Paying off credit card early and leaving $0 balance

[Gregory1776]

---

@SouthJamaica wrote:

---

@Anonymous wrote:

---

@SouthJamaica wrote:

---

@Anonymous wrote:

---

@Anonymous wrote:

Is this your only credit card?  FICO imposes a scoring penalty for having all your cards at $0.  You can fix that by having one card showing a small balance.

In general paying down CC debt is good.  Just not good to have all cards at $0 at the same time.

---

I never understood why this is a bad thing.  To me this means you are managing your money properly and not going into debt?

Just curious why is it so bad to have $0 reported?

---

Nobody said it's a bad thing to be totally debt free. In my opinion it's a great thing.

---

Sorry, I wasn't saying you think it's a bad thing.  More meant why does FICO treat it bad.

---

I don't know but I have a theory.

My theory is that FICO pretends to be just about risk avoidance, but it is also really about profitability. Debt free folks who prefer owing no money to lenders aren't the most profitable customers, so some FICO algorithms (notably FICO 8) downgrade them a bit whenever (a) they have no credit card balance and/or (b) no open installment loans.

---

Your theory is fact. 🙄

[Anonymous]

If it were about profitability, wouldn't allowing more cards to report balances then increase FICO scores?

[Anonymous]

Hi Gregory.  Except that BBS raises two points worth considering.

(1)  You don't actually have to be in debt, in the sense of carrying CC debt month to month.  You simply need to be reporting a balance, which people who pay no interest (and who may therefore actually produce negative profit for the card issuer) do.

(2)  The actual dollar value that needs to report could be the cost of a loaf of bread or a cup of coffee.  Again, if the "profitability" theory was right, you'd think that there would be a correlation with balance size. 

What is indisputably factual is what BBS originally said.  And that is that until very recently credit bureaus could only give FICO the most recent snapshot, of your CC balances.  Thus there was no way to distinguish a person who never used his cards at all from a person who just happened to have paid them to $0 in the last month -- and therefore the only way FICO had to identify a person who knew how to manage credit cards is if at least one card reported a small balance in the most recent month.