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Paid off my credit card and my score went down WHY????

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Jagajaga
New Contributor

Paid off my credit card and my score went down WHY????

I have 3 credit cards and i'm in the process of rebuilding after I had to file BK. I signed up for the Myfico scorewatch. I try to pay 2 cards off and leave a balance on one of the cards. last month my card had a $9 balance. This month I paid it off to a zero balance and I just got an alert from Myfico that my score went from 598 to 591. dropping me 7 points Why would this happen?

Filed BK7: 2/2014 (start score EQ 450) Discharge 5/2014
666 EQ FICO 12/2015
$18k NFCU cashRewards |NFCU LOC 15k | $1.5k Barclay Rewards| $4.5k Cap1 Quicksilver| $1.5k Cap1.
Message 1 of 10
9 REPLIES 9
Anonymous
Not applicable

Re: Paid off my credit card and my score went down WHY????

First: breathe. It's okay. Smiley Happy

 

If you pay off all cards completely so that all are reporting a $0 balance, it appears you are not using your available credit at all (the implication being, how can it be determined if you're using it wisely if you're not using it?) Remember, your score is a snapshot at a point in time. Unlike things like payment history, and open TLs, though, utilization had no memory month-to-month.

 

Wisdom holds that for optimal scoring, you do want one card reporting 1%-9% utilization, and nothing on your other cards. However, unless you're planning to app for something soon like a mortgage or a dream card that you might be borderline for, then you don't need to sweat the small dips and increases in score when you have too much or too little utilization. Focus on making sure you're paying on time, and in full if possible to avoid interest charges, and your score will bounce back. Your history will benefit much more in the long term keeping that in mind then it will worrying about short-term utilization.

Message 2 of 10
Anonymous
Not applicable

Re: Paid off my credit card and my score went down WHY????

From the perspective of the CRA:

Zero balance ---> You are not using your credit ---> You are an unknown quantity ---> "Risk" is higher ---> Therefore, lower your credit score

As previously mentioned, this is a short-term point loss. Allow a small balance to report next month and your score should increase.
Message 3 of 10
ChrisinKC
New Contributor

Re: Paid off my credit card and my score went down WHY????

This is a bunch of crap, and I'm not sure why people aren't up in arms about it.  A score dropping when there's no balance is crap.

 

FICO says that the score is used to determine risk in defaulting.  How in the world could someone with a $0.00 balance default?  Answer:  can't.  This is just FICO and the banks supporting FICO a way to screw a higher interest rate out of you.  They're trying to keep your score very low so the banks can charge you more money for any invalid reason. 

Message 4 of 10
Anonymous
Not applicable

Re: Paid off my credit card and my score went down WHY????

Fico's scoring system is based on how you use and manage credit.  If there isn't any credit usage, they have nothing to score on.

 

I PIF what I charge but I leave minimal amount on one card monthly to report.  I paid on my account in February, the day statements cut.  oops!  I reported a $0 balance. My scores dropped 14 points.  The next time a card updated, my scores went back up.  Utilization has no memory.  Scores will fluctuate based on usage.

Message 5 of 10
Anonymous
Not applicable

Re: Paid off my credit card and my score went down WHY????

Shoud you allow a small balance to report on all of your cards or just one or two cards???

Message 6 of 10
Anonymous
Not applicable

Re: Paid off my credit card and my score went down WHY????


@Anonymous wrote:

Shoud you allow a small balance to report on all of your cards or just one or two cards???


Depends on how many cards you have, really. 

 

If you have balances on too many cards, the algorithm scores you lower because it appears you're using too many tradelines, even if the balances are minimal and overall utilization is under 20%. If you have a lot of cards 20 or more) there's likely some wiggle room in terms of how many cards you can allow to report with balances before triggering the "too many tradelines with balances" alert, though I'm unclear what that percentage is exactly. But generally, yes, just one, maybe 2 cards reporting.

 

I've been "dinged" in this manner myself for letting all my cards report with balances. You might also choose to do this in order to show usage with a lender to prevent closing of the card, or to justify a CLI. However, I am gardening/rebuilding right now, so it's part of my approach to take a slight hit every once in a while in order to build up data points (payment of balances) which are going to ultimately do a lot more good for my profile over the long-term than micromanaging my balances for an "optimal" score (or, as optimal add I can get in my bucket) in the here and now. It's pointless to bother right now since I know I'm not apping for anything, so the extra 10 or so points I might see from doing this is minimal, and temporary.

Message 7 of 10
Revelate
Moderator Emeritus

Re: Paid off my credit card and my score went down WHY????


@ChrisinKC wrote:

This is a bunch of crap, and I'm not sure why people aren't up in arms about it.  A score dropping when there's no balance is crap.

 

FICO says that the score is used to determine risk in defaulting.  How in the world could someone with a $0.00 balance default?  Answer:  can't.  This is just FICO and the banks supporting FICO a way to screw a higher interest rate out of you.  They're trying to keep your score very low so the banks can charge you more money for any invalid reason. 


It's a measurement of future default rates though... a $0 balance today could be utterly maxxed out next month.

 

I agree it sucks but it is what it is and it's pretty easy to manage.  I don't even worry about my balances unless I'm applying for something and really the fluctuation between 1-3 accounts reporting a balance for me is pretty darned small under FICO 8.  If it was a "you're not using your credit" well I agree that's something of a bunch of BS as the technology exists to simply do better based on how lenders have been reporting for the last few years (and maybe before that) but the algorithm generally lags bureau data reporting by years, maybe in FICO 10 it'll be improved if all the lenders move towards reporting actual payments.




        
Message 8 of 10
ChrisinKC
New Contributor

Re: Paid off my credit card and my score went down WHY????

And that's why they have payment history.  If someone has consistently paid their obligations on time, they have no reason to think that in the future you might decide to stop paying your bills, and therefore reduce your score now when there's a $0.00 balance. 

 

With credit scores, it's like you've been convicted of being guilty and have been "serving time" before you did anything wrong.  "Serving time" meaning suffering from scores lower than they should be, and having to pay higher interest rates on loans obtained due to the lower scores.

 

There's nothing about credit scoring that makes sense.  It's just a way for the banks to make more money from every person in the US (and I'm sure other places, but don't know what they use) who borrows money.

 

I hate FICO and everything about it, and I'm not sure why everyone just accepts it even though millions of people are screwed everyday by this system that we've been forced into.


@Revelate wrote:

@ChrisinKC wrote:

This is a bunch of crap, and I'm not sure why people aren't up in arms about it.  A score dropping when there's no balance is crap.

 

FICO says that the score is used to determine risk in defaulting.  How in the world could someone with a $0.00 balance default?  Answer:  can't.  This is just FICO and the banks supporting FICO a way to screw a higher interest rate out of you.  They're trying to keep your score very low so the banks can charge you more money for any invalid reason. 


It's a measurement of future default rates though... a $0 balance today could be utterly maxxed out next month.

 

I agree it sucks but it is what it is and it's pretty easy to manage.  I don't even worry about my balances unless I'm applying for something and really the fluctuation between 1-3 accounts reporting a balance for me is pretty darned small under FICO 8.  If it was a "you're not using your credit" well I agree that's something of a bunch of BS as the technology exists to simply do better based on how lenders have been reporting for the last few years (and maybe before that) but the algorithm generally lags bureau data reporting by years, maybe in FICO 10 it'll be improved if all the lenders move towards reporting actual payments.


 

Message 9 of 10
Anonymous
Not applicable

Re: Paid off my credit card and my score went down WHY????


@ChrisinKC wrote:

And that's why they have payment history.  If someone has consistently paid their obligations on time, they have no reason to think that in the future you might decide to stop paying your bills, and therefore reduce your score now when there's a $0.00 balance. 

 

With credit scores, it's like you've been convicted of being guilty and have been "serving time" before you did anything wrong.  "Serving time" meaning suffering from scores lower than they should be, and having to pay higher interest rates on loans obtained due to the lower scores.

 

There's nothing about credit scoring that makes sense.  It's just a way for the banks to make more money from every person in the US (and I'm sure other places, but don't know what they use) who borrows money.

 

I hate FICO and everything about it, and I'm not sure why everyone just accepts it even though millions of people are screwed everyday by this system that we've been forced into.


@Revelate wrote:

@ChrisinKC wrote:

This is a bunch of crap, and I'm not sure why people aren't up in arms about it.  A score dropping when there's no balance is crap.

 

FICO says that the score is used to determine risk in defaulting.  How in the world could someone with a $0.00 balance default?  Answer:  can't.  This is just FICO and the banks supporting FICO a way to screw a higher interest rate out of you.  They're trying to keep your score very low so the banks can charge you more money for any invalid reason. 


It's a measurement of future default rates though... a $0 balance today could be utterly maxxed out next month.

 

I agree it sucks but it is what it is and it's pretty easy to manage.  I don't even worry about my balances unless I'm applying for something and really the fluctuation between 1-3 accounts reporting a balance for me is pretty darned small under FICO 8.  If it was a "you're not using your credit" well I agree that's something of a bunch of BS as the technology exists to simply do better based on how lenders have been reporting for the last few years (and maybe before that) but the algorithm generally lags bureau data reporting by years, maybe in FICO 10 it'll be improved if all the lenders move towards reporting actual payments.


 


1. Payment histories don't show utilization, or amounts paid, only that you're "OK" or "paying as agreed.". The closest you might get is "highest balance reported." But that could could have been two months, or two years ago, and won't take into account what your CL was at that time. When you stop using credit completely, as reflected in $0 balance reporting, the question is going to be "why?" The most reasonable answer is that you're playing it safe because cash flow has tightened. Job reduction/loss? New debt? Those are reasonable assumptions, and an indicator of risk in that moment in time.

 

2. Again, it's a short-term, easily overcome "dip" in score that is relatively small (yes, some people report larger dips than others, primarily because of differences in overall histories.) It doesn't stay with you month-to-month unless you let it. 

 

Yes, credit is a game. But, it's a necessary evil in some respects, although you can argue that after a certain point, it's not necessary (that is, after a certain point, it's just chasing a high score for the sake of personal satisfaction, and you're not necessarily getting better rates and higher limits.) And of course, just because we have a behavior that traditionally signals risk doesn't mean we will follow suit as others have, but we can't be blind to how our behavior looks, either. It's like the pedestrian on the sidewalk that you see stepping down into the street even though they don't have a signal to cross; you have to assume that they are going to cross even though you're there and have the right of way, or risk plowing into them. 

Message 10 of 10
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