Payments are a bad thing?

[Anonymous]

Why would paying off debt be considered a bad thing? Or cause a loss in points? This is the 2nd time. 

MF Alert:  "The balance on one of your accounts has decreased from $42 to $0."

Util. Rate for Acct.:  4% to 0%

Affect on FICO 8:  EX -3 pts

Account:  Overstock Store card

My current credit utilization is 7%, and 3 other accounts still reporting w/low balances. I paid 3 of 4 cards down to $0--not reporting yet (until the end of the month). Per the advice I received on this forum, my goal is for all my cards to report with a $0 balance except my CapOne card. 

I've considered that maybe something else changed but I can not spot it. Could it be b/c I just paid the balance to $0 and did not use this card at all this month?

Advice is greatly appreciated. I want to understand so I can avoid losing points when I expect to gain them.

[Anonymous]

3 points could be anything.

Maybe your AAoA went up to the next year and you got re-bucketed.

Did you have a new inquiry this past month?

[Anonymous]

My AAoA is reporting at 9.7 years on CCT. I did have (1) inquiry on EX from two weeks ago that did update last week. 

[Anonymous]

The inquiry could cost you those 3 points.  Or the inquiry could cost you 5 points and AAoA increases could gain you 2 points for a net -3.  Hard to say exactly.

[Anonymous]

Thank you. Hopefully it doesn't take long to gain those points back. I honestly don't think I will ever understand how FICO scoring works. 

[Anonymous]

Inquiries cost you FICO points up to 12 months, but there's a limit to how many inquiries count against you.  I'm not sure of the equation actually, I would guess that 1 inquiry hurts the most, 2-4 hurts a little less, and probably 5+ hurts even less but I can't verify that where I'm at.

As your accounts age together your score will go up in little 5 point jumps, but when you cross an annual threshold you may see another jump up.  Edit: since your AAoA is over 6 years, it is unlikely you will get any additional points for a higher AAoA, but you will get back points as inquiries age past 12 months old.

[pipeguy]

I would not worry about a score that +/- 3 points at any given time, it's just a reflection of X number of factors that equal the "score" at a specific point in time. My scores +/- 3 to 8 points every couple of months (or weeks) depending on what reports when.

In very simple terms the score looks at utility (credit limit vs usage), age of accounts (mainly on revolving rather than installment) and mix or types of credit (revolving/credit cards + installment which are fixed payments like car loans + a mortgage). When all your credit cards are "0" there is nothing to score, when you pay off a loan and the balance is "0" there is nothing to score so the "FICO number" tends to go down because factors that need a number to score needs one that is more than = 0.

One needs to remember that a FICO score is a "risk going forward" number that judges potential default "at a specific point" and has little memory for what you did "good" last month or last year with todays automated systems (they will be seen on a manual review) but absolutely keeps track of any sins from yesterday.

The scoring process is a lot more complex, but I've learned over a lot of years not to worry about a daily score, or even a monthly set number - I work on tiers over time for my goals, not so much to get a new credit card (I can do that any day), but if I'm thinking of a new mortgage in 2-3 years when I retire (and I am), I need my "tier" to be 720+ on my lowest and 760+ on my mid-score to ease the process and get the best terms. (current scores subject to daily-weekly-monthly change are 759 - 785 - 751).

It would be foolish to run balances and pay interest just to see scores increase 3 points when in fact you don't need those 3 points for new credit right now. There are tricks to adding installment loans and letting $9 report on a credit card then paying it off before you owe interest - all of this is too much effort for me and IMO serves no real purppse unless you are building scores for a specific goal (such as you need 5 point to qualify for a low interest car loan or mortgage in a few months).  

You will also find (I'm assuming based on your post that you don't have many credit cards) that when you have a thick file (lot of history and lot of accounts) that you scores won't change as much based on paying to "0" one or two acounts.

Best advice:don't sweat the short term swings.... 

[HeavenOhio]

It's easier not to sweat changes if you can pinpoint a reason or at least come up with some reasonable theories. In this case, I think the inquiry is a safe bet.

[Anonymous]

Great comments by other folks.  And to answer your question definitely, there is no possibility whatsoever that paying off a card could cause your score to drop, given that you have other revolving debt reporting.

Here is the bottom line.  To avoid a scoring penalty related to paying off CC debt, you need to have one card reporting a balance that:

(a) Is a true credit card (not a "charge" card)

(b) Is a card in your name (not an AU card)

(c) Has a balance of at least $4

(d) Does not have a monster high credit limit (< 35k is best)

The last two are not absolute requirements, but it is best to meet them to be 100% safe.

Those four conditions are too complicated for most people to remember, so in general we jusy say "have one card reporting a balance."

[Anonymous]

Thank you. You all have given me great advice and information that helps me. And you're right! I can't worry about every little score drop.

My score was just 2 points away from reaching the "good" status. Now I'm back to being 5 pts. away. Hopefully I will see some improvement in 6-12 months of good payment history. Mar. 2018 is when all "lates" reported are expected to fall off of closed student loans.