Yet Another Credit Score Question

October 18, 2007 6:43 PM

Why did my credit score go down?

A few months ago, i signed up for a credit card through my bank that lets you access your FICO credit score online. I signed up for the credit card in hopes of building up my credit score which was, when i started a not-so-great 644.

I charged some stuff on the card and began paying. I always always pay more than the minimum payment and i pay twice a month (whenever i get paid) even though only 1 payment is due per month so i am never late. I don't pay it off-- but i pay way more than the minimum. I'm only on my third month in my new awesome-credit-regime.

I just went to go pay the bill again and i checked my score and my score has gone DOWN. In August i was at 644 and for Sept i am 627. What gives? Should ignore this and look at in the longer term? I have no other debt to my name besides my cellphone bill which i pay on time as well. Maybe not as strictly as my credit card, but they never ever have to call me to remind me to pay (at most i'm only a few days late or so).

I have not applied to any other credit cards or for credit since getting this one. I have not applied to any credit cards since earlier this year.

So, what gives? I'm a complete n00b when it comes to finances. :cx

posted by anonymous to work & money (13 comments total)

Basically because you're using your available credit. You know what's weird? Open up another credit card, never use it, and watch your credit score go up a little. (This is a rhetorical direction. Please don't actually do this.) Part of your credit score is based on total available credit (your credit line) and total credit used. Because you're leaving a balance, and because you never know when the credit card company reports to the bureau your outstanding balance (or at least I don't know; someone please fill me in if there's actually a method behind that madness), your available credit is being chewed into, lowering your score.

Seriously, your credit score is completely meaningless until you plan to buy a car or house (of if it really, really sucks, in which case your insurance premiums will go up). Try not to let that magic number affect your life in the least, because it doesn't matter.

BTW, as your credit history ages, you have a record of on-time payments, and your credit limit increases, your score will invariably rise. So literally do nothing except pay bills on time, revisit this situation in a year, and your score will likely be up a couple points.
posted by SeizeTheDay at 6:53 PM on October 18, 2007

Open up another credit card, never use it, and watch your credit score go up a little. (This is a rhetorical direction. Please don't actually do this.)

There's no reason not to, unless you feel you truly can't trust yourself with credit.

And the rental company asked me to have a credit score of at least 650, I think, just to rent my apartment. And you'll get better deals and lower interest rates on new credit cards. So I wouldn't say it's meaningless.
posted by drjimmy11 at 6:56 PM on October 18, 2007

From what I understand, your credit score can go down with each new card you get -- even if you pay 100% of the bills each time. Get rid of as many cards as you can and watch what happens. I don't have ANY department store cards, gas cards, or other retailer cards (like Gap or Banana Republic) -- nothing like that. I have an Amex and a Visa I pay off each time and my score is really high. I was shocked since I really expected it to be in the 600 range. A financial counselor told me this once.
posted by Lockjaw at 6:56 PM on October 18, 2007

Having recent credit inquiries on your account (like the ones they do before they give you new credit cards) also drops your score temporarily. Your behaviours will help your score eventually, but the short term hit is to be expected.
posted by jacquilynne at 6:58 PM on October 18, 2007

Lockjaw writes "Get rid of as many cards as you can and watch what happens. "

This can ding your credit score significantly if you have any dept at all, since it lowers the ratio of debt to available credit.
posted by mr_roboto at 7:20 PM on October 18, 2007

Sorry, lowers the ratio of debt to available credit.
posted by mr_roboto at 7:20 PM on October 18, 2007

Sorry again, raises. Christ.
posted by mr_roboto at 7:21 PM on October 18, 2007

Fair Isaac changed their scoring model about that time, which is probably the main thing responsible for this change. The fact that you got a credit card and started using it around that time probably had a smaller impact.
posted by kindall at 7:21 PM on October 18, 2007

It might also be because you're keeping a balance, which raises your debt-to-credit ratio. You want low debt, lots of credit. It is best to pay off as much of your credit card as humanly possible, but still use it, so you have a running credit card account but very little debt on it. Use the credit card to buy shampoo or something once a month, then pay it off.
posted by schroedinger at 8:08 PM on October 18, 2007

Lockjaw's writing, "Get rid of as many cards as you can and watch what happens. " is poor advice. It can hurt you in many ways. Don't close the cards - especially if you've had them for any length of time as you will lose the age points.
posted by Gerard Sorme at 8:56 PM on October 18, 2007

Advice from my credit union loan manager: Opening a new credit card will drop your score until you show that you can pay it off for at least a few months. Also, a new card should pay/save you at least three hundred dollars to make it worth the ding to your credit score.
posted by faceonmars at 11:10 PM on October 18, 2007

1) Your credit score can drop initially with a new inquiry and new account

2) Part of your credit score is based on debt to credit ratio as noted above. I have read that it is best to keep your credit card balances below 10% of the credit available in order to have the best credit score. Generally 25% is considered good.
posted by hazyspring at 4:22 AM on October 19, 2007

You need to have a 30%, or at least 50% revolving debt to credit ratio or your FICO will go down. There may be other breakpoints as well.

The next most important thing is to have a long credit history. You can't do much about this, but it's important to not close old accounts, even if you don't use them, because it will lower the average age of your accounts. This is anti-consumer and promotes identity theft, but them's the rules.

As far as inquiries, 1-2 inquiries will change your score only a couple points, 3-4 a little more, 5-6 a little more, and 7+_ a little more, but generally not more than 20 points, and they drop off after 6 months. Because of this, some people wait to apply for credit, then apply for a bunch all at once.

The idea is that the inquiry from one application doesn't have time to affect your score for the others, and they all drop off at the same time.

For further information, I'll refer you to the FatWallet AOR thread.
posted by Mr. Gunn at 5:02 PM on October 19, 2007 [1 favorite]