Score drop from paying credit card?!

[Anonymous]

Last month, my CapOne card had a reporting balance of $51 on a $500 limit. This month, my statement showed a balance of -$11.54 on a $500 limit. 

I got a notice from MyFICO that my Equifax score dropped 4 points. How is this possible? I also settled a collection that updated my report to "paid in full" on Equifax. Could that have something to do with it?

CapOne is my only reporting open credit card. I got a secured card through NFCU, but my first statement won't cut until April 4th. My husband also added me as an authorized user to his CapOne, but that's only reporting on Experian right now. 

Current FICO8 scores are 562/571/576. 

[Anonymous]

You get dinged for having all 0 balances, a tad more than only having all your cards reporting a balance that is less than 10%.

Optimal scoring based on user information consists of having 3 revolving tradelines, 2 reporting 0, and 1 reporting a small balance between 1-9%.

[Anonymous]

Agreed with the post above.

Your balance was at 11% prior to paying off your card.  Had you paid off say half of that $51, your score probably would have gone up 5 points or so since you would have moved across a utilization threshold (9% or less).  Since you paid off the card and let a $0 balance report, you were hit for not showing revolving credit use.  You only lost 4 points as opposed to 9 (for example) because of that threshold cross.  Had you gone from say a $20 balance to $0 you would have seen a 2-3X greater score drop. 

The good news is simply let a small balance (say $5) report next cycle and you'll not only get back those 4 points, but probably 5 more as well for a +9 or so from where you are at now.

[HeavenOhio]

Just to make sure it's clear, if the statement balance was $51, the OP would have needed to pay off that amount to avoid interest. But a small amount from any new charges could have been allowed to report.

[Anonymous]

That is correct.  One does not have to pay a penny of interest in letting a small balance report.

[Anonymous]

Im in the exact same situation as of today. Thank you for clearing that up. Ill have to leave a small balance next time!

[Anonymous]

Could you all help me figure this out? 

Here's how my reports will look next month: 

Derogatory Accounts

BB&T - Charge off from 2011 - Settled for $705 for "PFD". Settled on 3/24 and was told it would be reported in 10-15 days - reporting on all 3 bureaus

National Credit Systems - Collection from 2011 - $4,181 - only on Experian and will do EE on May 29 (called Ex to find this out - sched to come off Aug 2017)

DeVry - default student loans from 2013 - did consolidation and default will be absorbed & deleted thru new loans - loan should be processed by Apr 3rd (Experian only)

Berks Collections - collection from 2011 - $524/$683/$724 - only on Experian and will do EE on July 29 (called Ex to find this out)

Good Accounts

Capital One - since Apr 2016 $500 limit - what balance should I have report? Due Date is April 16th and new statement should cut on April 20th

NFCU Secured - since March 2017 $1000 limit - statement cuts on Apr 4th, what balance should I have report?

Current FICO8 scores - 572EQ/562TU/576EX

I should note that I'm trying to get to 580 as advised by lender for mortgage. Current mortgage scores are 571/574/602. 

[Anonymous]

I know this doesn't answer your question and probably isn't the reply you're looking for, but with a 580 score I would strongly advise against pursuing a mortgage right now.  For the best mortgage rates you need to be in the 700's.  While you may be able to qualify for a mortgage with a 580 score, that's a bare minimum and will result in a significantly higher interest rate.  You're talking paying back tens of thousands of dollars more in interest over the life of the loan.  If you sit tight for a year and focus on cleaning up your report if you aren't in the 700's you'll be very close and without question land a much more favorable rate.

[Anonymous]

Thanks for the advice BBS. We've signed a purchase contract and have been in discussions with our lender about my credit situation, which I've been upfront with them about before submitting the loan application. 

My husbands scores are 683/693/699. I'm only going on the loan for income, as the loan estimate we received with just him on it was 3.7%. Our lender has made it clear to us that are only responsible for a 3.5% down payment, as we are going FHA on a new construction home. 

I'm shooting for a 620 score to be honest. I just know that when I'm at 580, I'm in the "safe" zone for a mortgage. 

Any advice about the credit cards?

[NRB525]

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@Anonymous wrote:

Last month, my CapOne card had a reporting balance of $51 on a $500 limit. This month, my statement showed a balance of -$11.54 on a $500 limit. 

I got a notice from MyFICO that my Equifax score dropped 4 points. How is this possible? I also settled a collection that updated my report to "paid in full" on Equifax. Could that have something to do with it?

CapOne is my only reporting open credit card. I got a secured card through NFCU, but my first statement won't cut until April 4th. My husband also added me as an authorized user to his CapOne, but that's only reporting on Experian right now. 

Current FICO8 scores are 562/571/576. 

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If your score dropped only 4 points with no revolving CC reporting any balances, then I think the list of baddies is probably outweighing any revolving CC optimization.

To answer your question on the mortgage, you probably want to let $50 report on the statement of either the Capital One or the NFCU, but not both. Depending on the timing of the statements, it is often difficult to switch from one card to another, when only two cards are available, so for the time being, while you are going through the mortgage app, it's probably best to just pick one, the one that will report soonest, and keep ensuring that the one card reports a statement balance. Pay that statement balance after the statement prints, of course, and then manage the other card to zero for the next statement.

To be clear, in my estimation (amateur hour) you may not see too much of an increase in your scores, but it is the two factors (number of cards reporting and utilization) which you currently have control over, so best to try to optimize those to see what happens.

When the NFCU card reports, that may or may not contribute a new reduction of scores for the New Account. It's underway, so all you can do is monitor for effect.

I think you are making the right decision to go ahead with the mortgage app. The rate may be fractions off from "ideal", it might be possible to get to some "ideal" rate in a few years, but the money you currently spend in rent will be going toward some equity. Later, when your scores improve, it might be possible to refinance for a slightly better rate, but there are transaction costs associated with that and at todays low rates, it often does not make sense with the small marginal improvement possible in the mortgage rate. So, it is good to "make the best of it" and move forward with the purchase and mortgage now.

Good luck!