Why would paying off a credit card cause my score to drop?

[SouthJamaica]

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@Anonymous wrote:

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@Anonymous wrote:

Why would making a $13,000 payment, and paying off a credit card, cause my score to drop by 14 points? Can you explain this non-sensical behavior? It seems to me it should make the score go UP, if anything.

Hammer

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It shouldn't cause your score to drop.

Since it shouldn't happen, I would first assume something else also happened.

Like where did the $13,000 come from, another loan, credit card or balance transfer?   What was your total utilization before and after making the $13K payment.  IF the payment came from  checking/savings, then utilization should have dropped making your score go up.

So you need to give more details what the actual report said for anyone to explain why the score dropped,not just the score by itself which doesn't tell anyone what went into creating that particular score.

I have never tested this. People report that having all credit cards report a zero balance causes a small drop in score, I have never tested that since normally I carry a balance on zero interest cards (like around $6K) or even if there are no balances carried over monthly I don't attempt to pay before the card reports so there are always small balances being reported even though I pay no interest on that balance.

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Actually 14 points is a pretty typical point loss, based on the reports I've read on MyFICO, for going to zero utilization on credit cards.

[Revelate]

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@Anonymous wrote:

As I stated, I have never tested having all cards report a zero balance causes a small drop in scores, but it's easy enough to test the next couple of months.  It needs a few months just to see a stable score and score drop or rise.

However, paying down $13K on a card that has a 20K limit would cause a large drop in UTIL, and that large a drop should create a much larger rise in score than any small drop caused by having ALL cards report a zero.

Though the OP never stated ALL cards have a zero balance, that was assumed.

So I would think something else happend in addition to paying $13K.

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I've tested both personally.  I had no movement on my file (granted it's in a dirty bucket which might impact things) at 73% utilization on a single tradeline, and I've taken an 11-12 point drop (depending on bureau) for being flatlined at all $0's.

For someone with a cleaner file if the individual tradeline utilization metrics I have hold for it too, this is "reasonable" from the algorithm perspective, even if I think pretty much everyone on this forum would prefer a different way of tracking credit card use than reported balances.

What's less well characterized is total utilization of 65% if that was the only revolving account, but there's some differences potentially between thin and thick files from an algorithm perspective, maybe.

[Anonymous]

I'm a bit surprised that the OP had a 14 point score drop now knowing that he was at 65% utilization.  I've seen 15-20 point drops from someone going from 1% utilization to 0%, but that's because the person was going from the "best" utilization to a worse state.  In the OP's case, he was going from "poor" utilization to something that I would think FICO would arguably score similarly.  Tough to quantify this, of course, as profiles are all different.  I would estimate that the OP would have likely gained only the amount of points that he lost had he dropped utilization to 1%; perhaps he would have gained 14 points instead of lost 14.  A gain of 14 points for dropping from 65% utilization to 1% utilization is pretty small really, looking at the big picture.  I'd venture to guess that based on the lack of volatility that the OP has a pretty thick/aged file.

[Anonymous]

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@Revelate wrote:

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@Anonymous wrote:

As I stated, I have never tested having all cards report a zero balance causes a small drop in scores, but it's easy enough to test the next couple of months.  It needs a few months just to see a stable score and score drop or rise.

However, paying down $13K on a card that has a 20K limit would cause a large drop in UTIL, and that large a drop should create a much larger rise in score than any small drop caused by having ALL cards report a zero.

Though the OP never stated ALL cards have a zero balance, that was assumed.

So I would think something else happend in addition to paying $13K.

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I've tested both personally.  I had no movement on my file (granted it's in a dirty bucket which might impact things) at 73% utilization on a single tradeline, and I've taken an 11-12 point drop (depending on bureau) for being flatlined at all $0's.

For someone with a cleaner file if the individual tradeline utilization metrics I have hold for it too, this is "reasonable" from the algorithm perspective, even if I think pretty much everyone on this forum would prefer a different way of tracking credit card use than reported balances.

What's less well characterized is total utilization of 65% if that was the only revolving account, but there's some differences potentially between thin and thick files from an algorithm perspective, maybe.

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My wife has a very thin file, 2 credit cards, 1 installment loan and 1 year AAoA.

She was at 63% util, and I paid down the two cards so there is a 2% util, her score went up 80 points in a month.

If I paid it down to 0% and lost 11-12 points, OK, but that would still have been swamped by the 80 point gain (674>754) , and would still have resulted in a 69 point gain.

I see quite a few post about 0% not being best case, but it's next to the best case (2-3% ?), obviously worst case is 100% UTIL.  I accept that is the case since quite a few posters have said that was what happened.

Out of curiousity, I would find it easy to move my mother to 0% UTIL, right now she is at 2% also.  Her FICO 8 is 802.  Nine months ago she was at 30% UTIL and her FICO was 746.  She does not have a lot of cards (5), but her AAoA is 12 years and her oldest card is 29 years.

[Anonymous]

I only have two cards, and yes, they are both at zero. Also I would guess my "file" is thick, since I'm almost 60 and have had credit since I was 18.

Very interesting information, thank you everyone for sharing your knowledge!

H

[Anonymous]

The payment came from my money market account. Nothing else happened.

H

[Anonymous]

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@Anonymous wrote:

I only have two cards, and yes, they are both at zero. Also I would guess my "file" is thick, since I'm almost 60 and have had credit since I was 18.

Very interesting information, thank you everyone for sharing your knowledge!

H

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Thanks for the clarification.

"thin" credit file term seems sort of a loose term, but I think it means less that 3 or 4 "tradlines".  Which I guess includes installemnt loans and closed accounts that are still reported on your credit file.

The other tricky aspect to trying to figure out why a score changed is where did you get the score from, when was it updated and what report was it based on?

Meaning if I get a score from a Discover card and I don't see the Credit report it was based on, then the credit report used to generate that score might not reflect the zero balance, the score might be 10 days old as most scores reported from credit cards only update once every 30 days.  Credit card companies only report your balance once every thirty days, but not synced in any way with the score update from the source of your credit score.

Other factors such as type of score model, like Vantage 3 score or FICO 8 will affect, sometimes significantly affect, the score, but in my experience the change will be in the same direction. I have seen scores as much as a 70 points for my wife, she has a 7 year AAoA with the Vantage model and a 1 year AAoA with the Fico 8 model.   This is because she is an AU on 7 of my cards and only had two cards she owned.

EX will say my oldest account is 44 years old, while EQ will say my oldest account is 29 years old, but that doesn't seem to affect the score all that much, but then I have 20 credit cards and I am not an AU on any card.

You could get a free scorecard from Discover which gives you your FICO 8 score based on Experian, the date it was generated and a summary of the factors it was based on.  I print it to get a historical feel, since once it renews it's hard to know what last months score was based on even if I know what the score was.

I hope you update this thread if your score takes a jump up in the near future.

take care

[Anonymous]

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@Anonymous wrote:

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@Revelate wrote:

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@Anonymous wrote:

As I stated, I have never tested having all cards report a zero balance causes a small drop in scores, but it's easy enough to test the next couple of months.  It needs a few months just to see a stable score and score drop or rise.

However, paying down $13K on a card that has a 20K limit would cause a large drop in UTIL, and that large a drop should create a much larger rise in score than any small drop caused by having ALL cards report a zero.

Though the OP never stated ALL cards have a zero balance, that was assumed.

So I would think something else happend in addition to paying $13K.

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I've tested both personally.  I had no movement on my file (granted it's in a dirty bucket which might impact things) at 73% utilization on a single tradeline, and I've taken an 11-12 point drop (depending on bureau) for being flatlined at all $0's.

For someone with a cleaner file if the individual tradeline utilization metrics I have hold for it too, this is "reasonable" from the algorithm perspective, even if I think pretty much everyone on this forum would prefer a different way of tracking credit card use than reported balances.

What's less well characterized is total utilization of 65% if that was the only revolving account, but there's some differences potentially between thin and thick files from an algorithm perspective, maybe.

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My wife has a very thin file, 2 credit cards, 1 installment loan and 1 year AAoA.

She was at 63% util, and I paid down the two cards so there is a 2% util, her score went up 80 points in a month.

If I paid it down to 0% and lost 11-12 points, OK, but that would still have been swamped by the 80 point gain (674>754) , and would still have resulted in a 69 point gain.

I see quite a few post about 0% not being best case, but it's next to the best case (2-3% ?), obviously worst case is 100% UTIL.  I accept that is the case since quite a few posters have said that was what happened.

Out of curiousity, I would find it easy to move my mother to 0% UTIL, right now she is at 2% also.  Her FICO 8 is 802.  Nine months ago she was at 30% UTIL and her FICO was 746.  She does not have a lot of cards (5), but her AAoA is 12 years and her oldest card is 29 years.

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With the first part of your post with respect to the profile of your wife you are absolutely correct.  The point loss from paying down to 0% utilization in most cases would be disguised by the larger point gain in a stituation where someone paid down balances from maxed out numbers (or near maxed out) to 0% utilization.  It's at lower utilization percentages paying down to 0 that most people get confused by the drop more often.

With respect to your mother and her score, there are too many variables and moving parts to really say what would happen if she paid off that 2% to 0%.  With absolutely no change at all in utilization over 9 months a score could increase from 746 to 802.  AAoA grows, inquiries age and/or fall off, negative item(s) can fall off etc. coupled with perfect payment history and that could very well be the case.  There would be no way to quantifiy at any point in time verses a point 9 months later how much utilization at those different points in time impacted the score difference unfortunately.

[Anonymous]

Hello HoD!  And welcome to the forums. 

It sounds like you have got some answers as to what might be going on (regarding your initial question).  At the same time, however, you may want to know some quick things you can do to improve your credit scores.

Let us know if that is the case and I am sure folks here will be glad to help you,

PS.  As Dragonbits mentioned, "thin" doesn't refer to account age but to number of accounts (closed and open, whether revolving or installment).  If you have only two accounts on your reports (two credit cards and nothing else), there's a number of things we here can suggest to sharply improve your score, both short term and which will also be an advantage long term.

Account age is also very important.  The credit bureaus, however, do not, keep track of how long you have been using credit.   It's conceivable that, as far as your report goes, it might seem as though you have only been using credit a short time.  If the the two credit cards were opened fairly recently, for example, then it is quite possible that all your other accounts were closed and eventually fell off your reports. 

Thus what matters is the age of your oldest account on your reports right now.  It could be a closed account.  If it is a closed account, then you should plan that it will fall of your reports ten years after it was closed. 

[Anonymous]

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@Anonymous wrote:

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@Anonymous wrote:

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@Revelate wrote:

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@Anonymous wrote:

As I stated, I have never tested having all cards report a zero balance causes a small drop in scores, but it's easy enough to test the next couple of months.  It needs a few months just to see a stable score and score drop or rise.

However, paying down $13K on a card that has a 20K limit would cause a large drop in UTIL, and that large a drop should create a much larger rise in score than any small drop caused by having ALL cards report a zero.

Though the OP never stated ALL cards have a zero balance, that was assumed.

So I would think something else happend in addition to paying $13K.

---

I've tested both personally.  I had no movement on my file (granted it's in a dirty bucket which might impact things) at 73% utilization on a single tradeline, and I've taken an 11-12 point drop (depending on bureau) for being flatlined at all $0's.

For someone with a cleaner file if the individual tradeline utilization metrics I have hold for it too, this is "reasonable" from the algorithm perspective, even if I think pretty much everyone on this forum would prefer a different way of tracking credit card use than reported balances.

What's less well characterized is total utilization of 65% if that was the only revolving account, but there's some differences potentially between thin and thick files from an algorithm perspective, maybe.

---

My wife has a very thin file, 2 credit cards, 1 installment loan and 1 year AAoA.

She was at 63% util, and I paid down the two cards so there is a 2% util, her score went up 80 points in a month.

If I paid it down to 0% and lost 11-12 points, OK, but that would still have been swamped by the 80 point gain (674>754) , and would still have resulted in a 69 point gain.

I see quite a few post about 0% not being best case, but it's next to the best case (2-3% ?), obviously worst case is 100% UTIL.  I accept that is the case since quite a few posters have said that was what happened.

Out of curiousity, I would find it easy to move my mother to 0% UTIL, right now she is at 2% also.  Her FICO 8 is 802.  Nine months ago she was at 30% UTIL and her FICO was 746.  She does not have a lot of cards (5), but her AAoA is 12 years and her oldest card is 29 years.

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With the first part of your post with respect to the profile of your wife you are absolutely correct.  The point loss from paying down to 0% utilization in most cases would be disguised by the larger point gain in a stituation where someone paid down balances from maxed out numbers (or near maxed out) to 0% utilization.  It's at lower utilization percentages paying down to 0 that most people get confused by the drop more often.

With respect to your mother and her score, there are too many variables and moving parts to really say what would happen if she paid off that 2% to 0%.  With absolutely no change at all in utilization over 9 months a score could increase from 746 to 802.  AAoA grows, inquiries age and/or fall off, negative item(s) can fall off etc. coupled with perfect payment history and that could very well be the case.  There would be no way to quantifiy at any point in time verses a point 9 months later how much utilization at those different points in time impacted the score difference unfortunately.

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I didn't provide enough details for you to analze it, but I can tell her score changes because of total utilization and not any other factors, maybe 5-6 points from a HP.

Here are more details.

FICO 8 EX scores from Discover.

May 2015 800 PIF

June 2015 804 PIF

July 2015 800 PIF

Aug 2015 ?? PIF

Sep 2015 816 PIF

Oct 2015 811 PIF

Nov 2015 757 $10K balance transfer Total UTIL 30% card UTIL 66% LOST 54 points

Dec 2015 757 Minimum payment

Jan 2016 746 Minimum payment

Feb 2016 757 Minimum payment

March 2016 757 Minimum payment Retial Store $2K CLI HP New card

April 2016 762 Minimum payment

May 2016 769 Minimum payment

June 2016 762 Minimum payment

July 2016 769 Minimum payment

Aug 2016 802 Paid back $10K Total UTIL 2% card UTIL >1% Gain 33 points

Sept 2016 790 PIF

Sept 7th 804 PIF

(I used a balance transfer from her Visa to pay off two of my cards, then repaid it back in August, to get zero interest. )

4 total open credit cards, 7 closed cards, no negatives, only 1 HP. The total reported UTIL varies from 2-4, except during time it spiked to 30%.

So yesterday, I PIF all cards before the report date the only 2 cards that would have reported a balance. So the CRB should report a zero balance on all cards.  It will probably take 3-5 weeks to see that reflected in a FICO 8 score, though it might get picked up in CK Vantage scores in less than a week.  It's just the report cycle of Discoer with their free FICO score.

There aren't any negatives to fall off, AAoA isn't that signifant a factor, and 1 HP isn't either. It's all about UTIL.

Granted, if anyone has any sort of negatives, that will be a very big factor in their credit scores, and if that falls off then the scores will change a lot.

.

So if you know the details, it was easy to quantify what caused the score change.