@Anonymous wrote:My husband and I consolidated over $30,000 of credit card debt and worked hard for 3 years and 8 months to pay it off. We did that about 6 weeks ago and our credit scores started going down immediately. We were in the upper 600s to low 700s, which was 100 points higher than just a couple years ago, and our scores have dropped 30 to 40 points since payoff! Now that everything is paid off the cards are reporting ''account closed by holder''. That's probably the reason. ? I feel like we're in freefall. What can I do?? Maybe we would have been better off with bankruptcy.
FICO scores place a great deal of emphasis on "utilization", and on having at least one account open in each category.
If all of your credit card accounts are closed and none are open, you lose FICO points for both of those facts. The way to optimize credit card utilization is to have 2 or 3 cards open, with only 1 of them reporting a small balance and the others reporting at zero.
If your installment loans are paid down to zero, you lose FICO points for not having one loan open. The way to optimize installment loan utilization is to have 1 or more loans with the aggregate balance at 9% or less. The easiest way to accomplish this is as follows:
Join Alliant Credit Union, take out a $500+ savings account, take out a $500 share secured loan secured by the savings account with a 48 or 60 month term, decline or cancel autopay, transfer $455 from the savings account towards the loan balance bringing the balance down to $45. Pay that off slowly over the
balance of the term. Once the $45 balance reports the positive effects will be felt. On the downside, you will be getting a new account, which has a slightly negative effect on your scores.
Also you should probably start sending verification letters to the credit bureaus, or hiring someone to do that, to start reducing the number of negatives.
It's wonderful that you have no debt and avoided bankruptcy. No you would not have been better off with bankruptcy. You did absolutely the right thing.
Now you have a clean slate to start building your credit rating, as so many of us have done.
Another way to look at it though is this: the FICO formulas are geared to make sure you are always in debt. A person who has no open credit debts should be very happy, but their FICO scores won't look good. I.e. FICO is punishing you for not being a debt slave any more. And since the only way to get back in the good graces of the FICO algorithm is to take out a credit card or two, and take out a small loan, you might want to decide to say goodbye to worrying about FICO rather than get back into borrowing and owing.
