My spouse and I are blessed to have good employment which has allowed us to pay off all of our credit card debt each month. We have not carried a balance on either of our cards in almost four years, and have no derogatory information on our credit reports. However, our credit scores were sitting at just barely above the threshold for an excellent rating.
Recently we purchased a home, and after making our first mortgage payment my credit score dropped from excellent to good (a five point drop). I simply do not understand what I need to do to improve our credit scores.
Although ranges vary depending on the credit scoring model, generally credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent.
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So a 5 point drop brought you from Excellent (800) to Good (739) Recheck that.
BTW a 5 point drop after taking on a substantial debt… is nothing to be concerned about. You are doing fine!
Our strategy is to have high credit limits with low utilization. We ask for a credit limit increase every year. Our scores stay well over 800 and this is the recipe we follow.
I buy from Amazon waaaaay too much, and my charge limit was 10K. They kept increasing it over time. Far too high for my comfort so I had them lower it to $2k.
Wait until you pay off your house! I have good credit, paid off my house in 2019, and my score dropped about 50 points the next month and it has taken forever for it to get back anywhere near where it once was. It makes no sense.
It’s because the model they use depends on your track record of handling debt. When you have less debt they have less information to use in rating you. The fewer data points in the rating formula will result in more fluctuations in your score.
A change in one credit account when you have fifty makes little difference, but a change in one account when you have just three crfedit accounts will make a big difference.
I guess that makes sense, but that’s never explained with the credit score.
Seems there should be an asterisk with “limited credit data” or some such disclaimer.
Instead, the score is treated as some absolute valuation of a person’s creditworthiness !
I’m sure that is the case… what else would they have to go on? They are not in business to report positives. Their business model is loss prevention for paying merchants. The only positive thing they have to say about your credit is that your credit record has fewer negatives than the average.
Contrary to their PR messages, they don’t care about you unless you can contribute to their bottom line. You are simply part of a product that they sell.
How do you think that I’m overselling it? I just thought that it was interesting that a geographic pattern emerged from the data. I’m just sharing what I consider an interesting fact.
When a credit score takes a dip after a mortgage or other type of loan is paid off, it is lkely due to the “credit mix” part of your credit score. Not exactly sure why we’re penalized for having fewer TYPES of credit, but it is a factor. My score took a hit when we paid off our mortgage.
Here’s what the FICO site says.
Credit mix (10%)
FICO Scores will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans.
That reason, plus questioning if I needed credit monitoring services— I decided to put a freeze on my credit at the bureaus. I’m at a different point in my life where I don’t need to be getting more credit cards/loans, so that’s another factor.
I have a HECL, so if I have any emergency repairs,etc, I can use that.
I have alerts and limits on all of my credit cards and bank accounts.
I figure if/when I need a new loan or credit card, I can unfreeze any of the accounts needed.
I was never sure if the credit monitoring services really did anything. Is the "dark web monitoring’ for real?
Insurance companies will use a credit score to determine rates for home and auto insurance. Landlords may want to do a credit check and obtain a credit score prior to issuing a lease. There might be other reasons, but these are two that I can think of.
