Credit score dropped after lowering credit utilization from 60 to 16%

[creditn00bAt40]

Over the past couple years I brought my credit up from the 500s to mid 600s. But only recently have I started addressing the chronic overspending that destroyed my credit in the first place. My utilization used to be a pretty solid example in how NOT to use credit - my 4 largest CLs hovered near max, and every other month or so I'd let one get reported 90%+. Then I had a bunch of cards with very low limits ($300, $400, $240, even a $100 one) and most of those stayed at 0 or close to it.

But I've stopped using my credit cards except for a few strategic autopay transactions to keep my better ones active, and I've paid nearly every extra dollar to my debts. It's still not great, but I brought everything down to below 50% (and counting), and started making double (and last month, triple) monthly payments on my loan. No new accounts or closures, delinquencies or inquiries have been reported, no changes at all except bringing my utilization down, a few CL increases, and the passage of time. I've been checking my credit every day, hoping to see the thousands of dollars in payments I've been making result in higher credit scores.

Instead, today I see on myfico that my scores on Equifax and Experian have actually DROPPED, 13 and 11 pts respectively, after 2 of my accounts reported significantly reduced balances. I had hit 700 for the Very. First. Time, just days ago. It's like they let me past the rope and into 700 on accident, then saw I didn't belong and subsequently tossed me on my ass. Every time I start to think I'm understanding how this works, I find out I'm not really that much further than I ever was.

My father died in August, and I received $2k of his insurance policy. I put the whole thing towards my debt because he always worried about me and my careless spending. Now I'm back to broke and I wound up harming, not helping, my credit. Not that I wish I'd blown it on dumb **bleep**, or that credit scores are the reason to pay your debts. I just feel lost rn.

[NoHardLimits]

Simply lowering utilization on revolving accounts shouldn't drop your FICO scores unless you reach zero balances across the board, or across all Authorized User accounts.  Unless you hit an "all zero" penalty, there must be some other cause for the score drop.  Did you have any old delinquencies that have diminished in impact through the passage of time?  You may have moved to a different FICO Scorecard in the process.

[Patient957]

Condolences on your father's passing, and congratulations on making progress paying off your debt. 

As @NoHardLimits mentioned, lowering utilization does not cause your score to drop.  There's something else going on -- you just need to figure out what it is.

In any event, don't let a minor setback discourage you from continuing to make progress.

[FicoMike0]

I'll just comment that if you have accounts pushing 90%, your problem isn't credit score. You'd be better off coming up with a payoff schedule for your debt showing monthly interest paid. Concentrate on reducing that number and forget your scores.

[Thomas_Thumb]

Paying down debt is always good regardless of score. As others have said, reducing utilization does not hurt score.

Congratulations on bringing down your aggregate revolving utilization! Fico looks at both aggregate utilization and highest utilization on any of your cards. It is possible to see a score drop if a low limit card reports a spike up in utilization even though aggregate utilization remains about the same.

Some thresholds for individual card utilization are 29% and 49%. So, allowing any single card to report above 29% may drop score a little and the drop could increase further above 49%. Another threshold is 89% and one may exist at 69% as well.

Financially it is best to reduce debt on highest APR cards first. From a Fico score perspective, it is best to reduce highest utilization cards to beneath key thresholds.

Let's say someone has 5 cards at 33%, 55%, 55%, 65% and 90% utilization all with equal CL. Taking a 55% card to 45% may not increase score because the highest utilization card being 90% sets the penalty. However, reducing the 90% card to 85% may help because highest card UT has dropped beneath the 89% threshold.

[sjt]

Have you looked at your EQ and EX credit reports? If your revolving accounts all reported zero balance, then that could be the reason for the score drop.

[DebbsSeattle]

Hi not an expert, just a fellow comrade in the debt elimination trenches as you. I did not see many details on your file...how old are your trade lines? Did you pay off a loan (auto or personal or student)? Did you have any collections or charge offs just report for the first time? Did you have an old Acc't age off your report after 7 years of non-use? If it affected your average age of accounts, that could be it.

I have read that young credit files can drop severely between 2 years 364 days old to the next day at 3 years old. They called it bucketing. We graduate from one population of credit peers to another over our entire credit life. Sometimes we can be downgraded. We are graded on the bell curve. It's not fair, but it is what it is. There are 12 buckets from what I have read here on myFico. Perhaps you are just the newest kid in the next bucket up.

I paid off an auto loan, my score dropped 10 points. And that was WITH a personal loan active. 12 months, and I still have not seen them come back unless they are buried in other point adjustments. It pertains to credit mix. If you did payoff a loan and have nothing in that category, consider stopping into your local credit union. Open a secured personal loan for $400. Fund the new savings account with the proceeds of the loan. They can write the loan to make the last payment from the return of the security deposit. Set up auto pay and just let it ride out its path over the next 12 months. In 12 months you can do it again if you need to have another trade line in the loans category. Minimal pain with a $400 deposit, positive gain in credit mix for scores, and zero risk and no maintenance. Low cost impact for 12 months interest on $400.

This task we have set for ourselves is hard work and commendable. It is long, boring, tedious, not fun and requires patience. It is like chopping down a full grow tree with a hatchet and for some with a kitchen knife. You just gotta keep chopping wood. So congrats on getting this far on your set path. Don't allow a minor setback to deter your fine efforts. In fact make it your fuel to power on. Double down...introduce No Spend Saturday & Sunday to your mix. Become a homebody for the next 3 weekends and then go out for dinner and a movie on the last weekend. Rinse and repeat. Convert your weekly spend limit to cash and sock drawer the cards. No way of going over budget. When cash is gone...it's gone. If you eat lunch out, brown bag it for as many days as you can handle and only allow a lunch out with money left in the cash budget the day before payday. Cut your streaming services to one or none...rely on the freebie svc. Drop your Amazon Prime. Switch from fancy "insert food you eat here" and go without or with store brand. You get it...just get creative. My parents were raised by survivors of the Great Depression. They were taught and raised under the motto of "Use it up, wear it out, do without". I personally have taken this motto into play. It is painful but it's working. Cheers...keep up the good work.