Fico score decrease with decrease balance ?

[Anonymous]

Paid off my student loan - fico score dropped by 30.

Paid off my credit card balance - fico score dropped by 23

What gives?

[medicgrrl]

If you have no open installment loans and $0 reporting on your credit cards, you'll take s hit for each. Scoring is based on current credit usage and past. You now have a score based on your past payment history, but if you don't show a small balance on one credit card it can't really score you on current use.

[Anonymous]

I do have a balance on my Amex but pay it off for each month. Are you saying it's better for to use and maybe leave a small balance on my credit card from month to month? Trying to get my score above 740 for a better rate on mortgage

[medicgrrl]

Yes, for optimal scoring you want at least 3 revolving accounts. You want 2 to report a $0 balance and 1 to report a small balance of less than 9%.

[HeavenOhio]

To clarify, the small balance on the one card should come from new charges. You never, ever have to pay credit card interest.

[Anonymous]

Thanks heaven. Can I clarify what you mean by this?

3 Revolving account basically means I have to use 3 credit cards on a regular basis...but how do I keep a small balance on one card from month to month without paying an interest.

[Anonymous]

When your statement cuts, you are presented with a statement balance and a due date, say 3 weeks away. On the due date, if you pay off the statement balance, you pay zero interest. In the meantime, over those 3 weeks you may (probably are) making new charges that will go toward your next statement balance. These charges can report, thus giving you a non-zero reported balance but without being charged or paying interest.

[medicgrrl]

What I do is pay all of my current balance except maybe $20, just before the statement cuts. Then the statement will cut showing that $20. I then pay the $20 plus whatever else I have charged after the statement has cut by the due date, again either leaving a $20 balance or charging something small again in between the due date and the next statement.

The easiest way to do it if you have more than 1 card is to put a small recurring payment on a card that you don't typically use much. Then you just pay after the statement cuts and because it's recurring, it'll show on your statement balance every month. By doing this you can continue paying off your daily use card as you have been...to $0 before it's statement cuts. Some people will just set that card up on autopay so you don't even have to worry about statement dates etc.

[HeavenOhio]

We should mention that you probably only need to optimize your score when you're about to apply for important credit. But it's good to practice it so you'lll know how to do it when the time comes. Once you can see how the fluctuations work and how you can control them, occasional dips will bother you a lot less.

As mentioned, before statements cut, pay down your balances to the desired amount, either zero or a small balance. If you leave a small balance, pay it in full sometime between the time the statement cuts and the due date. Because that balance will be small, you'll probably have no trouble paying it right away. Also keep in mind that if you're micromanaging your statement balances, you might need to give your card a rest from any new charges around statement time as you can't be sure when pending transactions will clear.

If your cards happen to be with Chase or US Bank, let us know, and we can fill you in on the quirks involved with them. It's no big deal; they just behave a little differently.

Also, if you feel that you need to restore the points that you lost from paying off your loans, take a look at the first three posts in this thread:

Adding an installment loan -- the Share Secure technique

What you do is open a $500 savings account at Alliant, use it to secure a $500 loan, use the savings account to pay the loan down to $44 within the first few weeks, and spend the next five years paying off the $44. You're only tying up your $500 for a brief period of time, and you'll end up paying about $9 in interest over the five years.

[Anonymous]

Wow. Definitely interesting. I do have a chase card (as well as discover and Citi). What are the quirks for chase? I haven't used it in years but put 70 dollars on it last night after I read the forum.