score dropping while carrying no balances whats up!

[haulingthescoreup]

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@Anonymous wrote:
FICO is lame computer modeled garbage. It is a tool to allow lenders to be lazy. It's not about true accuracy. If lenders were cautious we wouldn't have had a housing bubble and the currently problems in the economy.

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Perhaps so, but since this thread is about the various hidden causes of score drops, and we have several first-time posters asking specifically about this, you're not advancing the discussion at all.

[haulingthescoreup]

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@Anonymous wrote:
I also pay off my balances every month, but have noticed if I charge more throughout the month than before and it shows up on my report, my score will drop 5-10 points. I think the system assumes I will carry the balance rather than paying it off.

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I don't know if there's an assumption built-in, but this is definitely what's doing it in your case.

As strange as the reporting might seem, it does mean that util, which is about 1/3 of your score, is essentially under your control, once you know how it works (and assuming you can afford to PIF your accounts, of course.)

It's never, ever good to carry balances and pay interest to the CC's, but it's especially bad in the current climate. Other companies see those high balances (they "soft" your reports to see what you're up to elsewhere), and they can and do reduce the credit limits on the squeaky-clean card that you have with them, based on what they think you're doing elsewhere.

If people can do nothing else, they should get their balances zero'd out. I treat my CC's like really slow debit cards: I don't use them unless I have money in the bank to pay them off immediately if necessary, and I pay them in full each billing cycle. And I do pay early, resulting in a less than 5% util reporting (from a 0% BT that will soon be paid off), and my creditors seem to like me for it.

[Anonymous]

I have found that to be the case too. Mine has dropped 30 points in the last 3 months. I thought at first that it might be a case of identity theft, but my credit report did not support that theory!

I am keen to know what the reason is as I also pay off my balances each month.

[haulingthescoreup]

Take a look at my post above, message 18, about timing your payments. Do you pay your balances before the statement drops, so that $0 reports, or afterwards, so that they're reporting all your charges for the month? With the current reporting structure, there's no way for the scoring formula to know that you're not carrying these balances month after month after month.

BTW, almost everyone scores better if one card does report, so don't go wild with the early paydowns.

[Anonymous]

I managed to game the system one month so two of my five cards reported a balance of $1.

Credit card companies like to see you use your card, and carry a balance from time to time. Carrying balances is how THEY make money. So it's probably in your interest to see them able to get a little vigorish.

What sets off the alarm bells at your average CCC is if you carry increasing balances month after month. That's bad for your FICO score too, especially if those balance start to creep beyond 10% of the CL.

[haulingthescoreup]

And I'll just comment that I understand TNWM's opinion, but the day that one of my CCC's requires interest money from me is the day that it's shredded.

[Anonymous]

Paying your balance down to 0 will have a very positive effect. It's having outstanding obligations that has a negative effect. It's basically, "The more money you owe other people, the less money you have to pay me back." If you can get all your CCs paid off before the score is pulled, the score will probably increase dramatically.

You're really smart to prepare by doing this months ahead of time. You'd be lucky to get a mortgage right now with a score in the mid-600s, if you were able to get one at all. That may not be the case in six months, but you'll still pay higher rates than you would if you were to get rid of the debts first.

Be sure to pull your reports from all three agencies so you can make sure there isn't anything erroneous on any of them. If there is, that alone can take anywhere from a month to several months to sort out, and you don't want any surprises at the last minute.

[Anonymous]

Okay, now for example I have a cap1 cc that has statement date of third of the month and previous months payment due date of the 29th.  So the due date in this case is 4-5 days before statement date.  so it should be brought to under 10% util just before or on the 29th???

Other card is orchard bank with statement date of 12th of the month and payment due date of 6th.  In this cas 4-5 days before statement date is a day or 2 after the due date so when should this one be payed off/down??

Gotta love it.  Thanks,

                                  Eric

[Anonymous]

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@Anonymous wrote:
Just to clarify. You should pay off everything before it is due. So you don't have to pay fees. But you shouldn't pay all accounts before they report (typically the statement date). Thus, pay down to ~5% shortly before the statement cuts (that amount will then be reported to the bureaus). Then pay the remaining 5% before the payment is due. So there are no costs involved for you.

Message Edited by Physicist on 09-21-2008 10:23 PM

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How do you know when your Credit Card Co. reports? When is it in relation to my Statement date and my Payment Due date? Just trying to figure out when I should pay the first 95% of my monthly payment and when I should pay the remaining 5%. Thanks!

[haulingthescoreup]

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jesses_girl wrote:

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@Anonymous wrote:
Just to clarify. You should pay off everything before it is due. So you don't have to pay fees. But you shouldn't pay all accounts before they report (typically the statement date). Thus, pay down to ~5% shortly before the statement cuts (that amount will then be reported to the bureaus). Then pay the remaining 5% before the payment is due. So there are no costs involved for you.

Message Edited by Physicist on 09-21-2008 10:23 PM

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How do you know when your Credit Card Co. reports? When is it in relation to my Statement date and my Payment Due date? Just trying to figure out when I should pay the first 95% of my monthly payment and when I should pay the remaining 5%. Thanks!

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With almost all CC's (known exceptions below), they update on your statement date, and they update the balance due that you have then.

Look at a printed statement, and you'll see that date on there. Or go online to your CC account, find and click the "statement" option, go to "view statement", and you'll probably have a drop-down box with a series of dates. Those are your statement dates. Many creditors have statement dates that wander about several days in either direction, so if you're going to do the timing thing, be sure to account for that. Others, like Discover, BofA, American Express, and Citi (as least for me) report on the same date each month, and in fact, you can request a change in reporting date, although they're more used to customers trying to change the due date.

The exceptions I know of are HSBC/ Orchard bank cards and American Express cards, both charge and credit.

HSBC/ Orchard bank cards report on the last business day of the month (supposedly), and they report the balance that you have on that date. I say supposedly, because they go into reporting comas and don't update for one or two months. You might want to treat those as cards that you always pay off early to $0. And I specified "bank cards", because I have an HSBC Best Buy store card, and it reports on the statement date.

American Express reports the balance that was on your statement, but they don't actually send the update in until nearly four weeks later. So my AmEx statement drops on the 16th of each month, but that balance doesn't show up on my credit reports until the following 14th. And then two days later, boom, a new statement, and off we go again. So this is something to keep in mind if you only want to do a partial early payment. You'll stare at that AmEx balance for almost an entire second month.

You don't have to torture yourself by doing the 95%/ 5% thing with all your cards. Just let one or two report, and pay the others off completely before reporting. It's awfully easy to forget that you have to go back and pay off that final bit.