Improving Credit Score & Minor Issue
 

I have a somewhat low fico score at 732 as of today.

I paid off my mortgage 1 year ago and after that, my credit score dropped by about 40+ points. When I applied for a loan, I was semi-declined (would only approve $20k vs the $30k I wanted). At the time, I was told that my credit score was low because I did not have any real estate loans. I explained to the loan officer that I had paid off my mortgage and I most definitely had a mortgage history. Unfortunately, it is no longer counted as part of my credit score because the account is closed.

Since that time, I took the advice of the loan officer and opened some credit cards (I previously closed my last credit card in 2005 and have been a debit card guy ever since).

I currently have 4 credit cards which I use every month but pay in full and keep the balance at zero. A friend of mine at work tells me that the only way to improve my score is to keep a small balance on each of these cards. I really don't want to do that. I was under the impression that as long as I use the cards, they remain active on my credit file and hence, affect the fico score.

Reasoning: I'm looking to purchase rental property and this will require a new mortgage. I'm trying to improve my score to the best possible which may affect my borrowing capacity as well as getting the best rate.

Any advice or answer to my friend's statement (keep a balance or not)?

Thanks!

Find a mortgage company that does manual underwriting. F the credit score! You paid off your mortgage, wtg to you sir.

Active account, that are up to date and a payment history are the key. Keep doing what you are doing. Also, you can find free heloc's, might want to open one and use like your credit cards if you are impatient. You'll end up paying some interest but if you are smart with it and time your transfers it will be minimal.

It's a vicious game. I have a CC balance and I really could pay if off by making a withdrawal from savings or my IROC but damn, I'm never less than 850.

Keep an eye on the amount of your use of your revolving credit. I pay in full every month. Debit cards are for suckers waiting to get cleaned out.

Remember you fico score is just a measure of good you have been at making payments to banks over an over. In other words you making someone else rich! Nothing to do with how wealthy you are. I would seek out manual underwriting as mentioned.

As a new graduate about to start his new job in a couple of weeks, our son went to the local credit union to apply for car loan to get a used, but reliable car. He has no debt besides his student loan.

He was turned down because he has no credit history.

Looks like he’ll be taking our 120k mile 2004 Tahoe with him across country.

The central banking system punishes good fiscal behavior and rewards bad.
The system is designed to entice people into perpetual debt.
(aka slavery)

When they are not doing that, they are skimming 3-5% off every credit card purchase in the nation from retailers.
And charging 20-25% interest.


My credit was ruined for 11 years over a fraudulent filing and I was shut out of the Cali RE market$.
I couldn't even recieve a report to contest..unless I sent them official stamped copies of my birth certificate. Yeah. No.
That is my best polite answer.

What do you mean when you say “keep balance at zero”? Do you pay it off even before your statement is available? Then there will be 0 balance reported on your credit report. The idea is to have a 20 to 30 percent credit utilization rate, so if you have a 20000 limit, ensure that at least 4000 is reflected as your balance on the statement date, then pay it off in full. If you feel uncomfortable with a 4K balance, spread it out among a few cards and work with each issuer to spread out each statement date. But I would spend more on the card that gets me the most rewards if I can, like the Chase Sapphire...

I am surprised the paid off mortgage immediately affects the score as I thought the record stays on for seven years, but FICO score algorithm is proprietary.

I would do this:

Pull cash from your home with a refi. Say you house is worth 1mm? You can pul up to 700k +\- out.

Use this to buy said rental.

You can deduct interest up to 10,000 I think currently.

I move cash in and out of assets however it is most beneficial to me, my investment strategy, and my tax strategy.

Good luck.

You're talking to the most junior level loan officer? Try a local bank or state bank.

The formula for a FICO score is secret, sort of like the formula the IRS uses to pick you out for an audit. But the general principles have been sussed out. A credit balance of around 5% of your limit is said to generate the best scores, better than an zero balance. The balance that's reported to the bureaus is the balance on your billing statement, so if you have a card with a $5,000 limit, it's best to get the balance around $250 or so before the statement is generated. Then a $250 balance will be reported. It's good to have a few accounts (I think a mortgage lender will want to see maybe 4 active accounts), but not too many accounts. They also score you on recent inquiries, recently opened accounts, too many accounts, too few accounts. Having a mortgage or installment loan (like a car loan) is good. It takes a while for things to stabilize, as opening and closing accounts will run down your score. You might want to take out an installment loan on a car or boat that you have. HELOCs can be tricky- I think they can count as revolving debt. There's several websites that will coach you on building a good score. I just don't know which ones are good.

I haven't had a mortgage debt in 20 years, nor a credit card for the past dozen. I have a HELOC that I've had (0 balance for 99.9% of the time) that I have used to purchase rentals, etc., but the balance was paid off quickly. I just pay everything on time....always have. Out of curiosity I checked my score several years ago...825. I shun the CC industry (personal reasons), and use a debit (with NO concerns) exclusively....everyone's ituation is different. So.....mebbe a HELOC would work for ya....seems to be the only REAL credit thingy I have had for two decades now...works for me.

And never listen to a pimp (banker's) :(.

Wells Fargo owes me a pension fwiw....BoA also sucks....I've seen the beasts from within years ago....YMMV.

I am not a banker ;)

I cannot figure out what you guys are talking about utilization rates and keeping small balances.

I have not had a loan in 10 years. prior to the last two years, I rarely used my credit card for other than smaller online purchases. Paid the CC bill either on time or early. My credit score, last I checked a few years ago, was 8xx.

Never! I'm holding out until the Amazon Wimmins take over ;)!

Cheap/easy credit...the financial opiate of the unwashed credit junkies..."hook, line, and sinker"....YMMV.

FFF unite! Yep....figure it out...different strokes. Lots of ways to skin a...

I don't have a home loan - nothing since my divorce in 2010. I have 3 credit cards, with a small balance on only one of then ( under$2K). I pay cash for just about everything. I took out a student loan for my youngest and that loan amount is $17K. My credit score is over 800.

I just bought a car and took out 4 yr loan. The amount is $20K - it is the first time I have had a car payment in over 20 years. It dinged my score 4 pts.

I don't understand it either.

I would run a credit report to see if the information on you is correct.

Just read an article about this (I think Bloomberg): Anywho, their suggestion was pay off the balance every month and never run up more than quarter of the available credit on the card within a couple months of a purchase.

My MIL got married in 1950. They saved all they could, and built their first house and paid as they built it. They moved through three houses and each time they paid cash by spending little, saving a lot, and no frills. They raised two kids, and when my FIL died, my MIL wanted to use her computer more and buy stuff on-line. She had to go talk to the vice president at her bank. She had taught him in the 4th grade so he had known her most of his life. He looked at her checking account balance, CDs and knew the very nice place where she lives is paid for, along with nice paid for cars and zero debt. He had to override the system to issue her credit card, because she had zero credit history.

I have two credit cards. One is for my business purchases, the other is for my personal use. Both are with USAA. Both are set up on automatic pay the statmente balance on the due date.

My credit rating was dropped a few points when I took out the first loan in this millennium to buy an airplane for the business. The airplane cost more than my 3 car garage, 2,800 sq foot house. Unfortunately no one does cheap home mortgage loan rates on airplanes.

The entire credit rating system is smoke and mirrors. Paying off a home loan should not drop your rating, but I guess it did. My rating has climbed as the airplane loan is on automatic pay, and the credit cards continue to get paid for statement balance on time as we spend money.

+1
When I paid off my mortgage it was the last loan I have had. I was advised it stays on the record for 7-10 years so when it came close to the 7 year mark when it comes off the reports I took out a HELOC from my bank. They were offering a sweet deal of no closing costs and a low rate for the first year. The banker insisted that I wouldn't get any value to my credit report unless I kept a balance due for at lease one year. :rolleyes: I borrowed about 1/4 of the value of my home and paid most of it off after the first payment and the rest 2 months later. Very minimal interest paid. I keep the "loan" open with a zero balance. Other than that, for the last 10 years I pay for virtually everything by credit card and pay the bill in full when it comes. Zero interest paid. My score is over 800.

There is something missing in the equation that gets the OP's score so low.

That is exactly what I am doing (except real estate values in my area a a bit lower than your example). I applied for a $250k mortgage (not approved yet but likely to fund 45-60 days). I'm waiting on the appraisal on my house which is being delayed due to the fact that it is currently being painted and won't be finished for about 2 weeks).

I'm going to take $200k and fund my LLC which will purchase a rental property. After refurbishing and getting tenants, I will get a mortgage on that property and pay myself back. Hopefully, I can do this over & over until I have enough rental income to stop working.

My primary purpose of this post was to inquire about improving FICO score. I realize it's not that important as I prefer to be debt free but in this case, I am taking our a new loan and need my score to be as high as possible.

Yes, I've been paying off prior to receiving my statement. I guess it's a bad habit but I like to pay everything as incurred.

Regarding my paid-off mortgage dropping off my credit. It's still there but only show up on my credit report in the history but I'm not getting any credit due to the fact that it's a closed account. When I applied for a car loan last year, I was initially declined for the amount I needed but when I went into the bank with my deed and pay-off documents, they approved the loan.

This is your problem. Because you're paying it off before receiving the statement, it's reporting a $0 use to the CRA so to anyone reviewing your credit it looks like you're not using it. A $0 account balance is just as bad as no account. Wait until your CC generates a statement to pay it off and then it will show use on your report which will up your FICO score.

My credit report shows 4 late payments in 2014. This is an error and I have written to the bank to get corrected. In 2014, I started paying extra on my mortgage. At some point, I looked at my balance and noticed that the principle had not changed as expected and I was also charged some late fees. This was impossible since I had been paying extra.

I called the bank and it turned out that in a couple of cases, the extra principal payment went into my escrow account since the bank did not know what the extra was for (sounds pretty dumb to me). In four cases, I paid the monthly mortgage payment prior to the first and so the payment either posted or principal or escrow and then the following month was recorded as non-payment. After discussion with the bank, we agreed that any extra payment would go to principal and I would never pay before the first, unless I wanted that added to principal. They also reversed the $42 late fee (x 4).

I had no problems after that but now that I am checking my credit report (5 years later), I see that my good intentions were not applied correctly and it is affecting my current credit score.

I previously filed a dispute to the credit reporting agencies and the complaint was denied and returned as "reported correctly". I have since followed up with the mortgage company.

When I bought my new car last year, I went through this. Zero debt, haven't had a CC balance in years, no house loan in my name.. Here I am thinking how great I'm doing but got declined by three different banks because of "no recent credit history". Yes, my 80 year old mother had to co-sign for me.. true.. WTF?

Although those 4 lates are fairly old at 5 years, they may loom a bit large as you don't have much other positive, offsetting items. Plus a lender will consider them more relevant towards another mortgage.

It's hard to believe your lender could justify any sort of late payment and should be compelled to give you a DELETION LETTER which you would forward yourself to all three bureaus. That's the only way to insure this is done promptly and correctly.

You can go to annualcreditreport.com and get a free copy of your credit report once a year. Any report obtained from Experian, Equifax, or Transunion will not show as an inquiry on your credit report or knock points off your score. You might be able to pay extra and obtain your score, which should include the 4 top reasons your score isn't higher (at least it used to). Those are the 4 worst things they can say about you, and they might not be bad. They will point you in the direction of getting your score up, though.

If you've already gotten your free reports within the last year, just pay for them from the individual credit reporting agencies and pay extra for the score. You've got a vested interest in this now, so it'll be money well spent.

Ahhh, the black art of FICO scores, lol.

If you want to maintain/increase your scores, you might:

* Maintain small balances across multiple revolving accounts (credit cards). Around 5% total, but no more than 30%. This goes towards the number of open/active accounts (more = better, to a point), and utilization rate (lower = better).
Key word being "active accounts". So, open a couple and just set up each one to auto-pay things like cell phone bill, insurance, cable, etc.

* Request/obtain higher credit limits on your revolving accounts. This also goes towards your utilization rate (ratio of CC balances to available credit).
If you are at/above 30% on one card and/or the total average of all cards, a credit-line increase can give you an immediate bump in FICO scores.

* Don't close any accounts, if able. This goes towards your credit history.

* Try to have different types of accounts (revolving, installment, mortgage, etc.). This goes towards your "credit diversity" or whatever they call it.

* Try to avoid multiple hard-pull credit inquires. Typically, you will get a time-window for inquires wherein multiple pulls will not count against you during that period (usually 30-60 days, depending on the type).
Whenever possible, soft-pulls are the way to go. On some things you may be able to waive a hard-pull credit inquiry altogether, and/or put down a deposit in lieu of a credit-pull (utility companies, etc.).

* Don't ever take out a "credit repair" or "debt consolidation" type loan if you can avoid it.

* Use credit cards instead of/in place of debit cards. This goes towards your credit activity, but also offers you WAY more protection.
If you use debit cards everywhere for POS transactions and/or online, you are playing with fire, especially if the account(s) linked to your debit cards carry significant balances.

* Then the obvious stuff like, no late payments, no BK/foreclosures, collections, etc.

SmileWavy

Vern's been carrying a zero balance, in fact paying the balance to zero before the billing statement (not FICO friendly unless paying the balance down to around 5-10% of the limit before the statement comes out). I don't think a credit limit increase will help him like it would with somebody who owes more than 10% of their limit. A limit increase should be requested without a hard pull, of course. Some lenders are fine with that, some need to see a report.

I bet mine sucks. No debt. Pay off credit card every month. Haven't checked in 20 years.

You have an 837.

I'm going to do that but not for the purpose of increasing my score. I want to have available credit because I am going to invest in rental property, either single family homes or 4-plex. I'm looking at slightly distressed properties so I will need funds for refurbishing. Hopefully I can swing it without the need to borrow too much but it may come in handy if major repairs are suddenly needed (i.e., HVAC or something like that). I have a formula that I will follow so as to not pay too much and then lose my shirt.

I work in the mortgage business. A 732 fico is not stopping you from getting a mortgage, and at a bank like wells or boa, you will get either the same or really close to the best rates with a 720+ fico. 740 is the absolute most you could need to get their best rate. Talk to an LO about that.

A fico score that high will never affect your borrowing capacity. That is far more dependent on your debt ratios, so if you are not over extending yourself, I wouldn't worry. Remember that CCs are unsecured, so they are more cautious about giving out big lines of credit at first. Go back in a year with a good pay history and they will up it.

The issue with the mortgage being recently paid off is that you closed the account. FICO scores suffer when you close an account, but they will go back up slowly. Opening new accounts also hits your fico, so if you haven't already, don't go opening up a bunch of credit cards.

Manual underwrites are silly for your scenario because you will not need it and if you insist, your rate will be higher for a manual underwrite. Your issue is not getting an approval, it is about getting the best rate. Don't go there.

DO NOT keep pulling credit to see if its higher. All hard pulls within a 30 day period for the same type of loan (mortgage, auto, etc) count as one pull and will hit your score a few points, but if you do it again after the 30 days, it counts again.

Advice that I give borrowers when they are buying a house is stay home, don't buy anything, don't close any cards, don't open new credit and don't make a move without consulting first. Its amazing how many people screw themselves when trying to improve their credit or just being oblivious, when if they had literally done nothing, they would have been fine.

I wait until the cc bill arrives and pay it in full during the 25 day grace period. Zero interest but still helps the FICO score. As far as late payments are concerned, one of the little known facts is that some late payments are more harmful than others. The mortgage is a big no-no because it is a necessity and the banks feel that being late with something so important is a reflection of your attitude toward debt obligations. It is good you tried to correct it and even filed a dispute. It sucks that it wasn't your fault and yet the credit bureaus won't do something about it. Have you tried getting the bank to write you a letter to present to the bureaus? I don't know if the bank would do so and if the bureaus will accept it but, it never hurts to ask.

Payed off the mortgage, my score dropped 20+ points, its BS. According to the free BS score you get from the CC company was a 836 out of 850. Had all the boxes checked, no late, 30y history, 2% utilization, all type's of credit, CC's, auto loans, HELOC and don't carry a balance on CC's. Well I am not about to go get a mortgage to get a higher score. So it is what it is.

Have you tried calling that guy on TV :)?

Well, my score updates every Tuesday (according to Chase) and I also get a weekly e-mail from Experian noting any changes to my credit. Yesterday it went up 9 points to 741. I somehow missed reducing my balance to zero since there was a pending charge so my total balance was $3 dollars. It's funny, Chase has a credit score simulator and when I change the $3 balance to zero, my score increases 20 points. This tells me that the entire scoring system is flawed.

There was a thread here some time back, a speech done by the real life "Catch me if you can" man...Abernathy? Did a quick search but couldn't find the thread. I found it a fascinating hour to watch. Anyway, near the end, he said to never use a debit card because of fraud risk. He said to use a credit card, pay it off when the bill arrives, to build your credit score. Why credit? Because of the protections from fraud the banks must, under law, provide.
Since the man now works for the FBI's fraud division, I figure he might know what he's talking about.

Personally, other than credit card used as above, Cindy & I haven't borrowed for decades. Can't see any future reason we'd want to. Don't know our credit score..don't care.

And proprietary. Thus secret.
So they can libel you in front of everyone (lenders, landlords, employers, etc).

And in the end, you as a citizen-consumer have no recourse but to play the game with apparently no rules.

But it's all 100% 'government'...controlled by a select few.

He might technically be correct, and still be FOS too, as it applies to the reality of today. Banks will not kill the goose...CC or debit losses....not an issue for the customer....unless something REALLY amiss. Just doesn't happen...I use mine with no fear. I'm different ;)

My CU debit card fraud protection has been awesome since I've had it....WAY better than back then too.

He's livin' in the past....twas true initially....fer sure.

The profit margin on CC is much higher....follow the $$$ ;)