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Why did TransUnion lower score for paying off debt balance?

SouthJamaica
Super Contributor

Re: Why did TransUnion lower score for paying off debt balance?


@PastaThing wrote:

Hello,
I am rebuilding my credit and try to stay at 0% utilization. I once let one credit card go unpaid until the payment was due, and paid it on time. That increased my balance (money utilized) to $60 on my credit report, which Transunion reacted to by RAISING my credit score by 11 points. The next month my balance was reported at 0 again, as usual, and Transunion dropped my score by 11 points as a result.  Why on earth would they reward me for owing money? And why would they penalize me for paying that "down"? Especially when the card remains open and the other bureaus don't seem to be doing that.
Just to clarify, it was not a late payment. It was simply "credit utilization" for one cycle.
Thank you!


It's the "all zero penalty".  You get dinged in some score models if you report all zero balances. The way to avoid it is to let one bank card report a small balance before you pay it off.

 

It's ridiculous, but it is what it is.

 

Here is the excuse reason FICO gives (but I'm not buying it):

 

"According to the MyFICO insiders, the data shows that having 0% utilization is slightly riskier than having a low utilization. Having low utilization is an indication that you have credit and are using it responsibly.
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score...

The data shows that going from low installment loan utilization to no installment loan balances reported (and thus 0% installment loan utilization) is slightly more indicative of future risk.
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score...

Having a low installment loan balance to loan amount ratio is considered slightly less risky than having a 0% installment loan ratio.
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score...

Having a low mortgage loan balance to loan amount ratio is considered slightly less risky than having a 0% mortgage loan ratio.
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score...

Analysis on millions of credit files indicates that there is more risk associated with those with zero balance than those with small balances. So, the FICO Score considers consumers with a small balance more favorably than those with zero balance.
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score..."


Total revolving limits 693500 (600500 reporting) FICO 8: EQ 716 TU 729 EX 697

Message 11 of 14
PastaThing
New Member

Re: Why did TransUnion lower score for paying off debt balance?

Thank you so much! Yes, that was very helpful.

 


@chiefone4u wrote:

@PastaThing wrote:

Thank you so much! That is very helpful.
I know this sounds silly, but how do I know when my statement "cuts". I thought if you pay after the due date your payment is reported as late. I just realized I don't even KNOW how to carry over a balance... Do I make my payment as usual but just leave a $10 balance and then owe interest on that on my next statement? And just always leave that much to carry over?
Sorry, I am new to all this!


 Whenever you can help it, DO NOT pay interest! And ALWAYS pay at least the minimum payment by the due date. (Caps aren't yelling, just trying to make sure the words are seen).

 

Typically your statement "cuts" 20ish days before it is due. If you look at your statement it usually has "Statement Date" listed on it somewhere,  most of mine put it in the top right corner or top line of the statement summary (where it shows beginning balance, ending balance, amount paid/spent since last statement).

 

Once you know what day your statement is generated, next you'll want to check to see if the card you leave a balance reporting, reports the statement balance or the balance on a given day (US Bank reports the balance on your card as of the last day of the previous month -- so US Bank reports your balance on December 31, 2021 when they report to the credit bureaus around January 5, 2022, not the statement balance from December 17th).

 

So for ease of use, basically do what you've been doing to cause your cards to all report $0, but leave $10 or so to report on one card (major credit card Visa/Mastercard) store cards and some AmericanExpress cards tend to cause an all $0 penalty even though you left a balance to report. 

 

Hope this helps!


 

Message 12 of 14
PastaThing
New Member

Re: Why did TransUnion lower score for paying off debt balance?

That really does sound strange, but I am glad I understand why it's happening now. Thank you so much for sharing that!


@SouthJamaica wrote:

@PastaThing wrote:

Hello,
I am rebuilding my credit and try to stay at 0% utilization. I once let one credit card go unpaid until the payment was due, and paid it on time. That increased my balance (money utilized) to $60 on my credit report, which Transunion reacted to by RAISING my credit score by 11 points. The next month my balance was reported at 0 again, as usual, and Transunion dropped my score by 11 points as a result.  Why on earth would they reward me for owing money? And why would they penalize me for paying that "down"? Especially when the card remains open and the other bureaus don't seem to be doing that.
Just to clarify, it was not a late payment. It was simply "credit utilization" for one cycle.
Thank you!


It's the "all zero penalty".  You get dinged in some score models if you report all zero balances. The way to avoid it is to let one bank card report a small balance before you pay it off.

 

It's ridiculous, but it is what it is.

 

Here is the excuse reason FICO gives (but I'm not buying it):

 

"According to the MyFICO insiders, the data shows that having 0% utilization is slightly riskier than having a low utilization. Having low utilization is an indication that you have credit and are using it responsibly.
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score...

The data shows that going from low installment loan utilization to no installment loan balances reported (and thus 0% installment loan utilization) is slightly more indicative of future risk.
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score...

Having a low installment loan balance to loan amount ratio is considered slightly less risky than having a 0% installment loan ratio.
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score...

Having a low mortgage loan balance to loan amount ratio is considered slightly less risky than having a 0% mortgage loan ratio.
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score...

Analysis on millions of credit files indicates that there is more risk associated with those with zero balance than those with small balances. So, the FICO Score considers consumers with a small balance more favorably than those with zero balance.
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score..."




Message 13 of 14
SouthJamaica
Super Contributor

Re: Why did TransUnion lower score for paying off debt balance?


@PastaThing wrote:

That really does sound strange, but I am glad I understand why it's happening now. Thank you so much for sharing that!


@SouthJamaica wrote:

@PastaThing wrote:

Hello,
I am rebuilding my credit and try to stay at 0% utilization. I once let one credit card go unpaid until the payment was due, and paid it on time. That increased my balance (money utilized) to $60 on my credit report, which Transunion reacted to by RAISING my credit score by 11 points. The next month my balance was reported at 0 again, as usual, and Transunion dropped my score by 11 points as a result.  Why on earth would they reward me for owing money? And why would they penalize me for paying that "down"? Especially when the card remains open and the other bureaus don't seem to be doing that.
Just to clarify, it was not a late payment. It was simply "credit utilization" for one cycle.
Thank you!


It's the "all zero penalty".  You get dinged in some score models if you report all zero balances. The way to avoid it is to let one bank card report a small balance before you pay it off.

 

It's ridiculous, but it is what it is.

 

Here is the excuse reason FICO gives (but I'm not buying it):

 

"According to the MyFICO insiders, the data shows that having 0% utilization is slightly riskier than having a low utilization. Having low utilization is an indication that you have credit and are using it responsibly.
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score...

The data shows that going from low installment loan utilization to no installment loan balances reported (and thus 0% installment loan utilization) is slightly more indicative of future risk.
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score...

Having a low installment loan balance to loan amount ratio is considered slightly less risky than having a 0% installment loan ratio.
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score...

Having a low mortgage loan balance to loan amount ratio is considered slightly less risky than having a 0% mortgage loan ratio.
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score...

Analysis on millions of credit files indicates that there is more risk associated with those with zero balance than those with small balances. So, the FICO Score considers consumers with a small balance more favorably than those with zero balance.
https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/We-re-Tom-Quinn-amp-Tommy-Lee-FICO-Score..."





Yes it is strange. 


Total revolving limits 693500 (600500 reporting) FICO 8: EQ 716 TU 729 EX 697

Message 14 of 14
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