CC debt paid almost to zero, score drops !?!?

[expatCanuck]

I've been diligently paying down my CC accounts this year to prep for (and obtain) a refi and construction loan.  Typically, dropping indebtedness by 10% of a card's limit has generated a 3-6 point score increase.

The refi & loan haven't hit the bureaus yet, tho' the paid-off mortgage has (and dropped my score 18 points)).  The refi just allowed me to all but clear the debt on my highest card from $3.4K (24% of limit) to $50 (<1%, the interest carried over).  It'll be zero when it reports next month.

All that said, this payment/balance drop generated an EX alert, and my EX score dropped from 731 to 725 (EQ is 737, TU is 778).  Total reported debt is now 5.5K on a 39K limit (14%).  No new EX inquiries.  The only derog is a 6-year-old 30-day late CC payment.

I'm at a loss to explain this score decrease.  Anyone?

[Anonymous]

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@expatCanuck wrote:

I've been diligently paying down my CC accounts this year to prep for (and obtain) a refi and construction loan.  Typically, dropping indebtedness by 10% of a card's limit has generated a 3-6 point score increase.

The refi & loan haven't hit the bureaus yet, tho' the paid-off mortgage has (and dropped my score 18 points)).  The refi just allowed me to all but clear the debt on my highest card from $3.4K (24% of limit) to $50 (<1%, the interest carried over).  It'll be zero when it reports next month.

All that said, this payment/balance drop generated an EX alert, and my EX score dropped from 731 to 725 (EQ is 737, TU is 778).  Total reported debt is now 5.5K on a 39K limit (14%).  No new EX inquiries.  The only derog is a 6-year-old 30-day late CC payment.

I'm at a loss to explain this score decrease.  Anyone?

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When you say that the paid-off mortgage has hit your report and generated an 18 point loss, are you certain that the 18 point loss occured at Experian?  (And not at EQ or TU say?)  If you're not certain it's quite possible that the EX alert triggered by the CC paydown has the loan payoff folded into it.

Another possibility is that something could have changed in terms of which cards are now showing a balance.  If your only card showing a balance is a charge card rather than a true credit card, then you will get a penalty for that: FICO likes to see a balance on at least one true credit card. 

There's a chance that something else changed on your report (such as your Age of Oldest Account or Age of Youngest) that could have caused your EX report to be assigned to a different FICO 8 scorecard.  Scorecard reassignment (also called by some people "re-bucketing") can cause one's score to change.

The single most likely explanation is that something changed that you simply are missing.  Experienced veterans of this site often miss some tiny change in their reports, so being convinced that nothing changed by itself can't be relied on.

Regardless we can't urge you strongly enough to continue your strategy of paying down CC debt.  You may find that this was some crazy fluke that gets resolved in a month.  There's never been any credible evidence that paying down CC debt can EVER result (by itself) in score loss -- except in the corner case of a person paying down all of his true credit cards to zero. 

PS.  If I read your initial post rightly, all your important credit actions have already been taken.  Specifically you have already received the re-fi and construction loans.  So just relax, allow your reports to stabilize as the new accounts appear, and keep on doing what you are doing.  It's not like you need your scores to be high for anything in the next six months anyway, right?

[expatCanuck]

> Are you certain that the 18 point loss occured at Experian?  

Not certain, but I do know that the payoff hit the bureaus in Sept/Oct, and that the construction loan inquiries (the bank was offensively slow to close, resulting in 2 EX inquiries) were in September and November.  These inquiries appeared to be already factored in to the EX score.

> If your only card showing a balance is a charge card rather than a true credit card ...

As far as I know, my cards are true credit cards - BoA, Citi, Citizens Bank, all with respectable (or unduly generous) credit limits.  And no re-aging that I can detect.

> It's not like you need your scores to be high for anything in the next six months anyway, right?

Not as far as I know -- slow train coming, but my economic house seems finally to be in order, and I intend to keep it that way.

[expatCanuck]

Mystery solved (I think).  I'm disputing account information for one of my cards.  A myFICO alert (from today) identifies an 'account update' -- the card issuer reporting that I'm disputing the high balance that it's reporting.  And I am -- because the issuer is using imaginary accounting, showing a high balance that's 160% of the credit limit.  This ticks me off.  EQ can't explain the numbers, and neither can the issuer's representatives.  Yet there they sit on my credit report.

As far as I'm concerned, the issuer's reporting practices violate provisions of the FCRA, and since I'm now in a position to pay off my indebtedness to it, I'm willing to invest the effort (and take the FICO hit) to hold it accountable.

Financial solvency -- gotta love it.

[Anonymous]

Is it possible that at one time your credit limit on that card was higher than it is now?  Here's an example:

Two years ago:

     Credit Limit of 10k

     And you run up a balance of 8k on one month

Now:

     Credit Limit of 5k

Your "high balance" will still as of today be 8k, since HB refers to the highest your balance has ever been historically.  But that HB is now 160% of your current credit limit.

Issuers impose CLDs (Credit Limit Decreases) for all kinds of reasons.  I have a perfect payment history and scores in the 800s, and yet I have had a couple CLDs in the last 18 months.  So it's not strange at all for a person to have a HB higher than his current limit.

Regardless, bear in mind two things:

      (1) There is no evidence that "High Balance" has any effect whatsoever on your FICO score.  A safe assumption is that there is no effect.

      (2)  If you aggravate a CC issuer long enough via a dispute process, it can sometimes happen that they close and delete the account. 

[expatCanuck]

There's no way that I owed over $16K on that (or any) card.  Ever.  I've requested documentary evidence from the issuer; they've been unable to provide same. 

I truly appreciate the cautions, but this is one of those 'principle' things.  If this issuer doesn't want my business, that's fine; other issuers do.

(In my misspent youth, I was a litigation attorney; I feel comfortable taking this on.)