Drop in Scores

[babbles]

I think this topic may have already been covered but why do your scores drop when you pay off something like a mortgage but rises in some cases a little when your revolving credit increases a bit?  Are you rewarded for staying in debt?  

[Anonymous]

I often wonder about that myself...I guess its the scoring formula they use.  I recently got a 42 point increase for my balance rising from $432 to $875??  Then I paid off a CC and got 7 points taken away.  It's like the VA disability math, you can have 200% disability but by the time you get your final rating is turns out to be just 90%??? So yeah...the math is a bit crazy...but it is what it be.   =)

[takeshi74]

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@babbles wrote:

I think this topic may have already been covered but why do your scores drop when you pay off something like a mortgage but rises in some cases a little when your revolving credit increases a bit?

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If you pay off a installment that is your only active installment there is a hit to Credit Mix.

Your second question isn't quite so clear.  Are you asking about scoring increase after an increase to revolving utilization or a scoring increase after an increase to available credit on revolving accounts?  If the former, you're overlooking other bigger factors that led to the scoring increase and/or the revolving utilization increase wasn't that significant.  If the latter, an increase in available revolving credit can lead to a decrease in revolving utilization given that revolving utilization is balance(s) / limit(s).  That is, assuming that balance(s) did not increase as well.

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@babbles wrote:

Are you rewarded for staying in debt?

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It's not quite so simple and straightforward as debt versus no debt.  Not all debts are assessed the same.  Revolving debt is seen as a bigger risk and that's why revolving utilization has a significant impact.  Installment debt is seen as less of a risk and that's why balance to loan ratio on installments has less of an impact.  Credit Mix is impacted by one's mix of credit accounts as the name of the factor indicates.

One doesn't have to carry revolving debt to improve one's credit profile and scores.  However, one does have to carry debt on installments to benefit.

[babbles]

Yes the question was in regards to an increase in existing credit card utilization but I believe you covered that. I do have other installments besides the homes and I have another home I expect to sell soon. I'll take the drop in scores a little, but as long as the home sells. The card balances fluctuate and furthermore, with the credit monitoring l, I didn't realize how often creditors report to the bureaus. Namely navy federal and USAA.

[babbles]

Please don't get me started on the VA math. Same exact situation here and they make it very difficult to get the last 10.

[Revelate]

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@babbles wrote:
Yes the question was in regards to an increase in existing credit card utilization but I believe you covered that. I do have other installments besides the homes and I have another home I expect to sell soon. I'll take the drop in scores a little, but as long as the home sells. The card balances fluctuate and furthermore, with the credit monitoring l, I didn't realize how often creditors report to the bureaus. Namely navy federal and USAA.

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The installment loans on FICO 8 isn't credit mix per se, but installment utilization.  When a loan closes have to calculate old utilization and new utilization and see if you crossed a threshold (10% and ~70%).

Works similarly on FICO 98 and 9 as well.  Stupidly long thread where we were researching it last year.

Gory Theory:
http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-tradeline-utilization-thread/...

[RonM21]

A lot of people have this question because in their theory it doesn't make sense, but it's all in that "mix" of credit that Fico goes by like others said.