Extreme Frustration - Why Did My FICO Score Drop After Successfully Paying An Account Off ?

[Anonymous]

I have been trying very hard to improve my credit that was tarnished after having a few medical bills that my parents never paid on but were in my name and happened before I was responsible enough to care about a credit score.  So I have been using credit wisely and slowly building up my scores.  I subscribed to myFICO for that fact of being able to see how my scores change when I make a payment or add a new credit line etc.  I am, along with my fiance, trying to purchase our first home together, and in order to get approved for a rural developement loan my score needs to be at a certain number. 

I have been trying to do everything possible to do this.  About 12 months ago our washer and dryer went out and we needed a new set.  So we went to Conn's Appliances and were approved for a non-revolving line of credit or a loan.  Fast-forward 12 months to this month and I have made my last payment and the washer and dryer have been paid off completely! What a GREAT way to shower lenders and creditors that I am responsible and ABLE to successfully take my money and show them that I can repay what is loaned to me.  BUT all three of my FICO scores dropped...

The complete opposite of what you would logically think would happen after completing or paying 12 consecutive months, never late and always more than the minimum balance.  Transunion - dropped 17 points.  Experian - dropped 3 points.  And Equifax - dropped 10 points.  I understand that having current accounts on your credit helps build the score, if used responsibly.  I know this message on a message board won't change a thing, but the algoirthms and ways these companies devise credit scores needs to be changed.  Just the simple fact alone that a young adult can pay off a debt regardless of the amount after a 12 month period, should increase his/her credit score. 

Why am I being punished because I successfully did something?  Why am I being knocked 17, 10, and 3 points because I did what is right?  What would have happened if I didn't pay a payment on the washer and dryer?  My scores would have gone down.  What happens when I do pay on them?  My scores go down.  I get that revolving credit shows lenders and creditors that you are able to continually pay on something and do so responsibly, but just the fact that someone closes an account because they finished paying off the balance for 12 months consecutively and was never late and always paid above the minimum amount due and get punished for it, as if I did something wrong or bad. 

At times it seems as if no matter what, you can't win for losing. If anyone can share a reason as to why my scores went down and possibly help educate me I would greatly appreciate it, without just telling me that since it was not a revolving credit acount that closing it will hurt my scores. Thanks for letting me vent.

[Robertwd82]

It probably went down because when the account closed it changed your average age of accounts.  You may want to try to call the finance company and see if it can be changed to a revolving, open account.  

When I was first starting to try and build and repair my credit I found that opening up an account at Kays Jewelers helped because I was approved for such a large amount(2700) and I didn't have that good of credit.  I didn't use the financing for quite a while until I bought a ring for my wife so the whole time until then my overall utilization was great and it helped my score.  

[Anonymous]

When you close a non revolving account you will get a ding on your FICO scores. This will report on your credit as positive history for the next ten years. Fico likes to see a mix of credit Revolving and non revolving. You may want to look into a small revolving secured loan through a credit union. Seach in the forums for the best one. There is one that is a soft pull I believe. I know this sucks and keep on doing what you are doing. Do you have any credit cards?

[vanillabean]

Wouldn't you know it? I recently got "a small revolving secured loan through a credit union" for just that purpose. FICO Score Watch sent me an alert this morning that my score had dropped three points. It wasn't specified why, but the only thing that has reported in the last week is the second monthly payment on the mentioned loan!

[Anonymous]

I actually recently (2-3 weeks ago) opened up a line of credit at Kay's of a balance of $1960.  I will be using that for a wedding band for my fiance in a few weeks time. 

And knowing that the last payment I recently made on the non-revolving account would be in April and knowing that it more than likely would have a negative impact on my scores (I was hoping not upwards of 17 point impact), I tried calling them to see if it could be transferred into a revolving open line of credit and was told no not without being a hard pull on my credit. 

[Anonymous]

I currently have a secured credit card with a balance of $300 that I keep utilized within 30-50% of the balance to try to maximize its effect on my score.  I pay it early each month.  I'll usually use it for a tank of gas and then pay it off about 2 weeks later.  Is it best to pay this off completely to $0 each time or leave something on it? 

I just opened up a line of credit as previously mentioned for around $1960, and have a credit card for that.  These are the only two lines I have.  Now that I have closed out the non-revolving account, that is.

[gdale6]

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@Anonymous wrote:

I currently have a secured credit card with a balance of $300 that I keep utilized within 30-50% of the balance to try to maximize its effect on my score.  I pay it early each month.  I'll usually use it for a tank of gas and then pay it off about 2 weeks later.  Is it best to pay this off completely to $0 each time or leave something on it? 

I just opened up a line of credit as previously mentioned for around $1960, and have a credit card for that.  These are the only two lines I have.  Now that I have closed out the non-revolving account, that is.

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You need to open 2 more revolving cards preferrably bank cards ASAP to help maximize your Fico. You only want 1 card reporting no more than 9% of its CL to the CRAs each month all others at 0. Dont let all your revolvers report a 0 balance as that is a Fico score drop as well. What happened here is usual when your last installment loan closes its typically a Fico drop.

[Anonymous]

gdale6- thanks for the suggestions. I'm younger and newer to this so I don't fully 100% understand how credit works and I'm trying to learn so I have a question or two, if you don't mind.

How do I control what is reported to the CRAs each month? Do they all report at the end of the month or at a certain period during the billing statement ?

Also regarding the bank card suggestion - I bank with Chase so should I apply for a card there as well as another bank? And will the negative impact of taking a hit from the hard pulls not outweigh the benefit from having the cards revolving, with regards to the FICO scores ?

[Anonymous]

Agree with gdale6.  Open 2 accounts, use wisely.  Your scores will go back up. 

[Anonymous]

Hi JBX.  I feel your frustration, I just had a melt down over the unfair scoring practices as well....credit scoring seems to look anywhere it can to ding people.  It truly is not a fair system to the general population.  But we are stuck with it unfortunately.

You haven't said what your current scores are ......that would help this awesome group in the forum give you a bit more insight.

Without knowing what your numbers are, here is some place to start:  

Capital One, Chase and Citi all have links to check with a soft pull and see if you qualify for a credit card.  Discover does too but you need to know what you are looking at as their "find my card offer' will give you an answer but you need to look at whether or not it shows you a specific interest rate as it 'finds' recommendations for everyone but is not a guarantee.  Go to those sites and plug in your info they will be soft pulls.  Capital One is generally the most lenient to get started with:

Capital One:  https://findmycard.capitalone.com/en/PageVersions/LandingPages/LP_UNS_QUICK_RWD_V01.aspx

CITI:  https://www.citicards.com/cards/credit/application/flow.action?isInvitation=

Chase:  https://creditcards.chase.com/prequalified-offers

Discover:  https://www.discovercard.com/application/fmo?execution=e1s1

My recommendation to you as a new member is to read what you can on here and take full advantage of the knowledge the members of this forum share.  It's priceless!

Once you get a credit card, you control what is reported by using the card for daily purchases - like you would your debit card or cash - and then paying it off in full - you can even pay off in full multiple times per month to maximize usage as it will help with credit line increases (CLI) with that card as your history grows.  To control reporting, pay in full before the statement date or choose to leave a balance for the statement that is 10% or less of your available credit.

As you show responsible usage and payments month to month, your scores will start to go up.  (Not that FICO won't ding you for unbelievable reasons sometimes but having the positive lines will pay off)

Like I said, read read read on here!

Good luck!!!!!