topic Re: Why did Credit Limit Increase Hurt my Score? in Understanding FICO® Scoring

Why did Credit Limit Increase Hurt my Score?

Anonymous — Thu, 01 Mar 2018 17:13:24 GMT

Hi Everyone,

I recently received a $3,000 credit limit increase from my credit card company without asking for it. I'm happy with the increase, but my FICO score has dropped 22 points as a result. I don't understand how this would harm my score... shouldn't it help it? Since I did not ask for the increase, they did not pull a hard credit inquiry, so why has my score dropped because of this? The automatic increase shows that I am responsible with my credit, so if anything, my score should have increased! If you know anything about this, or have experienced the same thing, please let me know!

Re: Why did Credit Limit Increase Hurt my Score?

HeavenOhio — Thu, 01 Mar 2018 17:21:34 GMT

Welcome!

Which flavor of FICO are you looking at, and where did you obtain it?

Credit limit increases (CLIs) don't directly cause score changes. Indirectly, a CLI can contribute to a score increase by improving your utilization. The only way I can think of that a CLI can contribute to a score decrease is if it involves a hard pull.

So something else has happened. Did your reported balances increase? Are more cards reporting positive balances?

Re: Why did Credit Limit Increase Hurt my Score?

Anonymous — Thu, 01 Mar 2018 17:27:56 GMT

Hi HeavenOhio!

Thanks for the warm welcome! The FICO Score 8 shows the drop. There were no other changes, and I had a 13% credit usage on my card at the time. Everything that I have read shows me that CLIs should help my score, not harm it, but this was the only change reported, and down went my score.

Re: Why did Credit Limit Increase Hurt my Score?

Kree — Fri, 02 Mar 2018 16:28:55 GMT

There are certain situations where a credit limit increase can harm your credit score. If your limit increases to over 50,000 the utilization no longer accurately calculates and can cause scoring issues.

~~Or if the CLI decreased your utilization to under 2% it could be reporting as 0%. Which could lower your score if it was the only account reporting a balance.~~

This one is a conjecture: potentially something else in your report changed at the same time that put you into a different scoring category. We believe you are scored, in part, in comparison with other people in your scoring category or 'bucket'. If your profile got moved to a new bucket you might have a lower score due to the move. For example if your Average Age of Accounts increased to 2 years, or your Age of Youngest Account aged to 6 months.

EDIT: added examples of innocuous changes that could cause rebucketing.

EDIT2: Might be wrong about 2% thing.

Re: Why did Credit Limit Increase Hurt my Score?

newhis — Thu, 01 Mar 2018 21:42:36 GMT

The drop was with Transunion, Experian or Equifax? Did you get an alert?

There are many variables to calculate score, some are always changing (at least the time-related).

Re: Why did Credit Limit Increase Hurt my Score?

DollyLama — Fri, 02 Mar 2018 01:20:04 GMT

Did you have only one installment loan that was recently paid off? If so, it will drop score, due to not having it in your credit mix. But I believe if this was the case, it might be more than just 20 pts.

Re: Why did Credit Limit Increase Hurt my Score?

Anonymous — Fri, 02 Mar 2018 08:27:48 GMT

@KreeOr if the CLI decreased your utilization to under 2% it could be reporting as 0%. Which could lower your score if it was the only account reporting a balance.

Can you elaborate on this a bit? I've never heard of under 2% utilization being seen as 0%. As long as there's a balance of $5 or so (even as low as $1 in many cases) whether a limit is $500 or $45,000 it should be viewed as 1% utilization and seen as an account with a balance, not zero.

OP, your score 100% did not drop because of your CLI, I can assure you that.

Re: Why did Credit Limit Increase Hurt my Score?

SouthJamaica — Fri, 02 Mar 2018 12:43:04 GMT

@Anonymouswrote:
Hi Everyone,

I recently received a $3,000 credit limit increase from my credit card company without asking for it. I'm happy with the increase, but my FICO score has dropped 22 points as a result. I don't understand how this would harm my score... shouldn't it help it? Since I did not ask for the increase, they did not pull a hard credit inquiry, so why has my score dropped because of this? The automatic increase shows that I am responsible with my credit, so if anything, my score should have increased! If you know anything about this, or have experienced the same thing, please let me know!

@Anonymous @Anonymous correctly points out, the credit limit increase did not cause a score drop. Something else is the culprit.

Re: Why did Credit Limit Increase Hurt my Score?

Kree — Fri, 02 Mar 2018 16:28:16 GMT

@Anonymouswrote:
@KreeOr if the CLI decreased your utilization to under 2% it could be reporting as 0%. Which could lower your score if it was the only account reporting a balance.
Can you elaborate on this a bit? I've never heard of under 2% utilization being seen as 0%. As long as there's a balance of $5 or so (even as low as $1 in many cases) whether a limit is $500 or $45,000 it should be viewed as 1% utilization and seen as an account with a balance, not zero.

OP, your score 100% did not drop because of your CLI, I can assure you that.

I'm probably wrong then.

Re: Why did Credit Limit Increase Hurt my Score?

HeavenOhio — Fri, 02 Mar 2018 16:47:52 GMT

@Kree, I believe you might be thinking of the small balance waiver. That's when small balances are waived by the card issuer rather than bothering to bill the customer, resulting in a balance of zero being reported to the bureaus.

I believe that in theory, if one reported a balance of one cent on one card, it would count as 1% utilization. But because of small balance waivers, reporting a one cent balance would be tough to accomplish with most cards. If one wanted to test, it could likely be done with a card that doesn't report the statement balance, such as a US Bank card.

Re: Why did Credit Limit Increase Hurt my Score?

Anonymous — Fri, 02 Mar 2018 17:35:38 GMT

I too thought Kree may have been speaking of a waived balance, but when he said under 2% it threw me off. Under 2%, say 1%-1.5% on even a tiny $500 limit card would generate a $5-$7.50 balance which would no doubt report to the bureaus.

Re: Why did Credit Limit Increase Hurt my Score?

Anonymous — Fri, 02 Mar 2018 17:58:08 GMT

Hi All,

Thanks for weighing in on this. There were two items in my FICO Alerts that show the drop in 22 points-- all based on Experian data:

1.) The credit increase of $3000

2.) Utilization percent change from 12% to 7%

There were the only two updates and the alerts show -22 points for each (though my score only decreased by 22 points, not but 44).

Neither of these updates should have resulted in a lower score. I'm still utterly confused. The only thing that possibly makes sense is what HeavenOhio said about the buckets, almost like grading on a curve. If I was somehow moved into a different bucket. But I still don't understand why the FICO Alerts would have attributed the drop to the CLI and the utilization percentage drop.

I will often pay my credit card balance off entirely, but I've since learned to leave a nominal value on the card so I'm not hurt for being responsible (). That was not the case when the score drop happened, though. My utilization was at 7%. I need a confused emoticon with lots of question marks.

Re: Why did Credit Limit Increase Hurt my Score?

Anonymous — Fri, 02 Mar 2018 18:33:35 GMT

@AnonymousThanks for weighing in on this. There were two items in my FICO Alerts that show the drop in 22 points-- all based on Experian data:

1.) The credit increase of $3000
2.) Utilization percent change from 12% to 7%

There were the only two updates and the alerts show -22 points for each (though my score only decreased by 22 points, not but 44).
Neither of these updates should have resulted in a lower score. I'm still utterly confused. The only thing that possibly makes sense is what HeavenOhio said about the buckets, almost like grading on a curve. If I was somehow moved into a different bucket. But I still don't understand why the FICO Alerts would have attributed the drop to the CLI and the utilization percentage drop.

Neither of those events lowered your score. Those alerts are not related to your score change. It's common to believe that alerts are the reason, but they aren't always. I can tell you with 100% conviction that a $3000 CLI and/or a 12% to 7% reduction in utilization would never result in a score drop. You received those 2 alerts because they are two alertable events; you did not receive those alerts because your score dropped. Any time you receive alerts, you are provided with a new score at that time. If your score changed, it's not necessarily because of the alerts. It's crucial that you understand this, otherwise you'll drive yourself mad. Your score dropped due to an unalertable event. It's up to you to figure out what that is.

A utilization drop across the 8.9% threshold would actually result in a score gain, so you have to factor that potential amount in along with your drop so you really know what you're looking for. Was that utilization drop on just 1 card, or was it your overall utilization? If it was overall, it could have been good for perhaps a 15 point gain. A 15 point gain here from this event really means you may have lost say 37 points (not 22) from another non-alertable event, just 15 of those lost points were masked from the utilization drop related gain. Hopefully that makes sense. Here's a quick example of now an alertable event has nothing to do with a score change to help you understand what I've said above.

Someone pulls their credit report/score on the 1st of the month and they have a 635 score. On the 5th of the month, a 7 year old 120 day late payment falls off this person's credit report. This was their only negative item. They do not receive an alert about this negative item falling off since it is not an alertable event. On the 10th of the month, they apply for a credit card which results in a hard inquiry. The person receives an alert that a HP was added to their report by the lender. At the time of the alert, this person sees their new credit score is 708! If they go by the alert, they'd think that an increase of 73 points came from the inquiry. We know that is not the case and that in reviewing the credit report here we could identify the absence of that 120 day late payment. We know that an inquiry if anything actually drops a score, say 5 points and therefore can estimate that the 120 day late payment coming of actually raised the score 78 points, 5 of which were masked by the inquiry.

Re: Why did Credit Limit Increase Hurt my Score?

Anonymous — Fri, 02 Mar 2018 19:02:10 GMT

Thanks for that good information! The FICO Alerts show the point changes on each reportable event, and it linked the two that I had listed with the -22 drop, which is why I also associated the two. FICO should change its alerting system to not associate point changes with the wrong reportable events!

I have not found anything else in my report that has changed other than those two things. I have looked high and low, so it still remains a mystery to me. But I will keep my eye on it and see if more information turns up to reveal the true cause.

The unreportable events that you provided as an example would have resulted in a score improvement. Do you have any examples of unreportable events that would have a derogatory effect? I've found nothing negative in my report.

Re: Why did Credit Limit Increase Hurt my Score?

Anonymous — Fri, 02 Mar 2018 19:40:58 GMT

I agree that myFICO should have some sort of disclaimer on that screen where it shows you your alerts and the score to go along with them that you'd think has something to do with those alerts. Many of us forum members have bought this up many times in the past, as it can indeed be very confusing.

As for non-alertable events that could cause a score drop, I would think the most common would be a utilization increase or an account that didn't have a balance previously that now does. I don't have a myFICO account, so I don't know about all the different types of alerts to be honest. I know you'll receive an alert if you pay an account off, like a credit card that has a $75 previously reported balance that now reports as $0, but I don't necessarily think you'd receive an alert for the converse... that is, reporting a balance of $75 on a card that previously had a $0 balance. Also, balance increases may not be alertable... like if you have a balance of $400 on a $1000 limit card and the next month it reports as $700, I don't believe that would be alertable, but there would be a score drop there for crossing the 48.9% utilization threshold. I'm sure others that are more savvy with myFICO can provide better examples here though.

Re: Why did Credit Limit Increase Hurt my Score?

SouthJamaica — Fri, 02 Mar 2018 22:51:42 GMT

@Anonymouswrote:
Thanks for that good information! The FICO Alerts show the point changes on each reportable event, and it linked the two that I had listed with the -22 drop, which is why I also associated the two. FICO should change its alerting system to not associate point changes with the wrong reportable events!

I have not found anything else in my report that has changed other than those two things. I have looked high and low, so it still remains a mystery to me. But I will keep my eye on it and see if more information turns up to reveal the true cause.

The unreportable events that you provided as an example would have resulted in a score improvement. Do you have any examples of unreportable events that would have a derogatory effect? I've found nothing negative in my report.

It is highly unlikely that you are looking at updated reports. If you look at the dates on your reports, you will probably see that they are from when you got your last 3B report. Looking "high and low" won't help if you are not looking at a fresh new report with updated information.

If you pulled updated reports today you would know exactly why your score dropped, and I can assure you it was neither because you received a credit limit increase nor because your overall utilization was lowered. Those two blessings softened the blow for you, they did not cause it.

Re: Why did Credit Limit Increase Hurt my Score?

Anonymous — Mon, 05 Mar 2018 01:10:49 GMT

The simulator shows if I get a credit limit increase of over $2,000 at least one, maybe two of the bureaus my score will decrease by 5 points or less. My thinking is my combined credit limits are getting too close to 200% of my annual income.

Re: Why did Credit Limit Increase Hurt my Score?

Anonymous — Mon, 05 Mar 2018 04:09:38 GMT

@AnonymousThe simulator shows if I get a credit limit increase of over $2,000 at least one, maybe two of the bureaus my score will decrease by 5 points or less. My thinking is my combined credit limits are getting too close to 200% of my annual income.

This is another fantastic example of why simulators are garbage, as a CLI would not decrease a score unless it resulted in a HP. Income is not a factor at all when it comes to FICO scoring, so what your income is relative to your credit limits has no bearing at all on your score. Amount you owe relative to your credit limits (known as utilization) does impact your score in a big way, but it doesn't matter what your income is.

Re: Why did Credit Limit Increase Hurt my Score?

HeavenOhio — Mon, 05 Mar 2018 20:48:30 GMT

I think the simulator assumes a hard pull on each bureau. That's unlikely to happen, of course. But the simulator isn't going to know whom the bank is going to pull. It's likely making a correct assumption that a CLI in and of itself isn't going to cause an increase. Thus, the slight decrease across the board.

The bottom line, however, is that simulators should be considered to be toys more than tools. There's no harm in playing with them as long as you don't put a lot of faith in what they tell you. My observation is that most simulators are too simplistic to do the job. myFICO's seems to be the opposite; it's too complex. It tosses in a bunch of stuff that you'd rather make go away.

Re: Why did Credit Limit Increase Hurt my Score?

NRB525 — Tue, 06 Mar 2018 06:13:32 GMT

OP, what are your FICO scores from each of the three bureaus? Before and after the change?
Did the other two bureaus also change by a similar amount?
Are there any lates, missed payment of any kind, ever, in your credit history?
Are you disputing any lates?
How many cards do you have, and what are the limits?
Any installment loans or mortgage loans? Any pay-off completed recently for any of those term loans?
Any cards that you had for a while, but for some reason it was closed 9 or 10 years ago?

The reason for all the questions is that these sorts of situations can lead to a possible score drop ( or provide important context ). As the others have correctly noted, a CLI does not hurt score, though it is a reported event. Most of the other leading questions above tend to be quiet.