A Stable FICO® Score
I check my credit scores everytime I check my credit card balances. The scores are stable, fairly consistent and fluctuate a few points at most. The chart below is a clear illustration of that stability.
An Untypical FICO® Score Situation
So when I got a notification last month that my best score had dropped 12 points, I was shocked. The charts below mentions the 12 pt decrease in red.
Because I pay such careful attention to my score, I usually have a pretty good idea why it might change and by how much. As I mentioned, I usually have a fairly stable FICO® score. Therefore a decrease of 12 points was a red flag to me. Something was wrong. But I had no idea what it was. It was time to investigate.
Five FICO® Score Factors System
There are five or six main categories that go into determining a credit score. They are illustrated in the three examples below.
Six FICO® Score Factors System
Primary Credit Factors
The wording may vary slightly and the scoring may as well. But it comes down to basically the same thing. Scoring may be based on a letter system like A, B, C, D or words like, Excellent, Good, Average, Below Average. In my case, my monthly grades have enough excellents that my score remains around 800 for these six categories:
• Payment history (On-time Payments)
• Credit Utilization (Credit Used)
• Age of Credit (Oldest Credit Line)
• Credit Inquiries (Recent Inquiries)(New Accounts)
• Total Accounts (Available Credit)
• Negative Marks
Searching for the FICO® Score Factor Red Flag
The above grades are good enough to rank me around an 800 FICO® score each month. Previous to last month, no action I took lowered my score by 12 points. But I knew that once I found what category was off and why this had happened, my decrease would be explained. In fact, what it was turned out to be kind of humorous.
The Solution Turned Out To Be in the Credit Utilization Category
On an average, I use between 1% and 2% of my credit utilization category. This means that if I have a $100,000 credit limit on all my credit cards, I only charge $1000 to $2000 dollar a month total. Two months ago, I had gotten a new promotional credit card. It offered a cash back reward of $200 if I charged $1,000 on it within three months. I was so excited about the cash reward that I charged the full amount within two months. That reflected a very unusual credit utilization percentage for me. It was much more than normal.
Glancing at the chart above, one can see that my normal credit utilization is 2%. But the new card that I purposely charged a large amount on had a credit utilization rate of 22%. Here’s the irony. In order to fulfill the requirements for the promotion, I charged much more in a month than normal. It did not significantly damage my credit. But it did throw both the credit rating company and me for a bit of a loop at first. I am sure that by next month everything will be back to normal since that kind of utilization is atypical for me. In addition, I will have a statement credit or a cash reward of $200. to ease the pain. Not a bad FICO® score lesson in my book!
I was fortunate in this case that nothing serious had happened to my credit. I did not need to contact any of the credit reporting agencies. They are Transunion®, Experian®, and Equifax®. If there is a situation that does not seem right and that you cannot figure out on your own, do not hesitate to call the particular credit card or one of the three agencies. We live in a time when we have easy access to these agencies and we should be careful as well as protect ourselves from errors and fraud.
Sources and Resources
Using Credit Cards for Survival and Profit