In neither of the below situations had either credit user been reckless or irresponsible. Neither had run up large balances and there were no late payments. The problem with each was that they simply hadn’t been using credit and had allowed open accounts to age-out from lack of use and be closed by the credit provider.
She Quit Using Credit
In December, my mortgage client’s co-signer’s FICO Scores were all over 830 and given that 850 is the ceiling, we call these great scores! In February, when my client was ready to set a closing, her co-signer had no reported FICO Scores. This means they had fallen below the mortgage score floor of 350.
His Credit Cards Expired
In the early Summer of 2013, my son-in-law began shopping for a home in their new town. His scores were all in the early 800s. By the time it came to schedule a closing in late Summer, his scores had all dropped into the 740 range. What happened? His unused credit lines were closed by the providers. The result was that his usage of available credit increased such that his scores dropped. Rather than having less than 20% of his available credit in use, he now had more than 45% of his available credit in use. He had not increased the amount of credit he was using. He lost open unused credit, which had a negative impact on his overall score as it appeared he was overusing credit.
“FICO has the primary scoring model for mortgages and most other lending decisions. Its model require an [creditor] update to a credit report within the last 6 months. Your credit file is usually updated monthly for active accounts…” Source.
What to Do?
The card issuers have models which track your usage or lack thereof. The credit provider also incurs ongoing costs such as credit reporting, accounting and audit controls. Be Aware: If you are not using the credit card every six months, or so, the creditor may simply close the account. If the account is not being reported, it cannot be scored. If nothing else, charge something you need to purchase regularly, perhaps a pair of socks. Pay the invoice when due and never pay interest.Financially Speaking™ James Spray, MLO, CNE, FICO Pro CO LMO 100008715 | NMLS 257365 | August 22, 2014 | May 14, 2018 Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.