Found out paying more than the minimum can actually lower your score temporarily

I was looking at my FICO report last week and noticed my score dropped 15 points even though I paid $500 extra on my credit card. Turns out there's a thing called 'credit utilization reset' that happens when you pay down a big balance fast. I found this explained on the myFICO forums by a guy who breaks down the scoring algorithms. Basically if you zero out a card completely it can make it look like you have no recent activity. He said keeping a small balance like 1-3% is actually better for your score. Has anyone else seen a temporary dip after paying off a card all the way?

2 comments

2 Comments

lee.lucas1d ago

I read through that same myFICO thread and I'm not totally convinced by his argument. I've paid off cards in full for years and my score sits around 810, so the temporary dip never really mattered in the long run.

thea2461d ago

Ugh right because the system that's supposed to reward you for paying stuff off actually punishes you for being too responsible. Classic catch-22. Maybe I should just start carrying around a $5 balance like a lucky charm or something.