Please Explain To Me...

[Anonymous]

I pay my bills on time, every time for 12 months and my cerdit score doesn't go up.  I do not increase my credit untilization percentage.  In fact, I've decrease that percentage over the past year.  When I pay a credit card balance from $10,000 to 0, nothing happens to my score. Zippy, nada, zilch.  However, when a balance on that same credit card b;alance goes from $1,600 to $6,000 for a one-time medical payment (that will be paid off by the end of the month, thanks to FSA) my score drops 2 points. That's the only movement in a year? **bleep**???

If someone could, please explain to me why credit ratings are not a scam and why actually paying your bills on time and paying down debt does nothing to better my credit score.  

[Anonymous]

Hi Great,

Glad you're here.

First question is where are you pulling your scores?  Are you getting a FICO or a different credit score?

Second question is, if you're pulling a FICO score from here (I hope you are), what is showing up on your scales - i.e. "What's Helping your FICO Score" and "What's Hurting Your FICO Score"?  And then, what does the simulator give as your best step moving forward?

And one more, what is your current FICO (if  you have it) score?

[Anonymous]

Thanks for your reply.

I am getting my score from here.  My score is currently 716, but has been 718 since last May.  It just dropped 2 points because of that charge.  I'm carrying $6K on a $20K card and they drop my score?  I was carrying between $10K-12K on that same card for 6-8 months before I paid it off.  I have no idea how they come up with this score.  It seems completely arbitrary.

As for the score, I can buy the Equifax and Transunion reports, but aren't I supposed to get these for free once a year?  Or a t least a promo code?  I don't want to buy them if I can or should get them as part of my subscription.

To round out the other things you've asked, I've only had one new credit inquiry in the last year -- intentionally.  I've had no increase in my debt to availability credit ratio and I have every single bill on time and more than the minimum amount for years.  That last bit, paying bills on time, is supposed to be the biggest factor.  But how can is be when I don't see any upward movement in 10 months?  

I like MyFICO and will continue to use it but because, a) the alerts let me see when monkey business is going on with my credit scores, and b) the alternative is blind ignorance, which isn't really and alternative.  But, I've got to tell you, I feel like TCU or Boise State come bowl season with this credit score thing lol.

[GregB]

A few observations:

1. Your score is above average. Hard to say how far your score can go up without more info such as length of credit history and if there are any negatives.

2. The difference between 716 and 718 is virtually zero. I realize it is not the direction you would like for a change but the reality is that no change and a drop of two points are very close to the same thing.

3. Paying "every single bill on time and more than the minimum amount for years" is exactly what you are supposed to do. You don't get much of a reward for that since it is the norm. You do get killed if you ever DON'T pay a bill on time. Kind of like showing up for work on time - not much reward for doing so and a penalty if you don't!

4. I think the question about the source of your scores is to make sure you were talking about a FICO score and not some FAKO that has different rules.

5. How many revolving accounts show on your reports and how many have balances? Do you have a mortgage showing? Do you have some installment accounts?

6. We need to start with the reason that your score is 716 and see what would need to change to improve that.

[Anonymous]

So, if I understand correctly, paying you bills on time simply keeps your score from going down.  That's fine and reasonable, I suppose.  Since I pay my bills on time, there isn't really much more it can go up.  But if I had a bad payment history but was making paymets on time for 2 or 3 years, that might yield different results since the score could go up in that area.

I guess what I'm concerned about are two things: 

First. my balance on that card is actually less than what I carried on in for the previous 6-8 months before paying it off. Shouldn't my score have gone down during that period if the amount was such an issue?  And why didn't I get a bump in my score for paying off a $10K balance to zero?  Surely, that doesn't happen all the time and I doubt it's expected.  Yet, I get dinged for a temporary expense that will be taken care of and paid off in 30 days?

Second, what is the formula for determining credit rating?  I understand that it could be rather complex and deal with a number of varible factors, but shouldn't that formula be public knowledge?  I mean, a trade secret is fine for Coca Cola and KFC, since cola and chicken don't affect nearly every aspet of daily life for consumers.  A credit rating does.  No disrespect to any of those who know more about this up here than I do, but it seems like all we, as consumers, have to go on are a set of meandering, usually somewhat correct guidelines for how to manage one's credit score.  But, much like quantum physics, at some point, even those vague guidelines break down and fail to explain how or why something happened.

Anyway, enough of my ranting.  I'm not actively trying to up my score.  I'm fine with where it is, but I'm pretty peeved that I just got dinged 2 points for nothing out of the ordinary but I can't get 2 points for paying off accounts lol.  

[llecs]

Is this your only CC?

[Anonymous]

No, I have 2 other credit cards.  Neither carries a balance.  Total creit available of about $40K but I don't use them because I don't like the interest rates and they do not provide points or miles.

[JayRizzo]

Credit scores are simply... "give us money for absolutely nothing because we can't even explain it to give you a reasonable answer -- we'll just keep asking you more and more side-questions to dodge your original post"  Basically, credit scores are not consumer-friendly.  They were designed for the lenders.

[GregB]

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@Anonymous wrote:

So, if I understand correctly, paying you bills on time simply keeps your score from going down.  That's fine and reasonable, I suppose.  Since I pay my bills on time, there isn't really much more it can go up.  But if I had a bad payment history but was making paymets on time for 2 or 3 years, that might yield different results since the score could go up in that area.

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Yes, if you have a good history then continuing to pay your bills on time will be very slow to improve your score further. If you have a lower score that has been affected by negatives, then paying your bills on time will improve your score faster. "Faster" can still be months or years.

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@Anonymous wrote:

First. my balance on that card is actually less than what I carried on in for the previous 6-8 months before paying it off. Shouldn't my score have gone down during that period if the amount was such an issue?  And why didn't I get a bump in my score for paying off a $10K balance to zero?  Surely, that doesn't happen all the time and I doubt it's expected.  Yet, I get dinged for a temporary expense that will be taken care of and paid off in 30 days?

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The calculations are complex but lower utilization on revolving credit will move your score up. Higher utilization will move your score down. There are steps in the changes. People have noticed steps at 9% and 80% utilization. If you owe $9,900 against $10,000 total available revolving, you seem to get no benefit from paying off $1,900. Then you pay off another $100 and you see improvement since you dropped under the step at 80%. So paying off a $10K balance will tend to move your score up. More specific info would be required to determine IF that would be a change that you will actually see on your reports. No, it isn't what is expected but it is difficult to expect some change based upon one piece of information. IF you have two other cards and all revolving is now reporting a total of $0, then I would be more surprised your score didn't go up.

The score is calculated on the info in your reports so the terms "temporary expense" and "paid off in 30 days" are irrelevant. 

[Anonymous]

"The score is calculated on the info in your reports"...

Apparently not.  My credit utilization is up on a card and nothing changes.  My credit utilization goes down and the score doesn't change.  I pay the entire balance off... zip.  Then I make a purchase one day on the card with a near zero balance for a medical expense that amounts to about 15% or the card's maximum and not 10 days later my score goes down.  This is the only card I use and my balance for the previous 6 months or so had been at about 40% of the card's maximum.  I'm not late, I'm not applying for credit, my balances are low... so how exactly does what's on my report reflect that my score should drop???

"...so the terms 'temporary expense' and 'paid off in 30 days' are irrelevant. "

They shouldn't be.  People who pay their bills should see their credit scores go up for what they actually do.  Instead, my score went down because I had a larger than usual expense which dropped my score based on the possibility of what *might* happen based on some formula -- not the history in my report.

That's why I initially asked the question.   I'm starting to come to the conclusion there there isn't really an answer on a message board.