why does a credit score do DOWN after one pays off a house and credit cards?

[demtenjeep]

we expected quite a jump after we paid off the house. Instead we lost 30 points?

why does that happen?

[tazkcmo]

1. Because it's a "game" and it's rigged. n/t

[handmade34]

6. ^

a'yup

[peacebird]

2. You aren't feeding the creditors anymore?

[jwirr]

20. That is what I was thinking - if you are not playing the game

anymore you are not worth as much to the bankers.

[onehandle]

3. You have to keep credit 'active.'

Find a good credit card that gives you cash back, doesn't cost a fee or cost you interest if you pay it off monthly.

Use it for everything you can.

I make money off of our credit cards.

[demtenjeep]

5. that we do

we have one with a 500 limit and we do our grocery shopping and other various things on it and then pay it off monthly.

[dixiegrrrrl]

15. I traded in a new car for a year old car and my score jumped

because they counted the trade as me having paid off a loan on the new car.

This WAS back in '95 tho.

We seem to be in a world where all the finance truisms no longer make sense.

[TexasBushwhacker]

24. The limit is too low

Now, your credit score may not matter now that everything is paid off, but one thing that affects your credit is how much of your credit you're using. If you only have one card with a $500 limit, you are probably using close to that every month. Even if you pay it off every month, your credit utilization is probably going to be 80 to 90%.

It's better to have a card with a $5000 limit and just not use it for more than $500 to $1000 per month. That way your credit utilization will only be 20%.

[SusanCalvin]

26. Yep.

As long as you trust yourself not to carry a balance, get the highest limit they'll give you.

We have a ridiculously high credit score, mostly because we charge a lot of stuff on a high-limit card we've had for decades and pay it off monthly.

[Nay]

45. This works. I have a card with a $20,000 limit and never go over about

$600. And I pay it off every month.

[TexasBushwhacker]

46. Yes, I just paid my card down to less than 30%

"utilized". My credit went up 30 points! I asked for a credit increase (I've had the card for 20 years) and they raised it $3K without eve checking my credit score, so now I'm below 20% utilized. I'm expecting another bump to get my score over 700 for the first time in several years. I went through a period of unemployment and disability, so my card was close to maxed out all the time. It's a good feeling to have good credit again.

[RKP5637]

4. I've had that happen too. It's a WTF. I also once had a lot of credit cards,

I got rid of some and my credit score went down.

[HERVEPA]

7. Because you were using a larger percentage of your available credit.

Lots of info out there on how they weigh different factors

[RKP5637]

10. Thanks!

[Mnemosyne]

8. 729 down to zero, 6 months after paying bills off. They punish you if you are not feeding

the beast each month. Bastards.

[dems_rightnow]

13. That's not even possible

The lowest possible credit score is way above zero.

[Mnemosyne]

19. That is what the bank told me. Have no reason to lie. nt

[KentuckyWoman]

17. Oh stop it.

The worst score possible is 300.

[Mnemosyne]

18. I was told that by the bank. Believe what you want. nt

[R.A. Ganoush]

32. Sorry, I'd find a new bank

http://creditcardforum.com/blog/what-is-the-lowest-credit-score-you-can-have/

FICO scores can range from 300 to 850. But even though 300 is technically the lowest credit score possible, it’s very unlikely you would hit it even if you tried. To get that you would have to do everything wrong and have absolutely zero positive credit history whatsoever. And, zero positive credit history is a very different thing than having no credit history. Someone with no credit history will have a low beginning credit score but not 300, as having no infractions on your records counts for something with the credit bureaus. In that regard they at least give a newbie the benefit of the doubt relative to someone who has trashed their credit.

In the real world, the lowest credit score you can possibly get will probably be around the high 300’s. For example if you:
•Just went through a bankruptcy and for the first time it is showing on your credit report
•If you have defaulted on multiple debts and had little to no payment history on those accounts prior to default (i.e. applying for a loan and defaulting a couple months later)
•You have recently gone through a foreclosure and have had severe late payments and/or defaults on at least one other line of credit

In those types of situations, you may fall into the 300’s. According to numbers from FICO, as of October 2013, just 5.8 percent of the population had scores between 300 and 499. So you can imagine the percentage of those hitting rock-bottom at 300 make up a tiny sliver of the population. For comparison, 18.6% of the population have scores between 800 and 850.

Even if you’re not at the absolute worst, anything under 600 is mostly useless when it comes to getting a credit card (unsecured), a mortgage or car loan with a decent rate.

[Mnemosyne]

33. I must have misunderstood somehow, thank you for the kind explanation. I had no bad credit as I

had always paid my bills on time. It's not right. I was raised to only borrow when necessary and repay as promised, always.

And I always have. Never dreamed I would be punished for not carrying debt...

[R.A. Ganoush]

34. No worries,

I know how you feel!

[Mnemosyne]

54. And welcome to DU, R.A.!

Crazy world where paying your debts is discouraged.

[TexasBushwhacker]

38. Many traditional bills don't get reported on your credit

It's really just reflects payments on credit cards, mortgages and loans. Paying your rent and utilities on time does zilch for your credit score.

[Mnemosyne]

56. I paid off credit cards and loans. nt

[Sissyk]

49. You are not being punished, Mnemosyne.

Credit score is only one of the things looked at if you had to borrow money. I'd say zero percent of your income going out in credit cards, cars, or house would be number one.

We are getting close. No credit cards, car payments, and very little left on the house. Our credit score is the last thing we are worried about.

[Mnemosyne]

55. I laugh about it now, but it really ticked me off then.

Mad world...

[doc03]

31. My brother had no credit rating, he had filed bankrupcy about

twenty years ago and never bought anything on credit since. He went to get a student loan for his daughter and he was turned down because he had no credit record.

[question everything]

59. This is really bad. But they say that you have to have credit

in order to get credit. This is why students are sent credit cards while still in college.

[ileus]

42. You can check it online in about 5 minutes.

[lonestarnot]

9. Because bankers and wallstrippers are still allowed to fuck us. Richie Rich loves you.

[mathematic]

11. Conceptually: because there's no longer as much proof that you're paying bills on time

Think of a credit score as answering the question, "How likely is this person to pay me back?"

You can ask a few questions that can help to answer the overall question.
1. Have you failed to make payments that you owed in the past?
2. Are you able to make payments right now?

A lot of people pay off loans with question 1 in mind, thinking that paying off debt is a great way to show potential creditors that you're good for the money but it negatively affects the answer to question 2 because potential creditors have less insight into your current finances.

[GummyBearz]

12. ^ This is it

It is really stupid and it is a game as some have said. A slightly different way of phrasing it that makes sense to me is you need to have both short term and long term revolving credit as proof you are credit worthy

[Lochloosa]

14. I have both. I just take advantage of the 18 month 0% they keep sending me.

[KentuckyWoman]

16. It makes perfect sense, here's why.

They throw all your credit in when they figure credit utilization score.

Home loan
Credit line = $80125.................................. Amount owed = $3425

Visa Card
Credit line = $4000....................................Amount owed = $135

Car loan
Credit line = $14875..................................Amount owed = $6584


Total credit available = $99000
Amount owed = $10144

Credit utilization % = 10.24%

When you pay off your house and close the credit line it goofs up the whole mix. Let's say you've made another car payment and paid off the credit card but then charged the exact same amount.

Visa Card
Credit line = $4000 ............................................. Amount owed = $135

Car Loan
Credit line = $14875.............................................. Amount owed = $6088


Total Credit Available = $18875
Amount owed = $6223

Credit utilization % = 32.96%

Since they really like you to only use about 10% of your available credit then you take a hit for having a higher credit utilization percentage. You can combat it by opening up a new line of credit, maybe a 2nd card and not use it, but you also take a small hit when you open up new credit. Part of your score is also based on how long you've had your accounts.

[SusanCalvin]

27. That makes sense, thanks.

I'll keep it in mind when we pay off our house.

[Travis_0004]

51. utilization only applies to revolving accounts

Like credit cards. It does not apply to mortgages and auto loan.

[demtenjeep]

21. well that really sucks

not that it is bad, I just wanted to see it in the 800 for a change

[SoCalDem]

50. we were stuck at 798,,,,forever

and suddenly it went to 827...I have no idea why...nothing changed

[spanone]

22. 'they' make less money off of you. therefore, you're a bad risk.

[melm00se]

23. Credit score guide

http://www.clarkhoward.com/credit-score-guide

FICO score estimator:

https://whatsmyscore.org/estimator/

[demtenjeep]

25. hey thanks

good reads

[demtenjeep]

28. ours went from 763 to 733

what is considered bad?

[TexasBushwhacker]

40. 733 is still "good"

Below 700 is fair and above 750 is excellent.

[CTyankee]

29. I have a Visa card with LL Bean and I get points for using the card and thse points that

Bean calls "coupons' are worth cash for merchandise with them. I buy good loads of stuff with those coupons. If I put my European trips on it, I'm good with a whole season's worth of shirts and pants, sometimes even jackets and coats (everything but underwear it seems!). It's a good deal. As I get older, I have very few clothing needs except for some special occasions.

Of course, I never carry a balance on that card or any other. The only other one is a card that gives me free points on gas on certain gas stations. It's funny...my gas station is with my supermarket. I've got this card business all worked out!

[doc03]

30. Who knows, in 2014 with my auto insurance bill I get a

notice that my premium was adversely affected by my credit score. My home is paid for, have no bills except utilities, I paid cash for a new car, I had one credit card which I pay off every month and a very nice balance in an IRA. It had link to a web site that said I could improve my credit rating by establishing more credit such as a store credit card. I opened up a couple store credit lines of which I pay off when I get their bill. My credit rating went up nearly 100 points since then.

[Gormy Cuss]

35. Unless that change puts you in a less desirable category, 30 points is noise.

IOW, if your score is in the good category with or without those 30 points, don't sweat it.

Here's a detailed credit score guide from the horse's mouth:
http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx

[pnwmom]

36. I know. It's unfair. But they did it because you aren't paying off debt anymore,

and that's what it's all based on.

[SecularMotion]

37. I use CreditKarma.com to track my credit score

Last edited Mon Jan 4, 2016, 08:34 AM - Edit history (1)

It's free and gives a good breakdown of the factors that can affect your score.

[TexasBushwhacker]

41. Me too! N/t

[unblock]

39. partly because they don't know you still own the house.

they never actually see that you own a house, they only see that there's a mortgage on it. as long as you're paying, you're a responsible homeowner.

as soon as you pay it off, as far as they can tell, you're a non-homeowner, which, statistically, is a greater credit risk.


the credit bureaus have flaws in their scoring algorithms that are stupid given the data they do have, but in fairness they are also flawed because they don't have a complete credit picture. at best, they only have the debt side of the equation. they don't know your assets, your employment status or history, your income, etc.

if you pay off *all* your debt, then you quickly become indistinguishable from someone who can't qualify for debt. again, they can't see the income/assets side of the equation, so as far as they know, you no longer have a job or any assets.


if you're in the market for credit and you get to the point of a loan officer reviewing your credit application, they will be quite pleased do see you own a house free and clear.

[Travis_0004]

52. That has nothing to do with it

Income and assets are irrelevant for credit scoring.

[unblock]

58. i used way too many words to say that.

[applegrove]

43. Because a mortgage every month proves you can

pay your bills. Get a credit card. Buy one load of groceries and put it on the credit card every month. Pay it off right away every month. Then you exist in their eyes. My aunt did that for years.

[KamaAina]

44. Because Unfair Isaac.

FICO = "Fair Isaac Credit Organization", the obscure company that issues credit scores. Supposedly they recently moved from Minneapolis to San Jose. Boy, would I like to find out where!

[lumberjack_jeff]

47. Do you care? Your house and credit cards are paid off. Fuck the credit score. n/t

[Elwood P Dowd]

48. Mine is 820 and my home was paid off two years ago.

The only thing I'm paying on now is a few charges a month (mostly groceries) put on a couple of credit cards, and they are usually payments for the full balance due.

[Orrex]

53. My credit score hovers somewhere around negative a billion.

It's a corrupt and artificial system, easily subject to manual tampering by interested parties, and it accurately measures nothing.

[Recursion]

57. Because that means there's less info about how likely you are to pay back a new debt

If a creditor sees you making current payments on existing debt, that gives him some confidence that you both can and will pay him back if he lends you something. Once those current debts are retired, obviously that improves your financial situation, but it also makes it harder for a creditor to calculate your risk.

OTOH, the credit score alone isn't remotely everything; a lower credit score with lower outstanding debt can sometimes get you a better deal.