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Credit Scores

1,612 Views | 2 Replies | Last: 5 yr ago by TommyGun
Illustrious Potentate
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AG
I monitor my credit score via Credit Karma - probably closer than I should. I have one credit card that I use for the majority of my purchases and pay it off monthly. Last month my expenditures were about half of what I usually spend. I noticed that my credit score dipped with the decrease in the credit card balance that showed up on my credit report. My credit score was back to the normal range when this month's credit card balance was back in line with my normal expenditures.

This seems counter intuitive to me. Can anyone explain why this would occur, or point me toward finding how credit scores are calculated? This occurred on both the TransUnion and Equifax Reports.
FrioAg 00
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AG
My understanding is that potential creditors (the audience for credit scores) want a probabilistic prediction of you paying in accordance with the terms. Indicators that you are most likely to pay include (1) use of credit (2) history of paying

Intuitively we think that not using much or any credit would be a good sign, but statistically those who don't use it are less likely to be "good credits" when they do use it.

No one projects better than someone who uses a moderate amount of credit and a perfect record of paying.
fourth deck
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AG
FrioAg 00 said:

My understanding is that potential creditors (the audience for credit scores) want a probabilistic prediction of you paying in accordance with the terms. Indicators that you are most likely to pay include (1) use of credit (2) history of paying

Intuitively we think that not using much or any credit would be a good sign, but statistically those who don't use it are less likely to be "good credits" when they do use it.

No one projects better than someone who uses a moderate amount of credit and a perfect record of paying.
I thought that above 1/3 credit utilization ratio your score would begin to drop, whether cumulative or per line of credit. From my own experience, my credit score took a decent hit when I used up >50% of a credit line on a 0% APR credit card to finance a backyard project. My score began to climb slowly as I paid it off.

My understanding is also that many of the scores promoted by individual credit bureaus and credit monitoring services are not the same as FICO.
TommyGun
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AG
fourth deck said:

FrioAg 00 said:

My understanding is that potential creditors (the audience for credit scores) want a probabilistic prediction of you paying in accordance with the terms. Indicators that you are most likely to pay include (1) use of credit (2) history of paying

Intuitively we think that not using much or any credit would be a good sign, but statistically those who don't use it are less likely to be "good credits" when they do use it.

No one projects better than someone who uses a moderate amount of credit and a perfect record of paying.
I thought that above 1/3 credit utilization ratio your score would begin to drop, whether cumulative or per line of credit. From my own experience, my credit score took a decent hit when I used up >50% of a credit line on a 0% APR credit card to finance a backyard project. My score began to climb slowly as I paid it off.

My understanding is also that many of the scores promoted by individual credit bureaus and credit monitoring services are not the same as FICO.


I talked with a lending adviser a year or so ago about how to build up your credit score. We had cash on hand to pay off our car loan, however, we had just sold our house and were moving to an apartment while our new home was under construction. If we paid the car off we wouldn't have any other debt since we payed our credit cards off monthly.

He said to take your card with the lowest limit and keep the balance on it around 30% and just pay the notes for a while. Having that small balance and paying it monthly would at least keep our score flat or even improve it over a 9 month period. Ultimately, we decided against that option and just delayed paying the car off for 9 months. Our score improved by about 40 points in that nine month period of not having a mortgage and just paying a low interest car loan. Not sure if the other option would have had the same results, but that was our experience.
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