Yep, happened to me last May! I had been carrying a balance on 4 cards for years. I was so excited to pay them off. As soon as the final $0 balance reported I lost 12-15 points on all 3 bureaus.
Now I follow All Zero Except One (AZEO) and let $5 to $20 report on one card each month and I no longer get penalized (I do the same for my wife's cards too so neither of us get a score penalty for authorized user cards either).
Wish they'd adjust the algorithm to eliminate the $0 balance penalty. Does seem so backwards. I used to get penalized for high utilization. Couldn't believe I was now getting penalized for 0% utilization too!😩😔
Checkout these screenshots also on this topic!
@ChiknNuggz wrote:Its due to utilization. Its only once a month snap shot of your credi card use. Next month let a couple dollars report and then pay off the balnce so you dont have interest and you will gain the points back. Like the other person said you dont always have to do this unless your going to have your credit ran for something.
So when I've let all cards report a $0 balance I take a score penalty. I've wondered if you consistently report $0 balances month after month and never let a small balance report do you just keep losing additional points each month? Does the penalty ever reach a point where it just stops? Do you or anyone happen to know?
@tooleman694 wrote:Yeah hers is very high, she has enough points to not have to play the AZEO game. Me on the other hand, I must play that game. And I am terrible at it.
One thing that has helped me is I set up a small reoccurring bill on one of my cards and one of my wife's. The bill is less than $20.
Each month a couple of days after the charge posts I pay all but $5 of it off. That way something always reports for both of us. Then after I see my score has been updated for the month I usually pay the $5 off a few days later so I never end up having to pay interest. I repeat this process each month.
@Anonymous wrote:That's the exact word the telephone said to me, utilization. So basically I should use my credit card on a purchase, but not pay the entire balance off correct? Always leaving a small balance on the account. That's what the agent suggested.
No. Pay it off completely, just pay it off after rather than before it reports, on one card. [The reporting date is usually, but not always, the statement date. Depends on which lender you're talking about]
@Anonymous wrote:The penalty was the 15/16 points deducted from my credit score. And yes that's a very big deal. Good credit is everything and says a lot about a person's financial maturity/responsibility. I know it's crazy to think that being responsible and paying off your credit cards would get a person a penalty. I couldn't believe it. But that's how creditors keep us in debt
The FICO insiders say this about it (but I don't believe them):
"The data shows that having 0% utilization is slightly riskier than having a low utilization. Having low utilization is an indication that you have credit and are using it responsibly."
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score-Experts-Ask-us-anything/m-p/6137466#M176974