Improving Credit Score & Minor Issue

[Tidybuoy]

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!

[Skillet83]

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

[VincentVega]

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.

[Zeke]

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.

[mattdavis11]

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.

[944 S2]

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.

[A930Rocket]

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.

[john70t]

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.

[wildthing]

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.

[LWJ]

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.

[rusnak]

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

[Steve Carlton]

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.

[KFC911]

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.

[KFC911]

Originally Posted by afterburn 549

A wise man said -"Never be a whore to your fico score."

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

[93nav]

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.

[KFC911]

Originally Posted by afterburn 549

They want you as a slave .

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...

[jcommin]

Originally Posted by 93nav

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.

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.

[PorscheGAL]

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.

[GH85Carrera]

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.

[Por_sha911]

Originally Posted by KC911

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.

+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. 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.