Credit Score dropped by 50 points

25 Replies

Hey folks.  

 I had an emergency repair at one of my buildings (boiler died in winter) that I had to put on my credit cards.  I put a total of $30,000 on my cc for individual furnaces in each of the 8 units. I had a credit score of 750, now my score is 685...that is a crazy drop  What should I do to get it corrected?

I want to buy more properties and I am nervous the bank will say no

@Alexis Zion , 30% of your credit score is calculated based on percent utilization on your revolving accounts, so the higher your balance on each credit card as a percent of the limit, the more points you will lose in this area. If you're able to pay the balance back down, you should regain the points you lost.

Pay off that card. If you can't, try to pay it down to less than half its credit limit. 

Guys 

Should I focus on the pay down of my Heloc or the credit cards?

Credit cards are at 0% till June 2015 

Heloc is 4.5%

Please tell me your thoughts ...Thanks

To improve your credit score, the cards.  In spite of the interest rate differential.  You need to decide whether you can take the hit on your score in order to avoid the interest.

I think you have a more serious problem then which debt to pay down and a credit score problem. You in debt up to your eyeballs. Stop borrowing extra money. You cannot afford to buy another property. Pay off your debts.

Originally posted by @Marcus Johnson:

I think you have a more serious problem then which debt to pay down and a credit score problem. You in debt up to your eyeballs. Stop borrowing extra money. You cannot afford to buy another property. Pay off your debts.

 Even if I had the cash, I'd put the $30k on a credit card for the miles and the extra 30-45 days to pay. Pay off the card monthly, with no interest charger. 

@Jon Klaus  

I would put it on my CC for the rewards points too. I think the difference is that she "had" to put it on her credit cards, which to me, sounds like she doesn't have the cash to pay them off. 

I agree with Marcus. You can't afford another property right now. Build up some reserves, then buy more. 

Credit score is a function of available credit to usage.

The algorithm punishes you for using most of your available credit lines.

For example take 10,000 a your credit limit.

7,500 or more used really hurts your score, 5,000 or more is neutral, and 3,300 or less helps your score.

So 75% hurt,50% is okay, 33% or under helps.

If CC's are high you can do a combo of paying some down and also asking for a credit limit increase which will lower your balance to usage ratio and should help your score rise some again.

No legal advice.

Thanks for the direct advice

Lets say I get my credit limits down to 30% or under.  How long does it take to see a change in my credit score?

Also does it work the same way as the HELOC ?

Thanks in advance 

Another part of your credit score is affected by how many credit accounts you have open. So another way you could possibly help is by opening new accounts this will not only increase the number of your accounts but also the total amount of available credit. The only caveat to this is that your credit score is also affected by the length of your credit history so adding a bunch of new cards will also bring down the average length your accounts have been open but over all should help more than it hurts. You may even be able to the introductory balance transfers to get all of your accounts below the 30% usage mark which is considered good (if you're willing to pay the balance transfer fees-usually around 4% right now, however a lot of cards will offer a no interest period for balance transfers that may defray some or all of the 4% fee).

@Joel Owens  that's actually not the way it works. If all your revolving balances are at 0% utilization you will have the maximum possible points in this category. As your balance goes up your score will go down, until you reach 100% utilization and you have lost 100% of the possible points from Available Credit. So even at 10% utilization you are losing some points, just not nearly as many as you would with a higher balance.

@Alexis Zion  as far as your score is concerned, paying off the lower balance revolving account will get you more bang for your buck. Each account weighs equally on this portion of your credit score. So if you have 2 maxed out credit cards, one for $1,000 and one for $10,000 you will gain the exact amount of points by paying either one of them off.

Hi Michael,

If you could point to the exact material you are referencing that would be great in relation to revolving balances.

I am not an expert on credit but I do know a lot about it. The more the balance goes up to available credit the more the score goes down. The credit scoring model is a complex algorithm made up of many parts and the exact breakdown per my understanding is not released to the public.

Patrick opening too many lines can actually hurt your score initially . Also if you open new lines the first few months it actually usually dips your score as it's new credit. When you show the new credit is being managed properly then the average credit score goes back up.

There are also different credit models being used for when you buy a car, buy a house, look at your credit report score online etc.  Everyone's credit is not the same and is based on a history and multiple parts.

Thanks @Jon Klaus  for the reminder about CC rewards!

I seem to forget about pushing large purchases through my CCs for the rewards I can earn!

As for @Alexis Zion  ... I would be really worried about further leverage if you are resorting to CCs out of necessity.  It sounds like you have a few doors, so chill for a couple months and open a separate account for your reserves.  It helps me not to have my emergency funds in an account I'm not tempted to pull from!

OH! And I second @Joel Owens  request for more info... know exactly how credit utilization is calculated would be great.  Per card vs overall... etc.

@Joel Owens  

@Josh Autery  

Since I'm in the mortgage industry I really only care about the FICO model. Joel you are correct that the exact algorithm is not released to the public, so my information comes from the credit repair firms who assist me in my long-term pipeline of leads who don't currently qualify for financing, and they have all said that the lower your balance on revolving accounts the better that portion of your score will be. One company that I work with, National Credit Care, has advised me of the following approximate sliding scale:

Between 0-30% utilization you will lose between 0-10% of potential points...

Between 30-50% utilization you will lose between 10-25% of potential points...

Between 50-100% of utilization you will lose between 25-100% of potential points.

Also, each revolving account is weighted exactly the same regardless of size. So if you have 1 credit card, the utilization of that card will determine 30% of your score... whereas if you have 3 credit cards, the percent utilization of each card only determines 10% of your overall score.

Please note that I am a Loan Officer and NOT a credit repair specialist, so all of this information has come to me through third party companies that I work with.

Hello,

     In such a situation, I have borrowed from peer to peer lending services like (( can I add this site name here ?   prosper  dot com ).  Look at the Fico breakdown above, a new account is only 10% impact to your score, (obviously it adds to your total owe, but length of that balances it better),

Again, that website gives you a long period to do you returns, upto 3 yrs, and you know your monthly installment amount. 

The catch is if you are a new user on that site, the rates are high again, you have to build rating through their system too, for which I borrowed a one year amount and paid off in 10 months at high rate and now with better ranking, I frequent there for all down payments upto 30K.  I usually pay off in 6 months.  I know others on this website who use "prosper" as well. So it does give some leverage if you know HOW TO USE IT TO YOUR ADVANTAGE.

Having said that, I also think you could have just used a vendor's financing program from where you bought appliances. Although that shows are charge, but I don't think it would directly affect your scores as the credit cards did (** pls verify this statement and don't take it as is ).

Have fun investing ( * borrowing responsibly).

Naveen.

I agree with what most of you are saying. However, I want to point out that having 0 utilization does not give you the highest score potential, but have less than 10% will. For example when I have used a FICO score simulator when I put in 0% utilization it gave me a grade of C where has 1-10% gave me a grade A. Keeping in mind that is a simulator, I believe that is best practice. Also, keep in mind that credit is a snapshot in time. So if you would like to pay off the HELOC first then work on the credit cards, thats fine, provided you aren't seeking any new credit during this time. Your score will heal as soon as you begin to work on paying those balances off. If you don't need new credit right now, don't sweat it. From a financial point of view its better for your to pay off the item that is creating more debt (interest) first.

You guys are awesome!  I appreciate all of the advice.  

After reading the advice about not buying another property,  I have been conflicted because of what Robert Kiyosaki said through his writings.  He said something to the effect, "Never say you don't have any money"  On one side I am listening to what he said, on the other I would like to figure out how not to take on any more debt, and then on another I want to get beyond 15 doors I have, and get to my goal of 100.  Any thoughts?


Jon Klaus
No one eve got wealthy by getting airline miles no matter what they offer. Read the book the Millionaire next door and the self mades never mention that as a key. I don play that game.

@Alexis Zion
You must have had no reserve fund for a building the size you rent out which could have broken you financially. As the Fico chart displays above I a previous post, 30% of your score Is determined by how much debt you carry.
Also someone mentioned getting more cc's. Bad idea. My wife and I have 1 card that w use of gas and that's it and our credit score are both around 800. Of course we don't carry much debt at all.

Hard to say if you are in a position to buy another property or not without knowing more about your debit to income situation.  I do agree though that you should pay down your CC debt before adding more property, with 15 doors hopefully that won't take long.  Make sure and keep a reasonable amount in a reserve fund for when things like this come up.

Oh,  and keep in mind what the card companies will do if it is not paid off in full by the end of the grace period.  Usually you then get HAMMERED for interest charges and fees.

@Alexis Zion  

When Kiyosaki said "Never say you don't have any money" he may have been introducing no-money ways people can get started in real estate investing, like wholesaling and flipping with hard money. Then once you amass enough wealth from those activities you can do things that require money, like long term holds aka rentals. I'm not sure what kind of mortgage you are trying to get, sounds like a personal mortgage since you are worried about your credit score, every one I've gotten in the past year they want to make sure I have 6 months of PITI reserves for each property.

Originally posted by @Alexis Zion:

You guys are awesome!  I appreciate all of the advice.  

After reading the advice about not buying another property,  I have been conflicted because of what Robert Kiyosaki said through his writings.  He said something to the effect, "Never say you don't have any money"  On one side I am listening to what he said, on the other I would like to figure out how not to take on any more debt, and then on another I want to get beyond 15 doors I have, and get to my goal of 100.  Any thoughts?


I'm in agreement with RK about having a positive attitude about money.  Buying income producing property with leverage is what I would call good debt.  $30K in CC unsecured debt that you can't pay off quickly?  That's just plain old lack of reserves and makes you that much closer to insolvent.  

Make the 15 doors pay their way before you buy any more. 

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