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Bottom line on credit scores and how they are used - it is NOT a system that is a reward for us as consumers "doing the right thing". It is a system to determine level of risk for lenders/banks. They calculate that risk based on how well they think you'll handle borrowing money - which means that if you play the system and borrow money in a responsible way that your score will go higher. If you avoid even borrowing money that might be the best thing for you individually, but that doesn't tell lenders that you WOULD be good at handling borrowing money. Historically, people who aren't borrowing money at all and then borrow a lot at once don't manage it well - so that's why not using the system at all will net you a lower credit score since you're seen as higher risk than someone who has a long history of using the system responsibly.
For details on what all impacts your score check this out:
https://www.experian.com/blogs/ask-experian/credit-education/score-basics/what-affects-your-credit-scores/
The summary is payment history (on time vs late payments): 35%, utilization: 30%, length of history (important to keep your oldest account open): 15%, credit mix: 10%, new credit applications (inquiries): 10%.
Here's the post where I had tips on tracking scores, utilization, etc:
https://board.okayplayer.com/okp.php?az=show_topic&forum=4&topic_id=13408962&mesg_id=13408962&listing_type=search
Track your actual FICO credit scores. Almost all free credit score services (Credit Karma, Credit Sesame, most scores that come free with bank and credit card accounts) are not actual FICO scores, and use different scoring like VantageScore. They are fine for following trends as you work on your credit, but if you’re about to make a major purchase like a home, a car, or a refinance, you need to know your actual score.
You can track your actual FICO score for free from Experian. They will also let you track your FICO scores from Transunion and Equifax but you have to pay for that. MyFICO will let you track all three as well, if you pay for it. You don’t need a subscription - if making a major purchase it’s worth it to pay $20 to know what your actual scores are.
Notice I said scores in plural - it isn’t just the 3 bureaus that have separate scores. There are many different versions of each. FICO 8, FICO 9, FICO 2, and all the industry specific versions - separate FICO scores used by mortgage companies, for auto loans, for credit cards, etc. The paid versions of MyFICO and Experian will let you track all these different versions. If making a major purchase you can research which version that company will use. For example most mortgage companies will use the FICO mortgage score 5, and they will typically pull all 3 bureaus and use your middle score of those 3. Auto financing companies and credit card companies will typically pull the industry specific FICO score from one bureau. So for. Example when buying a Toyota and financing from Toyota Financial Services you might research and find out they use the Transunion FICO Auto Score 8.
Again - it is absolutely worth it to pay MyFICO or Experian for your actual scores when making a major purchase. It WILL save you money.
In addition to this the biggest tip I’ll give on boosting your credit score is using credit card utilization to your advantage. Utilization makes up 30% of your FICO score - second only to payment history which is 35%. But with utilization it’s calculated every month - so if you have credit card accounts and pay them off before the statement date to get your utilization down to zero it will boost your score. (Insert disclaimer about only using credit cards if you a responsible enough to pay them and to not carry a balance.) Even if you are currently paying them off every month, if you pay after the statement date, before the due date, the statement balance counts against your utilization. So for example if you have one credit card with a 1000 dollar limit, and the due date is the 1st of the month, the statement date might be a couple weeks before that. If you charge $500 on your card, and pay it on the 25th, before the due date, you are paying after the statement date and you utilization is at 50% which is not good for your credit score. If you paid it off on the 14th before the statement date, your utilization would be zero percent.
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Also from that post, a common question is "why did my score drop when I paid off xyz????"...this was PimpTrickGangstaClik's answer which is absolutely correct:
Credit score is determined by different components...
Each component has different weights: https://www.myfico.com/credit-education/whats-in-your-credit-score
So when you paid off your student loans, two components in the score were probably negatively affected: length of history and credit type mix.
It's likely that the student loan was one of your longest running accounts. So paying that off could bring the average age of your existing accounts way.
And if the student loan was your only no-credit card type of debt, then your score will be negatively affected after paying it off since you no longer have installment loans on your history.
It's a dumb system, but that's just the way it is. But I wouldn't worry about it unless you have immediate plans to get new credit (car loan, mortgage). You score will eventually go back up if you keep doing the right things.
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