Help me understand why my score dropped!

[tleventer]

I just ran one of my credit reports.  I'm looking at selling my house/buying a new one within the next 2 months and just wanted to stay on top of everything.  Imagine my SHOCK when my score had dropped approximately 40 POINTS since summer!  I'm not sure I understand why either.  The report listed the following as possible reasons:

--Evidence of being seriously late or having derogatory indicators/remarks on your credit obligations is being reported on your credit file
--There is evidence of multiple accounts with missing payments or having derogatory indicators/remarks reported
--The proportion of balances to credit limits (high credit) on your revolving/charge accounts is too high
--You have recently been seeking credit or other services, as reflected by the number of inquiries posted on your credit file in the last 12 months

The first 2 I knew were there.  They've been there fora  while.  I had a rough time with on-time payments for a while but have cleaned up my act and haven't made a late payment since February 2007 (most were 2006 or before).  I knew those 2 were there but they were there this summer as well when my score was 710+ depending on which bureau you hit.

The last one I can understand as well.  In the last year, I've picked up a new CC, refinanced my truck (recommended by my mortgage broker, saved me over $150/month!) and have checked into getting a mortgage... all of which would have hit my credit... so I can understand that.  But would 4 hits in 12 months drop it THAT much?

As for the 3rd point, I think that's where my problem lies, but I'm not sure I understand why it took SUCH a big hit and what I can do about it.  I have 5 revolving accounts.  1 I want to close but am concerned it would further damage my score this close to getting a new mortgage.  Trust me... this spring... that one is gone.  Possibly 1 other although I might keep it for auto emergencies.  The 1 department store card I have is due to my job.  I use it but pay it off and it was reported as only having about $35 on it ($1400 limit).  The other 2 are a Visa and an MC.  The visa has no balance (reported as $125 but that's already been paid) on a $4K limit.  Teh MC is carrying what's left of the roof repairs from summer... currently a $4K balance on a $9K limit.  That puts me at a 27% debt to credit ratio for my revolving accounts.  Is that the problem? 

Any suggestions on what I can do to fix this and get the score back up?  My mortgage broker says I shouldn't worry abuot getting the farm loan that we're still in good shape for that.  Maybe it's a pride thing but I dug myself out of a big hole and was excited to see a 700+ score this summer and I WANT IT BACK!!

[Jazzzy]

Utilization percentage is likely your problem. Utilization is (I think) 30% of the FICO scoring formula.

Remember that anything you can pay BEFORE your statement cuts means less that will be reported. Most credit card companies report the statement balance to the credit reporting agencies. Some cards, however, report at the end of the month. You may pay a balance off right after you get the statement, but your FICO thinks you still owe that money. It's the reporting that you have to control.

You want to be below 9% total utilization. Less is even better. You also don't want to have any of your cards appear to be maxed out. That will count against you as well. If you have any extra money to throw at your credit cards, and if FICO score is your priority, pay down the one with the highest utilization.

Have you tried writing any goodwill letters to see if you can get those late payments removed from your reports? It's worth a shot. They are old enough that they likely aren't hurting your score much, but it would be nice to have them gone.

[MarineVietVet]

I agree with everything Lynette said. Next to payment history (35% of total score) the utilization of revolving credit (30%) is a biggie in FICO scoring.

27% utiliization is pretty high. As Lynette said get that util lower and it will help you.

Optimal credit utilization for FICO scoring purposes seems to be:

Total revolving utilization > 0 and < 9%, the lower the better, and
Reporting a balance on less than half of your revolving TL's, and
Reporting a balance on half or less of all TL's.

[tleventer]

Ok,  That mostly makes sense.  Here are a couple follow-up questions:

1.  What's a TL? ;-)

2.  Obviously paying off the balance is best and that will continue to happen.  It's going to be at least Feb before it's paid though.  Would opening another account help?  Or would the added "possible balance" further weaken my credit score?  The local credit union has a new card with a fantastic rate that I've been contemplating just because I do occasionally make a large purchase (ie: roof repairs) and carry a balance for a few months.  I've put off getting the new card simply because I was worried that it would hurt my credit score.  Now I'm wondering if it would help more than it would hurt.

3.  What are the chances that the scores I saw weren't real and thus my actual scores aren't as bad?  I got the scores by paying via AnnualCreditReport.com when I pulled the Equifax report for "this" year (mostly because even on sale, it was cheaper to get the score that way than via MyFico).

[llecs]

Common Abbreviations

1) TL = Tradeline

2) Don't add any new credit. It'll likely drop your score. In my experience, I've lost 20-25 points per each new TL added with most of those points returning within 6 months with a remainder by the year mark. Over the summer, I added an Amex, a Discover, and a LOC and my scores tanked 50+. I finally got a 20 point bump this month on EQ.

3) If you got EQ from Equifax.com via ACR, then it is a real FICO score. In short, the only place you can get your EQ FICO score is from myFICO.com, your lender, and Equifax.com. The only place you can get your TU FICO is from myFICO.com, your lender, or transunioncs.com (note the -cs). Finally, as of last February and thanks to EX, you can no longer pull your EX FICO score. However, you can get it from your lender or printed on your monthly checking statement if you have an account at a CU in PA called PSECU. Any other score from any other source is not a FICO score.

The price for your report and score is cheaper here than from Equifax.com. Google "myFICO discount codes" and you should be able to get your reports and scores for about $12.

[MarineVietVet]

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@tleventer wrote:

Ok,  That mostly makes sense.  Here are a couple follow-up questions:

1.  What's a TL? ;-)

2.  Obviously paying off the balance is best and that will continue to happen.  It's going to be at least Feb before it's paid though.  Would opening another account help?  Or would the added "possible balance" further weaken my credit score?  The local credit union has a new card with a fantastic rate that I've been contemplating just because I do occasionally make a large purchase (ie: roof repairs) and carry a balance for a few months.  I've put off getting the new card simply because I was worried that it would hurt my credit score.  Now I'm wondering if it would help more than it would hurt.

3.  What are the chances that the scores I saw weren't real and thus my actual scores aren't as bad?  I got the scores by paying via AnnualCreditReport.com when I pulled the Equifax report for "this" year (mostly because even on sale, it was cheaper to get the score that way than via MyFico).

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A TL is a Trade Line. It's an entry in your credit history. I'll send you a private message with a list of common abbreviations.

I would put off new credit for awhile but that's just me. The new inquiry and new account would be a ding on your score. Others may advise differently. In the end that decision is yours alone. 

I don't know what you paid for the Equifax score at annualcreditreport.com. Did the score offered there have the words "FICO" score or just "credit score"?  You have to be careful at sites that offer a "score" but don't mention "FICO". You can get a discount on your Equifax and Transunion FICO's here at myfico by doing a search for "myfico discount codes". It could save you a few dollars.

[MarineVietVet]

llecs beat me to it!!!!

I type too slow.

[tleventer]

Thanks.

1) when you say half or less of all TLs, does that include open/closed?  mortgages?  Is everything everything or all of one type of thing?

2)  Well, I guess it's real then. 

3)  Paid $7.95 for the score, the report was free.  Last I saw in an email, it was $11.something here each.  But thanks for the google tip. I'll keep that in mind.

[tleventer]

That's ok vet!  Still appreciate the response.

[MarineVietVet]

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@tleventer wrote:

Thanks.

1) when you say half or less of all TLs, does that include open/closed?  mortgages?  Is everything everything or all of one type of thing?

2)  Well, I guess it's real then. 

3)  Paid $7.95 for the score, the report was free.  Last I saw in an email, it was $11.something here each.  But thanks for the google tip. I'll keep that in mind.

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All acounts you are paying off no matter what type.