topic Credit score drop, then increase. in Understanding FICO® Scoring

Credit score drop, then increase.

Anonymous — Tue, 18 Jul 2017 00:54:00 GMT

Awhile back I posted about an unexplained 60+ point drop in my 800+TransUnion credit score. I have no mortgage, no unpaid bills, and had not used my credit card for over a year. ( As I explained, I don't need credit, so I don't bother with it, and certainly won't pay an annual fee for it.) The drop took place in 2015, and lasted for over a year.

Recently I decided to fly out west to visit an old friend, and about the only way to buy a plane ticket is with a credit card. Lo and behold, the use of my credit card bumped my credit score right back up to exactly where it had been before.

I speculated on and seem to have been correct that my credit score was not actually a relfection of my creditworthiness, but of my credit utilization. In other words, my FICO score isn't really a credit score, but a credit utilization score. It would be interesting to hear if others have had similar experiences.

Re: Credit score drop, then increase.

Anonymous — Tue, 18 Jul 2017 01:47:52 GMT

Yep. It's very well establsihed that when a person's credit card(s) all report $0, that results in a scoring penalty -- which is then reversed as soon as one card reports a balance (which could be quite small).

Re: Credit score drop, then increase.

Anonymous — Tue, 18 Jul 2017 02:57:55 GMT

@Anonymous wrote:

In other words, my FICO score isn't really a credit score, but a credit utilization score. It would be interesting to hear if others have had similar experiences.

The above portion of your post is inaccurate. A FICO score is comprised of 5 different factors, the second most important in terms of scoring impact is utilization. This makes up 30% of your FICO score. So, at best, your argument here could be that 30% of your FICO score is a credit utilization score. It's then important to understand though that what happened with your profile wasn't the worst thing that could have happened with respect to that 30% of your score. As CGID already correctly pointed out, one takes on a slight scoring penalty when all credit cards report a zero balance. This scoring penalty however is minor relative to the scoring penalty associated with maxing out all of your credit cards, for example. It's also minor compared to bringing all of your credit card balances to, say, 70% utilization. My point here is that in allowing all of your cards to report $0 balances, your FICO score isn't even close to losing out on all of the points that make up the utilization slice of the pie.

Re: Credit score drop, then increase.

Anonymous — Thu, 27 Jul 2017 00:08:27 GMT

As CGID pointed out, I'm sure I'm already taking a hit since my credit cards do not (ever) carry balances. Even so, my score is over 800, and I'm fine with that.

I'm not making an argument concerning what portion of the score is a credit utilization score, but rather I'm simply discussing what actually happened to my credit score, and the factors involved. My credit score was over 800, until I didn't use my card for over a year. At that point, my credit score dropped by over 60 points (80 points would be a 10% drop), and stayed there until after I used my card, at which point my credit score returned to exactly the same score as before. (The credit score factors before and after the drop were exactly the same, making the return to the exact score reasonable). This is strongly indicative of a flaw in the FICO system, since my creditworthiness didn't change when I didn't use my card, or for that matter when I did. Based on the facts, the drop and return of my score appears to be based entirely on my use of my credit card, and as such not based on actual credit worthiness.

My point here is that having a zero balance on my card didn't ding my score: failing to use my card created the hit.

A drop of over 60 points (from over 800, excellent credit) to potentially under 740 (good credit) is a significant drop. one that could easily affect my ability to get a loan, not to mention insurance rates which are often affected by credit scores. For what little its worth, I take issue with the FICO scoring system penalizing me for being financially responsible and not using (or needing to use) a credit card.

Thank you for letting me clarify.

Re: Credit score drop, then increase.

Anonymous — Thu, 27 Jul 2017 02:14:00 GMT

Can you remind us about the total number of credit cards you have? I am pretty sure you have exactly one card, but my memory could be faulty.

Also, when you say that your TU credit score took a big hit....

* Is that a FICO 8 score that you are getting with that credit card?

* And is that the only bureau you were seeing? In other words, you are not claiming that your EQ and EX score did not take a dive -- they might have also taken a dive but you just didn't have scores from them to assess that... correct?

Re: Credit score drop, then increase.

909 — Thu, 27 Jul 2017 05:45:23 GMT

Zero speculation is needed. This is well documented here and many other places.

Anyone at this forum should recognize that a credit score

as currently designed. as a suitability-to-consume-in-the-long-run score.

Re: Credit score drop, then increase.

Anonymous — Thu, 27 Jul 2017 08:36:50 GMT

@Anonymous wrote:
As CGID pointed out, I'm sure I'm already taking a hit since my credit cards do not (ever) carry balances. Even so, my score is over 800, and I'm fine with that.

I'm not making an argument concerning what portion of the score is a credit utilization score, but rather I'm simply discussing what actually happened to my credit score, and the factors involved. My credit score was over 800, until I didn't use my card for over a year. At that point, my credit score dropped by over 60 points (80 points would be a 10% drop), and stayed there until after I used my card, at which point my credit score returned to exactly the same score as before. (The credit score factors before and after the drop were exactly the same, making the return to the exact score reasonable). This is strongly indicative of a flaw in the FICO system, since my creditworthiness didn't change when I didn't use my card, or for that matter when I did. Based on the facts, the drop and return of my score appears to be based entirely on my use of my credit card, and as such not based on actual credit worthiness.

While the others repeated some well-known Newtonian physicsof FICO-land(tm), am I the only one to find the bolded part the least bit interesting? I'm not ready to to say it's the quantum physics of the paradigm shifting understanding of reality we're going through IRL, in this metaphor, but this is where I wouldn't mind the board having one of those moving emoticons/emojis of someone tossing back some popcorn. Nature thrives on the new, or uncommon repetitions, although it cuts the great mass of them down.

If FICO were as easily understood as they pretend, and most of us figuratively buy, there wouldnt be as much of a reason for folks to buy it literally.

Either way, I appreciate your data points and post, OP. The title didnt originally seem as interesting to me as it turned out to be, the way I wish more movies in the past few years would have been.

PS: OP, have you said if you paid off the recent, one-time charge yet? I'd be interested to see how long it takes for the score change this time. Also, did you mention exactly what type of score this is/the source? Has anyone mentioned date of last activity in the thread yet? For what it's worth, I'm not as boned up on the Newtonian model of FL as some, but now and then I suppose it can be helpful if you dont mind the rest.

Re: Credit score drop, then increase.

Anonymous — Thu, 27 Jul 2017 14:27:22 GMT

@Anonymous wrote:
Can you remind us about the total number of credit cards you have? I am pretty sure you have exactly one card, but my memory could be faulty.

Also, when you say that your TU credit score took a big hit....

* Is that a FICO 8 score that you are getting with that credit card?

* And is that the only bureau you were seeing? In other words, you are not claiming that your EQ and EX score did not take a dive -- they might have also taken a dive but you just didn't have scores from them to assess that... correct?

Hey OP! When you get a chance, see if you can answer those questions above.

Also curious if you can remind us what happened after you used the card for the trip out west to see your friend:

* When did that happen? (Month/year) It sounds like it happened in the last five months, but I can't be sure.

* Did your credit card statement print with a positive balance?

* Did you pay the balance in full?

* Has the CC balance been $0 since paying it off?

* Have you tracked your score since then? If so, what has it been for the last few months? (Including the month it reported a positive balance and the months after.)

I ,may have a theory that would account for all of the facts, but it depends on what the answers are to all my questions.

Re: Credit score drop, then increase.

J-F168 — Sat, 29 Jul 2017 22:49:18 GMT

My story:

Discharged in December chapter 7. I have a bunch of CC's from December.

CAPITAL BANK $ 0 / 300

COMENITY BANK/EDDIEB $52/ 350

COMENITY BANK/PIER 1 $ 0/ 500

COMENITYCAPITAL/FRON $ 0/3,500

COMENITY CAPITAL/HSN $36/ 800

COMENITYCAPITAL/OVER $ 0/2,900

CREDIT ONE BANK $ 0/ 450

FIRST PREMIER $ 0/ 300

LENDUP CARD SERVICES $ 0/ 300

MERRICK BANK CORP $ 0/ 700

SYNCB/AMAZON PLCC $ 0/ 400

SYNCB/CARE CREDIT $ 0/1,500

SYNCBPAYPALEXTRASMC $0/ 300

Closed Accounts (on customer request) I am looking to close at least five more credit cards.

COMENITYBANK/BRYLANE $0/ 250

COMENITYBANK/VICTORI $0/ 250

COMENITYCAPITAL/FRON $0/2000

I opened all my comennity in June/July.

Few days ago my credit score from my fico.com were: Equifax 646 TransUnion 629 Experian 645

On Experian.com all 3 score are identical with myfico.com, less reporting my Equifax dropping score. On Equifax.com my Equifax is unchanged 616.

yesterday I received an alert with on Equifax here on fico ( no alerts on equifax.com or eperian.com) showing two new credit cards with zero balance and a drop of 101 points only on Equifax/ myfico.com, on Equifax.com or Experian.com no alerts of opening two new acc's or score dropping dramatically.

those new credit cards have a limit of

COMENITY BANK/PTTRYBRN balance $0 but doesn't show my limit which is 2,500

COMENITYBANK/SGUIDEVS balance $0 but doesn't show my limit which is 2,500

Edit as today 07/29/2017 myfico scores are back to normal Equifax 646 TransUnion 629 Experian 645.

Re: Credit score drop, then increase.

newhis — Fri, 28 Jul 2017 14:34:45 GMT

@Anonymous wrote:
Awhile back I posted about an unexplained 60+ point drop in my 800+TransUnion credit score. I have no mortgage, no unpaid bills, and had not used my credit card for over a year. ( As I explained, I don't need credit, so I don't bother with it, and certainly won't pay an annual fee for it.) The drop took place in 2015, and lasted for over a year.

Recently I decided to fly out west to visit an old friend, and about the only way to buy a plane ticket is with a credit card. Lo and behold, the use of my credit card bumped my credit score right back up to exactly where it had been before.

I speculated on and seem to have been correct that my credit score was not actually a relfection of my creditworthiness, but of my credit utilization. In other words, my FICO score isn't really a credit score, but a credit utilization score. It would be interesting to hear if others have had similar experiences.

From where do you get your TransUnion credit score?

I read that you don't have a mortgage and you don't need credit, so you don't use your credit cards. Do you have any loan?

I have read that after 6 months (more?) without activity FICO will not be able to report a score. So I wonder how you can have a FICO score without credit activity.

Are your credit cards safe without activity? Any closed because of that?

Re: Credit score drop, then increase.

Thomas_Thumb — Fri, 28 Jul 2017 17:29:04 GMT

@Anonymous wrote:
Awhile back I posted about an unexplained 60+ point drop in my 800+TransUnion credit score. I have no mortgage, no unpaid bills, and had not used my credit card for over a year. ( As I explained, I don't need credit, so I don't bother with it, and certainly won't pay an annual fee for it.) The drop took place in 2015, and lasted for over a year.

Recently I decided to fly out west to visit an old friend, and about the only way to buy a plane ticket is with a credit card. Lo and behold, the use of my credit card bumped my credit score right back up to exactly where it had been before.

I speculated on and seem to have been correct that my credit score was not actually a relfection of my creditworthiness, but of my credit utilization. In other words, my FICO score isn't really a credit score, but a credit utilization score. It would be interesting to hear if others have had similar experiences.

My belief is credit scoring models evaluate credit worthiness based on credit use data. If you don't use credit, you are an unknown and therefore models can't put you in a top tier classification nor will they put you in a low tier. If your file is clean with no lates a "default" score in the 720 to 760 range would seem logical to me.

Active file => enough data for model to evaluate profile with a good degree of granularity and score accordingly.

Inactive file => Still scorable if open accounts are still reporting. However, no recent data so limited granularity which may "force" a score reduction.

As mentioned above, no recent activity on revolving accounts is a negative factor in Fico scoring (nominally a 20 point penalty for clean files with no buffer). OPs 60 point drop/increase went beyond what would be expected so, I speculate inactivity may have played a role. How, I don't know.

Side note: If a file has open accounts being reported as "pays as agreed", an extended period of inactivity [over 6 months] doesnot necessarily mean a file becomes unscorable. All that is required is that an account has been reported to the CRAs. The OP's data certainly supports this.

Re: Credit score drop, then increase.

Anonymous — Sat, 29 Jul 2017 16:56:33 GMT

Yup, that's what I was alluding to when I said that "I had a theory" as to what was going on, but wanted the OP to answer some more questions. Until he does we won't know how viable this theory of mine and TT is. Namely that when an open tradeline stops having activity on it for a long time it eventually gets flagged as inactive and stops "counting" in terms of traditional scoring factors.

In our OP's case he was in a rare place to test it because he had exactly one open revolving account for a very long time. Assuming our theory is right, this one account was flagged as inactive (curiously at exactly one year of inactivity) and then that caused his profile to look (from a scoring perspective) as if he had no open revolving accounts at all, which would be a big plunge in his FICO 8 score.

In our OP's previous thread, I think we discovered that he did not have a credit report from the month before and the month after the big drop, so we'll never be able to see the "status" of the account -- was it formally given a status of "inactive" by the CC issuer? (Reflected in the report.)

Or is it FICO's algorithm itself that decides that the account is "inactive" -- in which FICO is probably using the DOLA (Date of Last Activity) that comes with the report data (but consumers often don't see it).

Again all of this is very hard to test, because people who like "testing" FICO scoring algorithms tend to hang out on sites like this, and people who hang out on sites like this would never have exactly one credit card and if they did would never leave it dormant for a full 13 months in a row.

Our OP's case does have some practical value nonetheless. It suggests that perhaps FICO might ignore tradelines that have had no activity for a long time. And so as a practical matter, if you are preparing for a really important loan application (like a home loan) and you have a bunch of revolving accounts that have not been used for over a year, you might consider putting a little activity on them (and then paying it off) as part of preparing for the loan -- if you want to be sure that they'll be counting fully in the way you expect.

Re: Credit score drop, then increase.

Anonymous — Mon, 31 Jul 2017 23:39:45 GMT

Hi Credit Guy, you are correct. I have just one credit card. I had problems with my Citi cards not wanting to acknowledge an incorrect charge, and then wanting to charge an annual fee (I'm not saying those two things were related), but I don't see any reason to pay for a card, so I've still got my Discover. Its the one that gives me my TransUnion Credit score. Still have no debts, homes are paid off, cars too, (I'll buy with cash again if need be), so in some ways for them to give me a credit score over 800 is generous, but also accurate.

I have no idea if that's a FICO 8 score or not.

You're also correct that I don't know if my Experian and Equifax scores also took a dive, I don't really care to pay for a score. And I've had problems with Equifax refusing to even give me a copy of my credit report, so I don't even bother with them any more. Thanks for the important questions.

One more thing for people to think about. I have an extended fraud alert on my credit reports, which I suspect has saved me a great deal of trouble over the years. But it also gives me control over which credit reporting agency any financial institution can use. After problems with TransUnion (they were a big pain in the b*tt over the ID theft issue), I no longer let any financial instituion look at my TransUnion report. Its one small thing I do to encourage the credit reporting agencies to act responsibly.

DeVeras

Re: Credit score drop, then increase.

Anonymous — Mon, 31 Jul 2017 23:45:34 GMT

Captain, just a touch more background. I actually put a charge on my card at Christmas, and then paid it off immediately, before the statement was generated. I did not get a statement for that charge. I did the same with the plane ticket (paid it before the statement generated) but this time I got a statement and a score. What I did not get this time is a graph showing my score over time, which in the past showed a flatline at over 800, then a sudden drop to under 740, and flatline there until the statement date. I hope that helps.

DeVeras

Re: Credit score drop, then increase.

Anonymous — Mon, 31 Jul 2017 23:51:23 GMT

Hello again Credit Guy, I appreciate your questions.

I bought the ticket in May of this year, just after my May statement date. Then I paid off the card before the June statement date, so the statement I received showed a zero balance due. I should mention that I also did the same thing at Christmas, but since I wasn't sent a statement, I don't know if it generated a change in my score then or now. In a sense it doesn't matter, since the actions were the same. I have not used the card since then, nor do I expect to receive a statement.

I'd love to hear your theory.

DeVeras

Re: Credit score drop, then increase.

Anonymous — Mon, 31 Jul 2017 23:53:15 GMT

I've never had a problem with my cards due to a lack of activity. That may be something new that I'm glad to be aware of. I'll have to ask my cardholder.

Re: Credit score drop, then increase.

Anonymous — Tue, 01 Aug 2017 00:02:51 GMT

Nice theory guys, and I'm happy to test it. That's part of why I posted here. IMO, just because someone (in this case me) doesn't need to use their credit cards certainly doesn't indicate a credit risk, and as such that person (in this case me) also doesn't deserve such a radical drop in their credit score. Which leads me to suggest that FICO scoring models do not accurately reflect a person's creditworthiness, and may in fact be designed to reflect how much a person can be expected to use their card (i.e., how much can a credit card company expect to make from a person's credit card use). I suspect I'll be using my card several more times in the coming year, so I'm not sure I can test it again, but I appreciate the insights.

DeVeras