Hi folks!
I thought it might be nice to create a reference post containing as many of the 'hidden traps' within FICO scoring that often trip up our newer members. Kind of a FAQ for 'unexplained' score drops, if you will. Without further ado, here is the list so far:
1) I paid off all my cards and my score dropped?!
It's commonly-held wisdom that paying off your debt is a good thing, right? Well, if you completely pay off all your credit cards to the point that there are no balances anywhere, it will actually hurt your score. This happens because the FICO algorithim has no memory, and assumes that 'all zero balances' means 'comsumer does not use and therefore does not know hoe to handle credit'. The best way to avoid this one is to make sure that at least one account always has a small balance, between $5 and 8.99% of it's individual credit limit.
2) I paid off my car and I lost 30 points?
Similar to what happens when you pay off all of your revolving debt, paying off all of your installment debt tells the FICO algorithm that you don't have any, therefore you don't know how to handle it. Crazy, right? Fortunately this one has a very simple solution, called the SSL loan. Details can be found in this thread with all the nuts and bolts of how this works, so I won't go into it here.
3) Oh <bleep>! I forgot to pay my bill, my credit is ruined!
While it's true that late payments can hurt your credit, in order for this to be reported have to be a whole 30 DAYS LATE. As long as you get in there an pay that sucker before an entire month has gone by, everything is going to be OK.
Please post any ideas for the list, and I'll add them on!
