topic Re: Paid off $3000 on Credit card (Score drops?) in Understanding FICO® Scoring

Paid off $3000 on Credit card (Score drops?)

Anonymous — Mon, 11 Jul 2016 14:00:09 GMT

I understand scores fluctuate and have a pretty strong understanding of why scores would go up vs. down. I am baffled by the drops I have seen in the last 2 weeks.

Equifax and TransUnion dropped by ~10 points upon news that I paid off $3000 on my only credit card to a 0 balance (3% utilization --> 0%). This is a positive action which shouldn't drop the score. The FICO simulator also shows that this payoff should result in a increase. So why would my score drop 10 points (this was the only change listed)

Any insight would be great!

Bank increased Credit Card Limit and score dropped 20

Anonymous — Mon, 11 Jul 2016 14:01:58 GMT

Experian just dropped 20 points today on a report that my credit limit went up by $5000.

I did not request this limit increase, nor did my balance (currenlty at $0) change. So why would my score drop in this situation?

Re: Paid off $3000 on Credit card (Score drops?)

Anonymous — Mon, 11 Jul 2016 17:25:35 GMT

The same thing happened to me last week. I paid off three credit cards that had a combined balance of about $2500. The first payoff to be reflected on my credit reports is a Barclay Card Visa, which went from a balance of $642 to zero. I got a myFico alert on 7/7/16 that "the balance on one of your accounts has decreased by $642." The result? A 10-point drop in my Experian score. The next day I got the same alert with a 1-point drop in my Equifax score. The balance decrease isn't reflected in my TransUnion report yet. I'm hoping my scores won't drop further when the other two credit card payoffs are reported.

Re: Paid off $3000 on Credit card (Score drops?)

Anonymous — Mon, 11 Jul 2016 19:48:30 GMT

@Anonymous wrote:

I understand scores fluctuate and have a pretty strong understanding of why scores would go up vs. down. I am baffled by the drops I have seen in the last 2 weeks.

Equifax and TransUnion dropped by ~10 points upon news that I paid off $3000 on my only credit card to a 0 balance (3% utilization --> 0%). This is a positive action which shouldn't drop the score. The FICO simulator also shows that this payoff should result in a increase. So why would my score drop 10 points (this was the only change listed)

Any insight would be great!

Your score dropped since that was your only card and you went to zero usage.

Re: Paid off $3000 on Credit card (Score drops?)

Anonymous — Mon, 11 Jul 2016 20:04:17 GMT

Thanks for the response. I do have other cards but do not use them. This particular card that I paid off, does have regular use on it so why would FICO punish someone for paying off their card

Re: Bank increased Credit Card Limit and score dropped 20

RonM21 — Mon, 11 Jul 2016 20:29:39 GMT

It likely did not drop due to an increase. What probably happened is something else on your report caused a score drop and it was triggered by the update. I'd check your info closely to see what may have changed. But the CLI was not the cause of this.

Also, if you are not seeing this with a Fico score, and it's Credit Karma, or some other form of score, the number could be out of whack naturally. Their scores are not Fico's and react differently and sometimes strangely. Make sure it is a Fico Score first.

Re: Paid off $3000 on Credit card (Score drops?)

RonM21 — Mon, 11 Jul 2016 20:33:53 GMT

OP, you have 2 of the same thread going on. Here is the response I posted on the other one below. But it looks like the answer may have been partially figured out on this thread.

It likely did not drop due to an increase. What probably happened is something else on your report caused a score drop and it was triggered by the update. I'd check your info closely to see what may have changed. But the CLI was not the cause of this.

Re: Bank increased Credit Card Limit and score dropped 20

Anonymous — Mon, 11 Jul 2016 20:35:07 GMT

Your score should never drop from a cli. It should go up a few points. Mine did just that when some banks gave me an auto cli. Give it a couple of days for the dust to settle and check everything again. Don't forget to check the reason's why.

Re: Paid off $3000 on Credit card (Score drops?)

Anonymous — Mon, 11 Jul 2016 20:39:37 GMT

Your scores should not drop from paying down debt. They should go up. Lower ut = higher fico's. Give it a couple of days and check it again and the factors that caused your scores to drop. 3k over all of your tcl's should be a significant impact and raise your fico's.

Re: Paid off $3000 on Credit card (Score drops?)

Anonymous — Tue, 12 Jul 2016 01:39:39 GMT

@Anonymous wrote:
...so why would FICO punish someone for paying off their card

You're not getting punished, you are simply showing that you aren't using your revolving accounts credit at this moment. If you report a small balance on one of your credit cards you'll get your 10 points back. Zero balances across the board may appear to be the best "look" but really it isn't as you aren't "using" your credit.

Just one of the many FICO things that on the surface doesn't appear to make sense but actually does... and has a very simple work around to overcome it.

Re: Paid off $3000 on Credit card (Score drops?)

Anonymous — Tue, 12 Jul 2016 02:56:26 GMT

Hello,

Paying to zero is one of the biggest misconceptions of building a good credit score.

Like BrutalBodyShots said, paying your cards down to $0 will negatively impact your scores. If you are working to improve your scores, always allow a small balance 10% of your cards limit to remain on the card. The credit bureau formulas are looking at your ability at maintaining revolving credit accounts and your ability to pay them on time. Paying down to 0 essentially makes it an inactive account which will result in a small hit to your score.

As mentioned, add a small balance and wait for the update. You should see the return of your 10 points and possibly a small bump past that. In the future, leave a balance of 10% and you'll see an increase greater then losing 10 only to get back the 10.

Best of luck to you.

Re: Paid off $3000 on Credit card (Score drops?)

Anonymous — Tue, 12 Jul 2016 10:59:46 GMT

I agree with what the person above said, although leaving a 10% balance isn't necessary. Generally anything from 1%-9% will suffice, and likely grab you a couple of points more than if you leave a full 10% as 10%-29% is the next scoring bucket with respect to utilization.

Re: Paid off $3000 on Credit card (Score drops?)

Anonymous — Tue, 12 Jul 2016 12:02:16 GMT

I appreciate the feedback. By leaving a balance on the card, aren't I going to be hit with monthly interest charges?

Re: Paid off $3000 on Credit card (Score drops?)

SouthJamaica — Tue, 12 Jul 2016 18:06:13 GMT

@Anonymous wrote:
I appreciate the feedback. By leaving a balance on the card, aren't I going to be hit with monthly interest charges?

By "leaving" they mean letting it report on your statement. If you then pay it off before the due date, there's no interest. Letting it report on your statement, then paying in full, is different than "carrying" a balance over to the next cycle, which does incur interest.

By the way, for score optimization purposes, I think it's best for most of your cards to report a zero balance, and for less than 50% of them to report a small balance.

Re: Paid off $3000 on Credit card (Score drops?)

Anonymous — Tue, 12 Jul 2016 18:09:28 GMT

If you PIF between when your statement comes out and when the payment is due you won't have any interest charges.

However, if you don't PIF before the due date and leave a balance of 1% left on the card it won't result in much interest at all.