Credit Scores - why are mine going down?

[KingNothing]

I am hoping that some of you more wise people out there might be able to help me understand something. I have been checking my credit scores recently, and I am surprised to see that they are plummeting. Like, all three of them really dropping fast.

I don't understand why. I have never missed a loan, credit card or rent payment, or even been late, in my entire life. I pay my card off in full every month and am paying about 5x the "normal" amount on all my student loans. Is this normal for them to be dropping? How can I find out exactly why they are going down?

 

[alexg]

I pay my card off in full every month

That may be why. Credit companies like to see a steady balance with only the interest being paid.

 

[zoobyshoe]

I heard once that merely checking your credit score makes it drop.

 

[Ken Natton]

Yes, paying off your credit card will not damage your credit rating but unbelievably, simply checking your credit rating will.

 

[Pengwuino]

That may be why. Credit companies like to see a steady balance with only the interest being paid.

Not true. Credit agencies boost your score if there is a balance that you can maintain at a small fraction of the total limit, not that you're only paying interest (which is a bad sign actually).

I heard once that merely checking your credit score makes it drop.

A "hard query" can affect your score slightly, especially multiple checks in a short period of time.

Yes, paying off your credit card will not damage your credit rating but unbelievably, simply checking your credit rating will.

It depends, paying it off and closing will hurt your score, but just paying off a card will help you.

@KingNothing:

I would request a credit report to see if someone is doing something in your name. There are seemingly harmless things that can hurt you that you would be surprised of. A credit score, despite popular belief, is not a gauge of how little money you owe people. It's a gauge of how well you can handle credit. It is also a gauge of whether or not, if someone were to give you a new loan, the creditor will ever see his money back.

Let's say you have 4 credit cards totaling $25,000 of available credit. Let's also say you currently hold $5000 worth of debt on them. You're actually a good score because if someone were to give you, say, $10,000, they know you're a very low risk because you can easily use your available $20,000 credit to payback the creditor if need be. That's what the credit score is, a gauge of how risky it is to give you money. So there are a few possibilities.

1) Obvious one, someone might have compromised your identity, check this immediately
2) A false report might have been written for non-nefarious reasons, again check this
3) Have you closed any accounts recently? This would actually lower your score and companies do sometimes close accounts that have not been used in 6months/1year+ without telling you
4) Have your credit limits been reduced recently? Same idea

I know there are others and a quick google can find some finance sites that tell you about different things that can reduce your score.

As an aside, people who have never had a credit card or loan are often surprised that they can't get approved for a loan even though they feel they're responsible and worthy of credit because they've never had a credit card or debt in their life. Of course, to the creditor, the reality of the situation is that they've never shown proof that they're capable of handling debt and are thus, a high risk.

 

[Borek]

Is it possible that the changes have nothing to do with KingNothing personally, but with the state of economy in general?

 

[Pengwuino]

Is it possible that the changes have nothing to do with KingNothing personally, but with the state of economy in general?

If the state of the economy makes creditors reduce credit lines, I can imagine it would.

 

[Borek]

If the state of the economy makes creditors reduce credit lines, I can imagine it would.

I was rather thinking about things like market basket (http://en.wikipedia.org/wiki/Market_basket) or something closely related (I know some version of the "average cost of life" is a part of calculating how much you can borrow here). It has nothing to do with credit lines - but obviously both things can be important.

 

[russ_watters]

I am hoping that some of you more wise people out there might be able to help me understand something. I have been checking my credit scores recently...

Did you read the actual report or just look at the score?

 

[KingNothing]

I would request a credit report to see if someone is doing something in your name. There are seemingly harmless things that can hurt you that you would be surprised of. A credit score, despite popular belief, is not a gauge of how little money you owe people. It's a gauge of how well you can handle credit. It is also a gauge of whether or not, if someone were to give you a new loan, the creditor will ever see his money back.

1) Obvious one, someone might have compromised your identity, check this immediately
2) A false report might have been written for non-nefarious reasons, again check this
3) Have you closed any accounts recently? This would actually lower your score and companies do sometimes close accounts that have not been used in 6months/1year+ without telling you
4) Have your credit limits been reduced recently? Same idea

Did you read the actual report or just look at the score

First and foremost, I really appreciate all the helpfulness. A few months ago (October) I signed up for a service called "Enhanced Identity Theft Protection". One of the benefits was a free credit report every month.

So I've been monitoring it for four months, I have all three credit reports, and I see absolutely nothing incorrect about it. They have my student loans on file, and my credit card on file. The only thing that changes is that I owe about $2000 less every month on my student loans. There's a section where each credit bureau has my credit lines listed, then there's a payment history under each account listing "payment history", which is filled with green boxes showing that I am on time with my payments.

Is there typically any sort of "comment" area where someone would "write on your credit report"? Do credit bureaus ever explain your credit score or reveal their formula?

 

[Pengwuino]

Is there typically any sort of "comment" area where someone would "write on your credit report"? Do credit bureaus ever explain your credit score or reveal their formula?

No, the formulas used are proprietary (they built a business off their ability to correctly determine who is a good risk vs. a bad risk using those formulas so they want to keep it close to the chest).

A follow-up question or two: Has it only been from a single credit agency where your score was reduced? Also, can you give us an idea of how much it has gone down (not what your score is, but what the +- has been)?

 

[S_Happens]

In the free annual credit reports that you can get, each company will show you in detail the good and bad about your report, directly stating what is hurting your score (length of credit, credit:debt ratio, etc). How FICO scores are calculated is public information. It just depends on what is reported to each company as to what the final score is. I can't speak for whatever company you are using. Why are you actually using it?

Pengwuino is exactly correct. The most likely scenarios are 3 and 4 on the list. Credit companies have really cracked down in the past few years. Not using credit will almost certainly get it canceled or reduced limits. Your credit:debt ratio is one of the main factors affecting your FICO score. There is another thread where a few of us gave the main details about FICO scores and talked about the difference there and actual credit lenders.

 

[KingNothing]

No, the formulas used are proprietary (they built a business off their ability to correctly determine who is a good risk vs. a bad risk using those formulas so they want to keep it close to the chest).

A follow-up question or two: Has it only been from a single credit agency where your score was reduced? Also, can you give us an idea of how much it has gone down (not what your score is, but what the +- has been)?

It's been from all three. Two have changed roughly -50 and one -75. I am so truly baffled by this whole thing.

 

[S_Happens]

No, the formulas used are proprietary (they built a business off their ability to correctly determine who is a good risk vs. a bad risk using those formulas so they want to keep it close to the chest).

Where did you get this? For the three major companies that calculate FICO scores it's well known.

Edit- OK, so technically the final calculations ARE proprietary. It's quite well known what ballpark they play in.

 

[Pengwuino]

Where did you get this? For the three major companies that calculate FICO scores it's well known.

Edit- OK, so technically the final calculations ARE proprietary. It's quite well known what ballpark they play in.

Yes I meant the final details :).

 

[Greg Bernhardt]

I was recently the victim of identity fraud so I opened an account with TransUnion and I check about once a week. My score has not dropped from the checking.

 

[S_Happens]

Yes I meant the final details :).

Yeah, the way the information is displayed I never realized it wasn't 100%. Of course I immediately posted, THEN decided it would be a good idea to research.

 

[Vanadium 50]

Is it possible that the changes have nothing to do with KingNothing personally, but with the state of economy in general?

It shouldn't. The way it's supposed to work is that the score is independent of the economy as a whole, but the minimum score required for a particular loan product might fluctuate.

 

[edward]

First and foremost, I really appreciate all the helpfulness. A few months ago (October) I signed up for a service called "Enhanced Identity Theft Protection". One of the benefits was a free credit report every month.
So I've been monitoring it for four months, I have all three credit reports, and I see absolutely nothing incorrect about it. They have my student loans on file, and my credit card on file. The only thing that changes is that I owe about $2000 less every month on my student loans.

Frequent checks of your credit will lower your score. Did the credit protection company you signed up with do a Hard credit check?

[QUOTEDid you know that when a company checks out your credit report, it can damage your credit score temporarily? It depends on if the inquiry is "hard" or "soft." Hard inquiries ding your score, soft don't. If you're going to get a mortgage or a car loan, a few points difference translates into a big chunk of change. So how do you know when an inquiry is going to be "soft" or "hard?"

A hard inquiry is when a person or organization requests your credit score and history and they intend to make a lending decision. Applying for a credit card? Hard inquiry. Getting approved for a car loan or mortgage loan? Hard inquiry. On your reports, each of the credit unions categorize these inquiries differently. TransUnion calls them "regular inquiries," Experian calls them "requests viewed by others," and Equifax calls them "Inquiries in the last 12 months." Hard inquiries usually drop your score by a few points for six months, then their effect is removed. This is why it's usually NOT a good idea to apply for credit cards before you get a mortgage loan.[/QUOTE]

http://consumerist.com/2008/12/hard...ries-and-how-one-hurts-your-credit-score.html

I would definitely give that company a call.

 

[Greg Bernhardt]

Hard inquiries usually drop your score by a few points for six months, then their effect is removed. This is why it's usually NOT a good idea to apply for credit cards before you get a mortgage loan.

Considering scores range from 300-850, a few point swing will not likely influence any lending decision. In my case, I found out I was a victim of identity fraud when I was declined a credit card because of a delinquent account. My credit score was still very good, but they declined me until I get the account resolved.

 

[turbo]

I have never checked my credit rating because I don't borrow money and have no intention of doing so. At some point, I should do a little digging around, because I have gotten a few calls from a collection agency in Arizona that tries to collect overdue student loans. I never had any student loans (always paid my own way) and that was ~40 years ago anyway. Still, the calls could be a sign that someone has nabbed my SS# and used it to get loans.

 

[Greg Bernhardt]

I have never checked my credit rating because I don't borrow money and have no intention of doing so. At some point, I should do a little digging around, because I have gotten a few calls from a collection agency in Arizona that tries to collect overdue student loans. I never had any student loans (always paid my own way) and that was ~40 years ago anyway. Still, the calls could be a sign that someone has nabbed my SS# and used it to get loans.

Absolutely! It happened to me! btw, the only reason I care about my credit score is because I get credit cards for the airlines mile perks! I've gotten a lot of free trips that way!

 

[Evo]

Article today on credit scores.

http://finance.yahoo.com/news/8-common-credit-myths-debunked.html

 

[Pythagorean]

applying for a new credit card or canceling an old credit card (even if in good standing) can significantly lower your score. I canceled a card because I didn't want to pay the annual fee anymore; I was in good standing, so I figured it would be ok. Mistake.

 

[S_Happens]

Article today on credit scores.

http://finance.yahoo.com/news/8-common-credit-myths-debunked.html

It's a decent article for the uninformed, but make sure to read the first two carefully. They try to clarify common misunderstandings, but don't go far enough to do a good job of it IMO. Paying off in full will help your score by lowering your credit:debt ratio (a major factor used). By the same token, carrying a balance will negatively affect your score.

It seems weak to me to simply state that carrying a balance and paying interest won't help your score. A single statement added to the end makes it so much clearer.

/nitpick