topic Re: Pay off CC debt (FICO algorithm)? in Understanding FICO® Scoring

Pay off CC debt (FICO algorithm)?

Anonymous — Fri, 07 Sep 2018 16:35:54 GMT

All,

Is it best to pay off a card prior to statement cut? My score dropped 12 points after reflecting a zero balance. I do use all my cards actively and typically keep a 20$ balance At statement ending. This time, autopay paid it off for me -_-. With that, my score dropped.

Is it because the algorithm is not used to seeing my balance at ‘0’? For years, I’ve never had a zero balance but have been somewhat close. Does the algorithm think my card is closed? And will it go up next month if I pay it off again at statement close? Not sure of the scoring patterns..

Or should I disable autopay and go back to a 20$ balance each month?

I know best practice is to have a 0 balance but continue to actively use the card. To me, I’d rather have my score higher with a 20$ balance (and pay that interest) than have a lower score at 0 balance.

Thoughts?

Re: Pay off CC debt (FICO algorithm)?

Anonymous — Fri, 07 Sep 2018 16:49:21 GMT

When all cards are reporting $0, you get a 15 point penalty (roughly). The penalty vanishes when one card reports a positive balance. The balance can be quite small.

Re: Pay off CC debt (FICO algorithm)?

Anonymous — Fri, 07 Sep 2018 17:01:28 GMT

Thank you. I guess I’ll go back to my old method.

Re: Pay off CC debt (FICO algorithm)?

Anonymous — Fri, 07 Sep 2018 23:59:30 GMT

Set your autopay to pay the full statement balance, not the full current balance.

Re: Pay off CC debt (FICO algorithm)?

Anonymous — Sat, 08 Sep 2018 01:23:17 GMT

You know I just realized. My other cards are not zeroed out. I have 45$ on one and 65$ on another card. This was intentional to leave a balance. Strange that my third which reflected zero balance card caused my score to drop.

Also, no other credit reporting changes and I’m floating at 3% util @ 22k CL if matters

Re: Pay off CC debt (FICO algorithm)?

Anonymous — Sat, 08 Sep 2018 01:22:33 GMT

Re: Pay off CC debt (FICO algorithm)?

DollyLama — Sat, 08 Sep 2018 01:24:56 GMT

@Anonymous wrote:
You know I just realized. My other cards are not zeroed out. I have 45$ on one and 65$ on another card. This was intentional to leave a balance. Strange that my third which reflected zero balance card caused my score to drop.

Also, no other credit reporting changes.

The two balances, have they reported to the bureaus yet? Or just will be soon?

Paying one off and not closing would not result in a score decrease. Other factors would be a cause, we would have to know more about your file and did it affect all 3 bureaus or just one? And which credit monitoring service you are using?

Re: Pay off CC debt (FICO algorithm)?

Anonymous — Sat, 08 Sep 2018 01:33:02 GMT

Experian app and MyFico.

Yes others reported the balance (~120$ combined).

Very strange. I don’t know if it because I never zero out my balances and this month I did on one acct

Yes nothing has changed on my file. I’ve been actively monitoring it for the past 2 years..

Re: Pay off CC debt (FICO algorithm)?

SouthJamaica — Sat, 08 Sep 2018 01:33:52 GMT

@Anonymous wrote:
You know I just realized. My other cards are not zeroed out. I have 45$ on one and 65$ on another card. This was intentional to leave a balance. Strange that my third which reflected zero balance card caused my score to drop.

@Also, no other credit reporting changes and I’m floating at 3% util @ 22k CL if matters

The score drop was unrelated to the card reporting a zero balance.

Re: Pay off CC debt (FICO algorithm)?

Anonymous — Sat, 08 Sep 2018 01:45:06 GMT

Nothing else was added to my report. My installment loans, I still have been paying that down. Nothing different there other than the minimum payments and I still have a way to go.

No new accounts. Only changes are the balances. And as mentioned, in this case one was zeroed out. The other two +/- 10$ balances from the previous month.

That’s why I was questioning the criteria of score changes in relation to consumers paying habits.

Re: Pay off CC debt (FICO algorithm)?

DollyLama — Sat, 08 Sep 2018 01:55:07 GMT

When is your next 3B report due to be pulled? Check the number of accounts of last report vs new report, is it possible you had an old closed loan or card age off your file(s)? Did you have a CC that has not been used in quite awhile and the creditor closed it for inactivity?

Re: Pay off CC debt (FICO algorithm)?

Anonymous — Sat, 08 Sep 2018 02:26:40 GMT

i see all the questioning that something may have changed on my report. I know where my accounts are at and nothing was paid off. Closed, nothing either.

At this point I’ll wait and see how next months reporting goes.

Re: Pay off CC debt (FICO algorithm)?

Anonymous — Sat, 08 Sep 2018 13:54:02 GMT

You all were right! But still, now I’m confused even more.

Capital one increased my credit line! But isn’t that a good thing? It’s not a hard pull after speaking with them.

So why would my score drop?

Re: Pay off CC debt (FICO algorithm)?

Anonymous — Sat, 08 Sep 2018 17:28:18 GMT

A credit line increase cannot cause your score to drop, unless the CL increases to a crazy high number (like 55k).

The only way someone could make reasonable guesses as to what caused the score drop is if he were to see a complete copy of the report before and another complete copy of the report after. It's unlikely that you have printed copies of both reports drawn with full new data on seperate dates. Without that we may simply never know.

Re: Pay off CC debt (FICO algorithm)?

Anonymous — Wed, 12 Sep 2018 17:20:20 GMT

How is this a bad thing? Smh.

Re: Pay off CC debt (FICO algorithm)?

DollyLama — Wed, 12 Sep 2018 17:58:50 GMT

@Anonymous wrote:
How is this a bad thing? Smh.

Because FICO does not want ALL revolving credit to report zero balances each month, always let one report less than 8.9% of it's credit limit. Reason it states that people represent a low risk with low balances (reported) pose a low risk. The opposite of reported too many balances or high utilization is dinged as much as no balances.

Re: Pay off CC debt (FICO algorithm)?

Anonymous — Wed, 12 Sep 2018 18:16:57 GMT

@DollyLama wrote:
@Anonymous
Because FICO does not want ALL revolving credit to report zero balances each month, always let one report less than 8.9% of it's credit limit. Reason it states that people represent a low risk with low balances (reported) pose a low risk. The opposite of reported too many balances or high utilization is dinged as much as no balances.

That's not always true (profile dependent) concerning number of accounts reporting. During my year long experiment going from 5 accounts reporting to AZ and back out to 7 out of 8 accounts reporting, lost 16 points at AZ across the board, from AZEO to 7 cards there were no scoring changes for Experian, maybe 2-3 points on Equifax and 3-5 points on TransUnion. All Zero had the heaviest penalty by far, scores with all charges reporting to 7 out of 8 cards (4-5% aggregate UTI) currently sits at 827/EX, 825/TU and 817/EQ.

Re: Pay off CC debt (FICO algorithm)?

Anonymous — Wed, 12 Sep 2018 18:28:34 GMT

Apologies. What’s ‘AZ’?

Re: Pay off CC debt (FICO algorithm)?

Anonymous — Wed, 12 Sep 2018 18:32:34 GMT

AZ = All Zero, $0 balance on every card.

AZEO = All Zero Except One

AZE2 = All Zero Except 2

AZE3 = ...etc.

Re: Pay off CC debt (FICO algorithm)?

Anonymous — Wed, 12 Sep 2018 19:16:01 GMT

Consider three guys, Bob, Joe, and Fred. All have four cards. For all three guys all cards are reporting zero.

In Bob's case, that's because he has never used his cards for the last two years.

In Joe's case, it's because he recently paid all cards to zero, but usually he has 1-2 cards with a small balance (different cards each month usually).

In Fred's case he uses all four cards each month but always pays the card to zero before the statement prints.

Historically FICO has never been able to tell the difference between the three guys. All FICO could see is that their cards were (currently) at zero. The three guys represent different levels of risk: Joe and Fred are demonstrating that they know how to use credit and neverthless never miss a payment and have very low debt. In Bob's case, the fact that he hasn't been late is much less meaningful. As far as FICO knows, the only reason he's never late is because he hasn't used the cards. If he ever needs to use them, he might run up debt or have trouble paying on time.

The key issue for FICO was somehow trying to detect whether the person was actually a user of his credit cards. And for most of FICO's history, the only way to do that was to see if at least one card was reporting a positive balance.

In future models (e.g. FICO 10) it is possible that FICO might leverage a comparatively new thing called Trended Data, in which case FICO will be able to determine if you use your cards even if they all currently show $0. None of the big FICO models now (including FICO 9) use TD. Vantage 4 does use TD, so perhaps FICO 10 will attempt to do that.