Credit Score Dropped 28 Points and I'm Confused

[Anonymous]

I've had a Wells Fargo credit card for 3 years, and decided it was time to open a new one. I chose the AMEX Everyday Preferred, and my Experian was pulled and I had a 771 FICO. I get a free FICO score each month, and the initial inquiry took it to a 763. I've always paid in full each month, on time, and did the same. When I looked at my free FICO for Experian, I see an additional 20 point drop with the following explanation "In your case this number is too low because you have very few accounts or because you've missed payments recently on some of your accounts." Both Wells Fargo and Amex agree that I paid in full and on time. When I contacted Experian they said that I've never paid late, but that Amex hasn't reported anything as of yet. I had about 20% utilization on both cards. When It was just my Wells Fargo, I would use about 25% of my CL each month. A 28 point drop seems excessive to me, while my overall utilization is lower with my CL now more. What am I doing wrong, and what caused the drop? Will my score continue to go down the way I'm paying off my cards?

Thanks in advance.

[EddieK]

You're not doing anything wrong.  What most likely caused the score drop is that your AAoA(average age of accounts) dropped due to you adding a new card.  Your score will rebound.

[Anonymous]

So is that basically saying I have too few accounts with not much history? Hoping it rebounds quickly! 

[Thomas_Thumb]

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@Anonymous wrote:

I've had a Wells Fargo credit card for 3 years, and decided it was time to open a new one. I chose the AMEX Everyday Preferred, and my Experian was pulled and I had a 771 FICO. I get a free FICO score each month, and the initial inquiry took it to a 763. I've always paid in full each month, on time, and did the same. When I looked at my free FICO for Experian, I see an additional 20 point drop with the following explanation "In your case this number is too low because you have very few accounts or because you've missed payments recently on some of your accounts." Both Wells Fargo and Amex agree that I paid in full and on time. When I contacted Experian they said that I've never paid late, but that Amex hasn't reported anything as of yet. I had about 20% utilization on both cards. When It was just my Wells Fargo, I would use about 25% of my CL each month. A 28 point drop seems excessive to me, while my overall utilization is lower with my CL now more. What am I doing wrong, and what caused the drop? Will my score continue to go down the way I'm paying off my cards?

Thanks in advance.

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There are three factors outside utilization that you should take into account when applying for new cards:

1) A hard inquiry usually is performed by the prospective lender prior to approving you for credit. A hard inquiry can negatively impact your score as soon as it shows on your credit report. The inquiry continues to be a factor in model scoring up until it reaches 1 year age. If you go from zero to one inquiry, a 5 to 15 point score drop is likely - impact depends on profile.

2) Average age of accounts (AAoA) is a factor in scoring. The lower your AAoA the more points deducted. The 1st threshold for reducing impact of a low AAoA is 2 years. So if your AAoA was 36 months (3 years) it would drop to 18 or 19 months with the new card. This could certainly drop score 10 points to 20 points.

3) Number of cards reporting a non zero balance can impact score. If you have more than one card, allowing 100% of cards to report a balance usually results in a deduct drop. Also, allowing 0% of cards to report a balance results in a deduct. 

Given your current situation, I would not be overly concerned about a score drop. You need to build credit history and you need more than one card to do that. A score drop associated with new credit is unavoidable for young, thin profiles. You may want to consider reporting a balance on one card only with the reported balance low enough to keep aggregate utilization under 20%. Look at rotating between the two cards - during transition months when both cards report a balance score may drop but it will rebound the next month. (negative impact of 2 cards reporting vs 1 could be)

A possible scenario for your score drop:

1) 8 points from inquiry (will take 12 months for INQ to "age off"  and recover points)

2) 15 points from AAoA drop from 3 years to under 2 years (recover 10 points when in 5 months when AAoA reaches 2 years & 5 more points at 3 years AAoA.

3) 5 points from 2 cards (100% reporting). Instant increase when only one card reports.

It is best to get a few credit cards early on. You are on the right track. Try not to let score drops associated with new credit worry you. Score will rebound with age and have the potential to increase more than it could without the new credit.

[Anonymous]

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@Anonymous wrote:

I've had a Wells Fargo credit card for 3 years, and decided it was time to open a new one. I chose the AMEX Everyday Preferred, and my Experian was pulled and I had a 771 FICO. I get a free FICO score each month, and the initial inquiry took it to a 763. I've always paid in full each month, on time, and did the same. When I looked at my free FICO for Experian, I see an additional 20 point drop with the following explanation "In your case this number is too low because you have very few accounts or because you've missed payments recently on some of your accounts." Both Wells Fargo and Amex agree that I paid in full and on time. When I contacted Experian they said that I've never paid late, but that Amex hasn't reported anything as of yet. I had about 20% utilization on both cards. When It was just my Wells Fargo, I would use about 25% of my CL each month. A 28 point drop seems excessive to me, while my overall utilization is lower with my CL now more. What am I doing wrong, and what caused the drop? Will my score continue to go down the way I'm paying off my cards?

Thanks in advance.

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Absolutely not.  Continuing to pay down your CC debt will continue to help your score (and your bank account).  Continue to pay down your cards as fast as is comfortable.  Your goal should be to get to a place where you pay your cards in full (PIF) every month. 

A key thing you were told (and this is in keeping with the reason code you got) is when Experian told you "but Amex hasn't reported anything as of yet."  You have just introduced a new account, and it is a credit card, which are the accounts most prone to risk and misuse.  Something that may improve your profile is to create a short history of making some payments.  Charge something every month on the new card and always pay your bill in full the next month.  Do this for the next 4 months.  Then try the following: pay the new card off entirely and make sure it reports as $0 and bring the other card down a lot too (but still reporting a positive balance).  Having an overall CC utilization (which involves what the cards report) of < 9% is great for your score.

If you do all that, you will see a big improvement I think.  Other milestones will be when the new card has it's 1-year birthday -- possibly when it has a 6-month birthday too (though there I am not so confident).

[Anonymous]

When you say allow a card to report a balance, do you mean not pay it off in full and have to pay some interest, or not pay it off until the statement generates? I greatly appreciate your suggestions.

[Anonymous]

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@Anonymous wrote:

When you say allow a card to report a balance, do you mean not pay it off in full and have to pay some interest, or not pay it off until the statement generates? I greatly appreciate your suggestions.

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Example:

Balance is $100, due date sep 5th, closing statement sep 10th...Pay $90 before due date, let the $10 report and on the 11th or the 12th pay the rest $10.

[Anonymous]

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@Anonymous wrote:

When you say allow a card to report a balance, do you mean not pay it off in full and have to pay some interest, or not pay it off until the statement generates? I greatly appreciate your suggestions.

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You pay it right after closing statement so you dont pay interest.

[Anonymous]

Here is an example of carrying a balance and how it is different from reporting a balance:

     * You make a bunch of charges. 

     * Then a week later (say on the 5th) your statement prints and it says you have a balance of $400.  That's the amount you owe.  The due date will be (say) on the 28th.  This is also the amount that is reported to the three credit bureaus.  They report this roughly around the same date as the statement printed.

     * On the 15th you pay $100.  This is more than the minimum payment but less than the amount owed ($400). 

     * The difference is $300 and that is carried over to the following billing cycle.  You will get charged interest on that $300.

Carrying a balance does not hurt your score but it does not help your score either.  It costs you money (interest) and it is not needed to get the card to report balances to the credit bureaus. 

Thus, if you have a desire for a credit card to report a zero balance, you pay the whole card down to $0 a few days before the end of the cycle and then don't use it again until after your statement prints.  If you want it to report a small balance, you do the same thing but pay the card down to (say) $20.  In all cases, to avoid paying interest, you should pay the amount in full that was on your last statement.

[Anonymous]

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@Anonymous wrote:

I've had a Wells Fargo credit card for 3 years, and decided it was time to open a new one. I chose the AMEX Everyday Preferred, and my Experian was pulled and I had a 771 FICO. I get a free FICO score each month, and the initial inquiry took it to a 763. I've always paid in full each month, on time, and did the same. When I looked at my free FICO for Experian, I see an additional 20 point drop with the following explanation "In your case this number is too low because you have very few accounts or because you've missed payments recently on some of your accounts." Both Wells Fargo and Amex agree that I paid in full and on time. When I contacted Experian they said that I've never paid late, but that Amex hasn't reported anything as of yet. I had about 20% utilization on both cards. When It was just my Wells Fargo, I would use about 25% of my CL each month. A 28 point drop seems excessive to me, while my overall utilization is lower with my CL now more. What am I doing wrong, and what caused the drop? Will my score continue to go down the way I'm paying off my cards?

Thanks in advance.

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I don't see this commonly mentioned here, but this is from the negatives criticism from a MyFico report:

The FICO® Score considers the number of accounts showing on time payments. In your case this number is too low because either you have very few accounts or because you've missed payments recently on some of your accounts or have accounts with derogatory indicators reported.

Down below this criticism, it lists how many accounts it considers current and makes this statement:

FICO high achievers have an average of 6 accounts currently being paid as agreed

My own experimentation indicates that a new account will be counted as a current account on the 1st of the month following the new account's 2nd statement cut. I don't know how many accounts it takes to remove that particular criticism yet, but I know it takes at least more than 3.