Sun 22 Apr 2007
FICO Score After Unloading 25k in Debt
Posted by RichSlick under Credit Cards
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A few weeks ago, I paid back 25k in arbitrage money and I finally got to see the results on my FICO score. To put it into context, I’ll give you a bit of background information.
I have 100k in credit lines amongst 4 cards. A few weeks ago I had 50k in arbitrage debt and I decided to unload 25k of debt since my 0% APR was ending.
My score at the time I had 50k in debt was 725.
My score after I unloaded 25k of debt jumped by 32 points to 757.
So by decreasing my debt by 25%, I increased my FICO by 4.3%
Put it another way…
50% utilization on 100k of credit = 725
25% utilization on 100k of credit = 757
Note that my FICO hadn’t budged a single point despite paying the minimums on all the 50k of debt (e.g. $500/month to each account) over the past 3 months; it had been unchanged at 725.
My next experiment is to actually close down one of my 25k accounts and see how that impacts my FICO score. I’ll be reducing the total amount of available credit from 100k to about 75k without paying off the remaining 25k in debt.
In theory, my debt/credit ratio will go up but will my FICO go up or will it go down?
25% utilization on 100k will become 33% utilization on 75k after I close the account.
Anyone want to guess what will happen? Will I be rewarded for doing the “right” or “Dave Ramsey” thing and reducing my reliance on credit?
Tune in to find out!
April 23rd, 2007 at 2:37 am
Yikes! Wish my fico was that high! I used to have a 709…now I’m under 500! Oh well, I won’t be buying anything with credit anytime soon anyway.
It’s amazing how much fico seems to really lean on credit utilization in its scoring. A maxed out line can really kill your score and your post here just demonstrated that. wish I had never learned about the whole credit score thing! got me into quite a bit of trouble! (I have over 300K in debt now. yeah, lame)
April 23rd, 2007 at 6:37 am
Your score will probably take a slight hit. Maybe 10-15 points
To think your score will go up by dropping $25k in debt would be to assume that the score takes into account the total credit line. If it did, you would have taken a big hit when opening those lines.
I recently got a new credit card and went from 2 cards ($13000 - $2500 used, $10000- 0 used) to 3 cards (same + $7500 - o used) and my score went up. So, making th opposite move would decrease the score.
April 23rd, 2007 at 8:10 am
I think my credit score was about 767 BEFORE I started on any Arbitrage deals and dropped down to 725 after I did the second 25k.
I should add that I don’t have any car loans or any other debt other than one mortgage.
April 24th, 2007 at 8:43 pm
The increase is in line with what I have heard- with one of the biggest score increases coming when you go from 50% to under 30%.
The Closing The Card experiment has many more variables. For example, how old is the card? If it’s your oldest account, it might hurt more due to oldest age and average age,etc. The utilization increase is just one aspect and that should be around 33%. If >30% is significant, we might see that.
April 25th, 2007 at 12:20 pm
That’s a good question Greg. I think the account I closed was about 6 years old but I do have accounts that are 10+ old still open so the question becomes:
Does it matter if an older card is closed as long as it’s not the oldest card?
I’m eager to see what happens but it’ll take 30 to 45 days for it to show up.