HUGE fico drop--How to fix?

[WorkingMyWayUp]

Last month, I paid off all of my credit card debt hoping to push my scores above 620 to qualify for an fha mortgage.  Last week, my eq was a 625.  I just got a score watch alert that my score dropped to 600 after the last of the credit cards reported a balance change from $11 to $0, citing the change to be attributed to:There is no recent activity on your revolving accounts.  I'm in a panic.  What to do?

[Anonymous]

You need to use your credit cards a little bit every 2-3 months.  Even just a $5 charge per card (and the subsequent monthly posting to FICO) will erase this problem.  An occasional zero balance is OK;  just don't let it stretch beyond two months.  FICO punishes borrowers for putting their cards in the sock drawer.

A few years ago I only used one credit card because I was focusing on rewards.  Within 6 months EQ FICO punished me about 40 points (an average of about 6 points per month) because the other card wasn't being used.  Once the other card started posting a balance again, the score spiked upward (note: all my cards are PIF'd every month.  I just keep the balance long enough for it to be posted, then it is PIF'd).

There might also be something else going on; there's only a limited amount of info in this post.   Pull the credit report and see if there are any new accounts opened or if any outstanding items have been exacerbated (eg public records, collections increased, etc.)

[blacklotus]

Also- you might want to look up some threads on "rebucketing".

[llecs]

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@WorkingMyWayUp wrote:

Last month, I paid off all of my credit card debt hoping to push my scores above 620 to qualify for an fha mortgage.  Last week, my eq was a 625.  I just got a score watch alert that my score dropped to 600 after the last of the credit cards reported a balance change from $11 to $0, citing the change to be attributed to:There is no recent activity on your revolving accounts.  I'm in a panic.  What to do?

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Different theory....was this $11 balance CC opened or closed? If closed, then your utilization would have increased because once the CC reaches $0, then the balance and the CL are removed from scoring. It's removed from your mix of credit too (if closed and $0).

[blacklotus]

Yes IIecs I think there is probably something else too.  I am apt not to believe that paying off debt lowers your scores.  I hope not because I just paid off three of my four cards to 0 balances!

[Jazzzy]

Hi WorkingMyWayUp,

I simply make sure that one of my cards shows a tiny balance each month. Then I pay that balance off as soon as the statement cuts. I vary which card shows a balance (and often we have more than one).

How many credit cards do you have?

Also, remember that when you get an alert, it doesn't necessarily mean that the point drop or gain is due to the change that they are also reporting. Sometimes the reasons don't make sense. Make sure there are no other changes on your report.

Are you trying to make this before the tax credit expries on Friday?

[WorkingMyWayUp]

The chase account has been closed for some time.  I didn't have any open accounts at all until last month when I opened up an Orchard card which hasn't started reporting.  I have been paying off all of the credit cards that I had in the past; they have been closed for about five years, and until I paid off the last of them last month, I didn't feel that it was in my best interest to use credit for a while.  This was the last one carrying a balance, and it just started reporting as $0 yesterday.  I thought I'd see a big point increase after that last one was gone.  After the cc's were paid off, I thought that I would be in good standing to buy a house and the tax credit was tempting.  But I think I'll let that go for now and work on rebuilding.  It appears I still have a lot to learn.  When the new account starts reporting, do I stand to see an increase?  When should I try opening another account?  This first one is just a rebuilder type card, unsecured but only a $320 limit.  I opened it last month and paid the first bill today--$120 because of the annual fee and I charged gas on it once.  It still has not reported that it exists at all...

[llecs]

Ah....that was it. Damage due to the missing mix of credit. I bet you'll see an increase once the HSBC-related card reports back to where the score was before...maybe a little less if util was higher. I cancelled my Orchard last summer, but they reported (and I think still do report) differently from the other CCs. They will report the balance you had on the last business day of the month and will report that balance around the 15th, give or take, of the following month. So, if you want it to report $0, your best be it to make sure a payment gets in their hands no later than this Thursday. Now sometimes they will skip a month so YMMV.

[Jazzzy]

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@WorkingMyWayUp wrote:

The chase account has been closed for some time.  I didn't have any open accounts at all until last month when I opened up an Orchard card which hasn't started reporting.  I have been paying off all of the credit cards that I had in the past; they have been closed for about five years, and until I paid off the last of them last month, I didn't feel that it was in my best interest to use credit for a while.  This was the last one carrying a balance, and it just started reporting as $0 yesterday.  I thought I'd see a big point increase after that last one was gone.  After the cc's were paid off, I thought that I would be in good standing to buy a house and the tax credit was tempting.  But I think I'll let that go for now and work on rebuilding.  It appears I still have a lot to learn.  When the new account starts reporting, do I stand to see an increase?  When should I try opening another account?  This first one is just a rebuilder type card, unsecured but only a $320 limit.  I opened it last month and paid the first bill today--$120 because of the annual fee and I charged gas on it once.  It still has not reported that it exists at all...

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I think you are wise to not rush into buying a house in time for the tax credit. If this tax credit isn't renewed, I think we will see prices drop. Better a house that costs less than a tax refund. The dollars and interest you save on the price drop may not show up all at once like a credit, but it will save you much more in the end.

As IIecs said above, you may see an increase when your Orchard card reports. FICO likes to see a credit card, and now you will have one again. I wouldn't rush into opening another card right away. Let this one show a little history. Then, do your homework before you apply again. Do some reading and researching on the Credit Card forum. You'll learn what scores and history are needed for success. Set a goal for a card you really want and then be patient. There is no rush. Patience shows strength, and you will build a stronger history when you show selectivity in applying.

[Anonymous]

I usually don't carry balances on my card before the statements, but I do use them.  Should I carry a balance on at least one of my cards and pay it down after the statement or use them as I do and have the balance paid down to $0 before the statement?  My score did go up when my BOA card that I use exclusively, but pay down the balance in full before the statement actually is at $300 this time around.