So I thought I was making a positive move regarding my FICO score and paid off my credit card balance before the statement date. My FICO score went DOWN because, they said I wasn’t showing proper use of my available credit. Their suggestion, take out a loan or open another credit card! Exactly what I don’t need. I left a small balance on the card this month and my score went back up. Go figure!!
I pay the statement balance every due date. It shows usage without me paying interest. My method is probably different from yours, but I’ve never seen that advice. If the card the only credit you have?
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I use Credit Karma and there is some good information on the site that explains what has happened. There are other factors that are considered in the make up of your score. Some of these are how long you have established credit records, how well you pay and also how many loans/credit cards you have. Powers that be want to see that you manage credit across the board and are looking for various types of credit (i.e. auto loans, mortgage as well as other credit cards) along with your payment history. Credit Karma even shows the importance/percentage of each factor that makes up your score. The articles there are informative and I’ve learned a good bit about handling my score.
If you pay part or all of your balance before your statement closes, a lower balance is reported to credit agencies. Thus, you lower your credit utilization, which is a positive sign. So it generally results in an increase in your credit score. How could it go down?
I don’t plan on ever borrowing money again, so if my score goes up or down, I really don’t care. I own my house and car outright so hopefully I’ll never again need to purchase either one.(Plus I just turned 60 so that may be coloring my attitude). I want my debts paid off for my own peace of mind. The credit score can pound sand for all I care.
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I’ve always (well almost always) paid the outstanding balance by the due date so as to not incur an interest charge. Since the balance was low, I thought I’d pay it before it was due and my credit score dropped. It went back up again a month later when I let a balance show on the statement, but I paid it before the due date so as not to incur an interest penalty. No, I have other cards and a mortgage so it isn’t the only credit I have.
Apparently ‘they’ like to see that you have an outstanding balance on at least some of your credit cards to show that you are using available credit. I typically only use the one card and paid the balance before the due date show the statement showed a zero balance which must have triggered a drop in my credit score. I let the outstanding balance show up on the next statement and my score went back up.
John Donaldson posted:
Apparently ‘they’ like to see that you have an outstanding balance on at least some of your credit cards to show that you are using available credit. I typically only use the one card and paid the balance before the due date show the statement showed a zero balance which must have triggered a drop in my credit score. I let the outstanding balance show up on the next statement and my score went back up.
Must be why I have never had that issue. I use credit every month. However, my credit score did fall when I paid my car off. They say the higher your score, the more little things like that affect it. So I worry less about the number as long as its over whatever the minimum is to get the best service or product
Funny, if you don’t owe money, you’re a credit risk!!
Congrats on paying off the debt! Don’t let the drop stop you from being responsible with your money. “Having low credit utilization (30% or less) is good; having no credit utilization may hurt your score.” (Nerdwallet link) Credit utilization and on time payments are two of the biggest factors that make up your score. Companies lending you credit want to see that you’ll make payments regularly, and on time. So when you pay it off all at once, there’s not much history for them to go on. I agree it’s a good thing to do but obviously the scoring system isn’t perfect.
I found out the hard way that if an account closes or you pay off a loan your score will decrease because you have less available credit. This is not the case for a credit card, unless you pay it off and close the account.
Your credit card company is right. I did the exact same thing and zeroed everything out except my student loans then my scores dropped 40 pts in one month. Without a balance and the issue receiving interest payments, they consider you a risk. Some issuers will close your card or lower your credit limits if you continue to pay in full. It’s a double edged sword with our new financial systems…
