up to auto-pay my utilities, then my bank account is auto pay on the credit cards. So everything is set up to auto charge / auto pay basically.

So I guess my immediate options right now are:

1) Continue to do what I was doing before, and just make sure I carry a small balance on that 1 credit card (instead of paying it off completely). 

2) Put small (1-5%) balances on half my cards, and make sure to make payments every month to keep the balance low. NO, no, no!

3) Keep all my current credit cards at 0$ balance (including the one that I use often), and hope that the score drop was a fluke and it will go back up. No, no, no!

The only other revolving debt I have on my credit is some student loans ($800/mo), and my car payment ($1200/mo). So maybe I'm just not utilizing enough credit? Luckily I am in a position to pay everything off, or have balances every month, or whatever it is that I need to do to raise my score. I am also paying a local company to help fix my credit (not a credit repair place, but they help me set up GW letters, etc). So far no luck on getting anything removed, but we'll see.

Let me know what you think. I feel like it's always the small details that get me in trouble (creditscore-wise), so I just want to make sure I'm crossing my T's / dotting the I's, so to speak.

Thanks!!

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Okay, you are confused...You need to do this until your house closes:

1. Pay all your bills on time or a bit early.

2. Do not pay-off student loans, auto loans or installment loans.

3. One credit card should report a balance of less than 10% of its credit line and ALL the other cards should report $0. This is a tried and true method of getting your highest scores with credit cards. You can use your other cards but just make sure to pay their balance down to $0 at LEAST 3 days BEFORE the due date. If ALL your cards report a $0 dollar balance you will lose points! You need that 1 card to report a small balance!

Now...When I say $0 I mean $0. If you let a card that is supposed to report $0 report a balance as small as $1.99 you will lose 3 to 4 points! For every card more than 1 that reports a balance of $0 you will lose anywhere from 2 to 4 points. If you have 4 of 7 cards report a balance your scores could be 12 points lower than optimum! (4points X 3 extra cards)

[bdhu2001]

+1.  If you're not sure of when your cards report, you can ck credit karma.  They provide the date your cards report.  I would pay off all of the new cards that you put a balance on and go back to what you previously did.  The only thing I would change is have a lower balance on the card that you always pay off.  If the card reports on the 5th, but the due date is the 9th, pay everything except $10-$100 by the 4th and then pay the rest on the 9th.  That way you'll see if the lower balance gives you a boost.  A zero balance won't,  but a $1 to $100 balance may make a difference.

If you've purchased your scores from myFICO, use the arrow on the simulator to see how you can get additional points without waiting months. Previously I discovered that paying more on my credit cards or even paying them off would not boost my score, but paying $5433K on my student loans would give me over a 10pt boost. You never know.  Don't just look at what the simulator says is your best option, look at the other areas too.