Why Did My Credit Score Drop After I Paid Off My Balance?
We recently received the following question from a reader
about why her credit score would drop after paying off a credit card
balance:A month or so ago I got my credit score. It was 812. Today I received an email saying there was an update to my score so I logged in to see the change. My score is now 800. The only thing different is I paid off one of my credit card balances. Should I keep a balance? This doesn’t make sense why it would go down. Nothing else has changed.As lenders report updates to the credit reporting agencies and your credit report changes, it’s not uncommon for credit scores to fluctuate a few points from month to month. And for high scorers like yourself, a fluctuation of 12 points is very minor. However, to answer your question — paying off a credit card balance wouldn’t lower your credit score unless you closed the credit card when you paid it off. In fact, paying off (or paying down) a credit card balance would have the opposite effect.
[Credit Score Tool: Get your free credit score and report card from Credit.com]
There are a number of reasons why a credit score would
drop: a negative item that wasn’t reported in the past, higher balances on
credit cards, new account openings, new inquiries — or a combination of these
things. It’s easy to speculate what may have caused a score drop but in the end,
the only way to truly know what caused a score to drop is to compare the credit
reports used to generate the score for each.I know you mention that nothing else changed but if your score dropped, something in your credit report changed. The free monthly updates from Credit.com’s Credit Report Card only include changes in your score so unless you ordered a full credit report, it’s impossible to know what caused the 12-point drop. (You can get your credit reports for free once a year from each of the three credit reporting agencies through AnnualCreditReport.com.) Having said this, there are a few other factors at work here that I think may ease your mind and explain the slight drop.
Paying a credit card balance in full doesn’t necessarily mean your credit score will reflect your most recent credit card payment. This is because credit card issuers generally report updates to the credit reporting agencies once every 30 days, typically around the time that your monthly statement drops. For this reason, the balance reported in your credit report would show the balance from your most recent credit card statement. And if your most recent statement balance was higher than the previous month’s statement balance (when your score was 812), it would cause your score to drop. So you’d have to stop using your credit card for at least a month before the balance would be updated and reflect a $0 balance in your credit reports.
[Related Article: Achieving Perfection -- The Highest Credit Score]
In the grand scheme of things, a slight fluctuation isn’t something to be overly concerned with — especially with scores as high as yours. Scores in the 800+ range are golden in the financial world and will get you the best deals that lenders have to offer, which, after all, is one of the best reasons for maintaining great credit.
For more about credit reports, credit card management and improving your credit scores, check out these great resources:
- How Often Does Your Credit Report Change?
- The Ultimate Guide to Credit Scores
- How to Achieve a Perfect Credit Score
Deanna
Templeton Deanna Templeton is a financial literacy advocate with 15+ years
in the banking and consumer credit industries, including five years with FICO in
their credit scoring division. She specializes in educating consumers on the
importance of healthy credit management, and shares valuable insight on consumer
credit and finance issues.Comments
About Us
Credit.com News & Advice provides readers with unique insight, helpful tips and straight answers about their financial world. Our leading experts explore credit, loans, debt, saving, and identity theft topics. Meet our credit & finance gurus.- Free Credit Score & Report Card Use Credit.com›s FREE Credit Report Card to instantly review your credit standing. Free updates, too!
- Need a Loan? Offers for personal loans, debt consolidation, and student loans up to $35k. Simple, no-obligation quote, apply today!
- Get The Chase Freedom Card $100 bonus cash back, 0% intro APR for 15 months & no annual fee. Do you have good credit? Apply now!
- Bad Credit? No worries! Credit Cards from Visa and MasterCard Find the best card now!
No comments:
Post a Comment