First time score check... Much lower than expected.

[Greg34]

Hi all, I'm sure you get this a lot, but I checked myFico score for the first time ever today and it was lower than I expected. Much to my dismay my score was a 655... I have one credit card, an American Express Blue with a 3K limit. I never carry a balance and pay the bill in full every month after it cuts. Last month I had a larger than normal bill ($1200) but I still payed it in full. When i check myFico it says that the balance on  the account is $1200, I'm assuming this high "reported" balance is hurting me even though my real balance right now is only $200. My only other "account" is a lease I have with a washer and dryer leasing company to the tune of $36 a month. Once this lease is up and the account is closed will this hurt me? I'm just kind of ticked that a washer and dryer leasing company is counting as an "account" on my credit score. 

According to myFico the 4 things that are hurting my score are as follows…

1.)    You have a short credit history: my oldest account is 1 year 8 months (Amex) and my average age is 1 year… This I understand. Obviously I have a short credit history. Not much I can do about that.

2.)    You’ve made heavy use of your available revolving credit: The ratio of my revolving banlances to my credit limits is 40%. As stated before, this is due to my last months AMEX usage and “reported Balance” of $1200… The funny thing is that one of the items helping my score is that I have “recent credit card use”. Its like damned if I do damned if I don’t.

3.)    You’ve recently been looking for credit: I have 4 inquiries in the past year, this is due to me graduating college and getting my own apartment. My 4 inquiries are ATT (Cable and Internet), Azuma Leasing (Washer and Dryer), Sprint (Cell Phone), and the application for my Apartment Complex. This gets me because its not like I’m applying  for all these credit cards and loans, its just basic stuff that everyone gets.

4.)    You have too many credit accounts with balances: Huh? I have 2 accounts and one is the previously stated amex and the other is that stupid washer and dryer leasing service.

I guess I’m just frustrated because I pay balances in full every single month, never ever miss payments, have Zero debt to my name and more cash in the bank than 90% of Americans. Is there anything I can do to help my score? I plan on buying a car within the next year and a house in 2-3 years (20% down) but these scores suck.

Should I start paying my AMEX bill before it cuts every month just so it reports a zero balance? Will I have a much improved score next month if American Express reports a zero balance?

Any other tips to help me raise my score?

Question man, questions.

Thanks for the help,

Greg

 

[haulingthescoreup]

What's hurting you is that like any sensible consumer, you're waiting until the statement posts with your balance, and then paying it off.

But since the CRA's decided to report the balances on statements (in most cases), that's the number that the FICO formula has to work with. If they had elected to report the balance as of midnight on the due date, or the day after, then they would be reporting debt. Many of us work around this by paying our statements online a few days before the statement date, which is the figure that AmEx uses, and thus having it report $0. Alternatively, you can pay off all but $10 bucks, and let that report. Then be sure to pay off the $10, because otherwise you'll get an internal late charge, even though you paid $3900 before the statement posted.

As for "too many accounts with balances", that happens when you have as many or more loan accounts as CC's. Since the loans always show balances, you'll always have at least half of your accounts reporting balances, and that's a ding. Try paying your card early one month and let it report $0, and then check your score report again. Remember that Equifax is poky about updating balances, so I'd hold off a good two weeks at least after the statement drops.

I hear you about the inqs, and that's just an unfortunate reality these days. I agree that an apartment lease application (along with cable and cell phone) shouldn't count as a credit inq, but that's how they're pulling it. The lease really is a credit app, and it's updating on your reports, but again, I understand.

Anyway, try letting the Blue report $0. Then the next month, if you're curious, you can try letting it report $10 (and then pay that off), and see if that affects your score in either direction. It gets tricky when you only have one card. One way to get a little wiggle room is to get a second CC, picking one that doesn't pull Equifax, so that it doesn't see those inqs. In fact, the FICO scoring formula seems to reward those with three open revolving (i.e., CC) accounts, as that provides enough of a track record to predict future credit risk, which is what the scores are all about anyway.


edit: forgot to preview. I know better than that, sheesh.

Message Edited by haulingthescoreup on 02-27-2010 12:40 PM

[Greg34]

Thanks for the quick reply!!

If my American Express reports a $0 balance next month, how much of I jump will I see in my score? Are we talking a 40-50 point jump? Or more like a 10?

Also, what credit cards do not report to equifax?

Thanks again

[haulingthescoreup]

Can't guess about the point jump --I'm terrible at that!

It's not where they report, it's which credit report they pull when you apply. You want your cards to report to all three bureaus. As for who pulls what, it's ever-changing, but for instance, Experian-pullers include American Express and Bank of America. TransUnion pullers include Barclays and often Discover, although Discover sometimes pulls others.

If you're seriously considering getting another card, you might want to exploit a quirk of American Express: the year in which you opened your first account with them displays on all subsequent cards, with the months in which you got the additional cards. So if you got your first one in August 2008, and you got a second one in March 2010, the second would display an opening date of March 2008, making it older than your current card. If your CC is your oldest credit account, you will have just made your history even older, hitting two years, and your AAoA (average age of accounts) will not drop. (Which is good.)

So I'm not necessarily advocating this, and it's better to diversify among lenders, but one option would be to get a second AmEx card to keep from hurting your length of history. You'd get a hard inquiry, but probably only on Experian. Although you never know, they might decide to pull all three, since you're pretty new to credit, so maybe not. Anyway, just something to toss out there. A Zync card would be easiest to get in your situation. It's a fee card, and must be paid off every month, but it's only $25, and it lets you participate in the Membership Rewards program. You could put your cell phone bill or something on it, pay it off monthly, and otherwise never use it.

Anyway, just thinking out loud here!

[Greg34]

I actually hadn't heard of the Zync until now, but I have been thinking about getting an American Express Charge card so this seems like a good option. With my lower scores though, I don't want to apply and then not get it. What are my chances like? Or should I get my zero balance reported then apply?

One more question, how do charge cards affect your fico score? Vs. a traditional credit card

[haulingthescoreup]

Honestly, I don't know about the score. Actually, American Express uses its own internal scoring system, pulling an Experian report. So even back when we could see our EX FICO score, it didn't necessarily tell us if we'd be approved or not.

You have good history with them, it appears, and you're the demographic that they are targeting with the Zync. What you might want to do is pay your Blue off early next month before apping, if you decide to do so. I have no idea if AmEx's proprietary/ in-house scoring system counts util the same way that FICO does, but paying early isn't going to hurt you. Then you might try calling a CSR and asking what your chances are, but whether they would or could tell you, I don't know.

I would think that you'd have a decent chance. Do you know if any of your inqs are also on EX? If not, that will help. Also, it's easier to qualify for a charge card than a credit card, as they will keep a very close eye on you and restrict your Secret Magic CL on the Zync to a level that reassures them. And again, if you're denied, at least the inq would probably be on your EX report, not on EQ (or TU.)

Charge cards are considered equally as good as credit cards for your score, but they are not factored into your util, except on the older version of TU that we still have here. This version takes the highest ever reported balance on the card and considers that your CL. Two ways to deal with this (well, three, actually):

1. grit your teeth, charge as much as they'll let you, let it report, and then pay it off. That will create a high-ish CL. I would definitely advise giving them a heads-up as to what you're doing if you're going to try this!
2. always PIF before the statement drops, so that it always reports $0.
3. ignore the whole TU issue, as the older version of TU isn't pulled by many lenders, so it's kind of a moot point.

I would really advise not doing #1, at least not early on. American Express can and will shut you down in a heartbeat if they think you're doing something hare-brained with their card.