My Scores have been declining

[Anonymous]

My scores have been steadily declining, with no adverse events (I.e. collections, lates, etc.) I had a BK discharged 3 years ago, and have built up credit since, with perfect credit since the discharge, no lates, but one paid collection that was a medical receivable dispute that got all screwed up, and that was paid two years ago. My score reached about 640, but since has fallen to about 610.

last fall, when my score was 640, I decided it was time to get some credit (I travel and entertain on business, I really had to do this), so I reached out to quite a number of institutions, and was able to obtain maybe 5 cards with credit lines from $3-$5K each. It took approx. 12 inquiries to do this. I also got a car loan for my son, and one small promotional Juniper Visa with a "same as cash" deal with Apple Computer, when I bought a computer. All this credit is paid as agreed; some cards have balances; some do not. I have a bit over $20K in lines, 35% used, and a very substantial income meaning a very low debt to income ratio.

I also kept the very small balance cards I obtained in my first post BK year, not because I want them, but because I want the credit history longevity. So despite another year post BK, and despite the perfect payment history, my score dived 30 points!

Is this just due to the addition of new accounts? Seems unfair to penalize me for good credit payment history! After a period of one year from most of these new accounts (November, 2008), would I expect my score to suddenly revert? I've talked to credit underwriters and they tell me I'm doing everything right, and that the only thing that will heal my score is time. If I pay off some cards it would help marginally, I'm told. I don't have much credit relative to my monthly usage, so some cards will always have balances, just because I have to use them.

[MidnightVoice]

DTI has no effect on score as income is not figured into the calculations.

So it is probably all that new credit, decreasing average age, utilization and inqs that are dinging your score.

Time and keeping balances that report low will help

[Anonymous]

Hi.  I’m new to this forum but I have some knowledge of what’s going on with your credit score.  There are a number of things that could be causing the negative impacted.

1.  Utilization (usage) alone could be causing the decline in your credit score.  Utilization is 30% of your FICO score.  You said you use 35% of your $20K available credit limit, which is quite high.  Anything over 30% usage of your overall available limit can cause your score to go down.  And every time you use either of your cards, even to charge an inexpensive meal, you increase your usage percentage.   Credit scores consider the combined limit of all of your cards, not just each card individually.  You may be using less than 30% of the limit of some cards and over 30% of others but the cumulative effect is 35%.  The very best thing you can do for your score now and in the future is to pay the cards down to under 30%, and keep them under 30% always.  I suggest you lower the totals to under 20% so you will have some wiggle room. 

2. The number of inquires initially caused your score to take a small dive.  More than 4-6 inquires in 30 days will lower your score even more.  Did you apply for all credit at in the same month or was it over several months?  Each 30 day period of credit shopping hit your score again, and the more inquires within the period the lower the score.   You also said it took 12 inquires to get the 5 credit cards.  But did you consider that  it may have taken an additional 1 or more inquires to get the auto loan for your son’s car depending on how it was financed.   Some auto dealerships will shop your application to multiple lenders to secure a car loan for you which will create additional inquires (I learned about this the hard way because it happened to me and I ended up with 7 inquires for one application).  Also, you got another inquiry hit with the computer.  The inquiries are in the past, so there is not much you can do about them for the next 2 years.  However, the impact will decrease as time passes as long as you so not shop for any more credit. 

3. The type of credit (credit cards) received also had a negative impact and probably threw off your credit mix -- that is the number of different types of credit you have (credit cards, mortgage, installment accounts).   Because you travel and entertain for business, it may have been better for you to have gotten an installment line of credit from a financial institution with a debit card with a Visa of MasterCard logo on it to use instead of getting so many credit cards.   Debit card usage is usually not factored into your score.  Credit mix accounts for 10% of your FICO score so having a good credit mix can help somewhat, but I say every additional point counts.

3.  When you opened 5 new credit cards, financed your son’s car, and got a new computer, you decreased your credit aging sevenfold.  Aging accounts for 15% of your score.   Since your credit cards are so new and are in good standing, I’d suggested totally paying off (zero balance) and closing some of them by contacting the lender.  This way they will no longer be factored into your score any more and your average credit age will increase, thus your points will increase.

4.  You said even with the $20k in lines, your debt to income ratio is very low because you have a very substantial income.  You did not say whether you calculated the debt-to-income based only on the amount you owe or based on your available credit limits?  Your calculation should be based upon your available credit limit compared to your income, because even though you are not using all of your credit limit as debt now, you still can max-out your entire $20k limit at any time.

So you are really not being penalized for having a good credit payment history (35% of your score), in fact, this practice is what’s going to get your credit score to go up faster than most.  Just make sure you consider the elements I’ve discussed here, especially utilization, which other than you payment history, has the biggest impact on your credit score.

I hope this helps.

[Anonymous]

Creditreportcoach--first, thank you. Second, I realize you only are the messenger, but I find a certain amount of the points you make, no doubt valid, to be Catch--22's. First, my old cards (I had a BK, discharged 3 years ago, so "old" is maybe 2 years old) are tiny cards, with lines of maybe $400. I have kept them, despite usurious monthly fees, due to the point you make, of average age of the credit. I want to close these accounts in the worst way. All I need to do is forget to pay one, and I end up with a ding on my credit, in return for a worthless card that costs me money that I can't use as it is too small. I have 6 cards that have resided in a drawer for a year. I can't close the new cards, as they have the useful lines--and, if I dump lines, then my usage ratio goes up even more. As it is, per your formula, I only can use $4000 of credit, which is not enough to live for me. If I close the newer ones, I get maybe $2000 of useful credit, that doesn't fly. For what it's worth, my DTI on the lines themselves, is well under 10%. However, FICO doesn't look at this, which is absurd. $20K is not a lot of debt for me. I can't add a better mix of secured to unsecured, as I cannot buy a house. I have two cars (with my son's), that is all I have secured.

You were right, the idiot car dealer pulled credit 6 times. That was in March maybe. I didn't think to tell them not to do that--they got a good deal, but they must have done a mass mailing! That plus Apple is 7, plus a few others where I requested credit line increases, so maybe 10 in the past 6 months.

One of my cards just screwed me--they lowered my limit from $3000 to $1000 due to decline in FICO. This makes the utilization worse. I am furious with this company; it is a credit union, and have written them that I will never do business again with them, I may as well close it altogether at this point, and I doubt they care, as today no one cares about anyone.

Even if I pay all these cards down, I then have no credit I can use to travel and entertain. I hate to use the ATM card, as I'm not sure how well it is handled in event of fraud, and I expose my entire checking account every time I use it. I hate to go back to that. I can get another checking account, I suppose, and keep a limited amount of money in it, but I once had fraud on a ATM card, and it isn't as easy as on a credit card to get my money back.

Also, I've been told FICO can't distinguish between a credit line and a credit card. I saw that suggestion, but it's not clear that would work. If it is a credit line, I think it is like a card. If it is a fixed payment loan, it might be better, but then I'm paying interest on a whole pile of money I'm not using, that basically is just securing an ATM card. And, that's assuming I could even get the loan, which is dubious at best.

My real desire is to try to get a bit more credit, so I have enough for the next year or two, then close all the older cards, and just suck it up, let the FICO go down, and wait until the newer cards age a bit. Unfortunately, my score now is so low I can't get any cards, line increases, or anything else.

I've pretty much reached the end of my tolerance for FICO, and the worlds' dependence on it. By my definition of good credit behavior, I've been good. I pay well more than minimum on time every month. That fact that all my credit is new is by definition, as I had a BK discharged 3 years ago. OF COURSE all my credit is new, what else can it be? Prior to that, I had 30 years of perfect credit. However, that now is gone.

My bankruptcy was actually a result of 9/11 and was well out of keeping with 30 years of perfect credit. You'd think I could convince someone to look at the bigger picture!

It sounds like at this point all I can do is try to use the ATM more, keep all those stupid cards with $300 credit lines as they are older (and collectively cost about $60/month), keep paying down the credit cards faster than I use them, and hope no-one else pulls credit and especially hope no one else closes down the lines I have due to the FICO score, which would make it worse yet, due to utilization, and send me into some sort of credit death spiral, all the while I have a perfect payment history! The ONLY thing I can really control is the usage ratio on the cards I have, the rest sounds like time.

I have been told after exactly one year new accounts become "old" in FICO's eyes, and the inquiries drop off. I don't know if it is true; if it is, my score might rebound in December substantially. If not, I'm screwed for the long haul.

[Anonymous]

Wow!  Your situation is much more complex than originally presented.  I focused too much on the fact that you said you had a substantial income, which meant to me that you did not need to use credit to live on and could lay off credit for awhile until your scores increased.

I must tell you, that I feel your pain.  I also had to dig myself out of the fall-out from a BK and found myself exactly were you are.  However, I was able to lay off credit for over a year, during which time I faithfully paid the credit cards I had held back from my BK like you did.  Doing the things I suggested to you increased my credit score substantially.  Its been a slow climb but I'm making it. 

Regarding the ATM/Debit card and identity theft.  I mentioned the ones with the Visa and MC logo because you can use them like charge accounts, where you have to sign and show id rather than entering a pin number.  With my bank, any usage of my ATM/Debit card as a charge card is protected, where as when I use the card as a debit card using my pin, it is not protected.  Check with your bank and see if this is the case with your cards.  Otherwise, your idea of having a separate account to use with a Debit card to protect your account is very good.

Regarding inquiries, they remain on your credit report for two years, although FICO® scores only consider inquiries from the last 12 months.   So maybe your score will rebound on their birthdays.  I wonder if you can challenge all the inquires on your credit report that came from the auto dealer searching for financing?  It seem to me, you only gave the one source (the auto dealer) permission to access your credit.   But you ended up with a bunch of other sources hitting your credit report with inquiries.  I don't know the answer to this one.  When it happened to me I didn't know much about credit or credt reporting.  Maybe we should pose the question to the Forum Community?

If I think of anything else, I'll reply again.

Message Edited by creditreportcoach on 08-10-2008 09:17 AM

[Anonymous]

Thank you again for your time and consideration. I did not want to go into the whole story the first time. I don't mean "live on the credit cards" in the sense of not having income; I need them to travel and entertain, and this is very expensive. Regardless of paying them, the month-end balance is reported to the bureaus, so usage is reported. Like I said, Debt to Income isn't my issue, but FICO for some mystery reason ignores it. That presumes that if you have enough income, you can get lots of credit. In the case of someone with a major credit issue, such as a BK, however, this formula fails. If I had only $1000 of available credit and used $900 of it, they would assume I'm spending beyond my means, which is patently absurd. Obviously no system is perfect, and I'm caught in one of the glaring imperfections of FICO. In many ways, I'm the best credit there is; among other things, I cannot under any circumstances go BK! Further, I have almost no debt, or available debt, relative to income. And, I know better than most, just how hard life is with no credit! Earlier in the process, I had to travel to NYC, which is so expensive, with one credit card that had a $350 limit and my ATM card. If anything had gone wrong with the ATM, I'd have been marooned. I, frankly, was scared silly. In my prior life, I would easily have had several cards with $30K limits, with the exact same income. This wouldn't have hurt my score in the least; my score at the time was in the 700's even with this available credit, which probably was $100K all told. Now I'm being penalized for $20K!

I will protest the credit pulls from the car dealer, that is a great idea. Worst is, nothing happens. Best is, some get deleted. I don't think they care too much about credit pulls, as opposed to reported lates or other more serious issues, and may give on that one.

Perhaps you are right, if I use the ATM as a VISA, then it will be treated as such. I will do it that way; I also will open another checking account with a ATM/credit card for the purpose of isolating my risk on using it, and to try to lower my credit utilization.

I hope we are both right, that the accounts will "mature" in FICO's eyes at one year, and my score will rebound. It was 640 at one point, about a year ago, which is why I'm so frustrated. At 640 you can get credit. At 600 you cannot. To drop those 30-40 points in one year, with no missed payments of any sort, just seems wrong. I assumed my score would go UP, as I have more good credit to offset all the bad credit from the BK, and a longer credit history. There were a lot of accounts that blew up at that time; I'm told they keep count of how many accounts were defaulted, BK or no BK, and the number of good accounts is an offset. That is part of the reason I've kept all the small limit cards that are costing me money. Before I realized all this, I requested to close the two smallest, and oldest ones; that was a mistake! But, what's done is done.

Thank you again. If you have more ideas, please let me know.

[MidnightVoice]

SkiloverLA wrote:

 Like I said, Debt to Income isn't my issue, but FICO for some mystery reason ignores it.

There is no mystery - FICO does not know your income!

You can reduce your utilization that FICO sees by paying of credit cards BEFORE the statement cuts - if you do that, the report will show a zero balance (or a very low one) and your utilization will be much lower

 

[Anonymous]

Utilization is 30% of your score. FICO likes to see your total utilization between 1-9% and balances on half or less of your cards.

You are suffering some points for having it at 35%. If you pulled your reports here, go to the score simulator and see what it says will happen if you pay your revolving credit accounts down.

If coded correctly, inquiries for a auto loan will count as 1, as long as you obtained them all within a set time frame. So, if the dealer sends your app out to 10 different companies, the 10 inquiries will show, but the FICO alogorthim will see all 10 as 1 inquiry.

Closed accounts are counted in your score. They count for history as well. Closing them could hurt your score, as you will increase your util by decreasing your available credit.

If you have a paid medical appearing on your report, please read the thread in my signature regarding medical debts.

You can max out your cards every month if you want, just pay them BEFORE they report to the CRA each month. Find out when your creditors report and make sure you have them paid down before that.

If you pulled your reports here, go to "Understanding my Score", what negative reasons are you given? Maybe that will help point you in the right direction.

Message Edited by sidewinder on 08-10-2008 12:01 PM

[Anonymous]

Thanks, guys.
OK, I haven't pulled my score on MYFico lately, and am not going to pay for it now, as I know my score, but whenever I see the reasons given for adverse actions from the credit bureaus they are as follows:
-Prior Collection/lates/adverse action
-Current collection/lates/adverse action (this is a lie)
-Too many inquiries
-Too many new accounts
-Too much utilization

To be honest, in the past when I've played with the simulator, the only thing that really helped me was time. Paying down cards helped only marginally.

Of all of these items, the only one I can address is the last. Your guys suggestion to essentially treat the credit cards as pre-paid cards is a clever one, and I can see where that would work. Isn't good for cash flow, but it would work. If I understand this, whenever I use a card, I should immediately send them the money, so by the time it computes the statement, it will be paid down. That way I can use the cards, but not get hurt on my FICO.

Sidewinder, I will go look for the paid medical thread if I can find it. Thank you.

Finally, it is intriguing that all of the car loan pulls would count as only one credit check. I have no way to know if that is how it is being handled or not, but that argues against spending time contesting all the pulls.

[Anonymous]

Sidewinder: If you see this, you have so many posts, many of which have to do with collections. Could you point me specifically to the thread you referred to on medical debts. You have 10 screens worth of threads, and I really don't know which one you refer to. Kindly.