Paid off Debt...credit score dropping and future mortgage

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zig25
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Paid off Debt...credit score dropping and future mortgage

Post by zig25 » Wed Sep 27, 2017 3:17 pm

I haven't posted in a little while and wanted to check in with something my wife and I have been pondering. Back in July we finished paying off all of our outstanding debt (student loans) so we are now completely debt free. We have saved up 6 months of my net income for an emergency fund (she is going to be a stay at home mom come February). We have stopped contributing to the Roth IRA in order to pay off the debt and save up for a down payment on a home, we currently rent from family. We plan to have at least a 10% down-payment by spring time in order to buy our first home. I use the credit karma monitoring and since we don't have any more open lines of Vantage Score has dropped to over 20 points since August. My worry is that it will keep going down and by the time we go to apply for a mortgage in the spring we will have abysmal credit and have a hard time getting a loan. Even though I really don't want to we have thought about getting a credit card and using it for groceries and gas and paying it off at the end of the month in order to have some active credit. Would this be a helpful idea?

I appreciate any advice or insight anyone may have regarding this.

livesoft
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Re: Paid off Debt...credit score dropping and future mortgage

Post by livesoft » Wed Sep 27, 2017 3:28 pm

You are truly worried about nothing.

One should have credit cards that provide rewards, especially cash-back rewards. Use them and pay them off in full every month. Your credit score will drop if you get new cards, but so what?
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flamesabers
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Re: Paid off Debt...credit score dropping and future mortgage

Post by flamesabers » Wed Sep 27, 2017 3:38 pm

Not all lenders use the Vantage Score system, so this drop may or may not impact your ability to get a mortgage. In any case, I think it's normal for your credit score to drop when you pay off a loan or mortgage. How significant this drop is depends on how good your credit score is. If you already have excellent credit, a 20 point drop won't be a major loss for you then if you're borderline between good and average credit.

I do think getting a credit card is a good idea, especially when you don't have any open lines of credit. It's a good opportunity to get some rewards and it'll keep your credit report active with financial transactions. Be aware though that getting a new credit card can temporarily decrease your credit score due to the lowering of your average age of accounts and the new hard inquiry on your credit report. Also, even when you pay your balance every month be careful about using too much of your credit limit at any one time, as this can be a red flag to creditors.

zig25
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Re: Paid off Debt...credit score dropping and future mortgage

Post by zig25 » Wed Sep 27, 2017 4:05 pm

Thanks for the replies.

If we were to get a card we would be focusing on one with the cash back rewards, creditkarma has approval odds for certain suggested cards. The only credit card I have ever had was with a jeweler and they closed it on me due to inactivity. The last time we inquired about getting a mortage and a lender did a credit check I believe we both had a score of low to mid 700s (probably 8 months to a year ago). Credit Karma says that our score now is 650, which as one of you noted not all lenders use the Vantage Score system so this may or may not be significant.

Maybe I am worried about nothing as Livesoft has said. If we try to get a decent card now that hard inquiry 8 months from now probably won't be very significant. I didn't know that using too much of your balance can throw up a "red" flag either, thanks for that.

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Re: Paid off Debt...credit score dropping and future mortgage

Post by Meg77 » Wed Sep 27, 2017 4:14 pm

I'm a banker, and I think you are right to be concerned. Typically once you close all your credit accounts, your score will begin to drop after about 6 months and then it will really nosedive all the way to zero over the course of the next year or so. Reports vary and we don't know the exact algorithm, but usually between 9-18 months after closing the last account, your score will disappear.

Lots of people, notably Dave Ramsey followers, relish and aim for a zero credit score. But if you're planning to apply for credit it can cause a lot of problems, PARTICULARLY in your situation where your score may not quite be zero but may have dropped into the low 600s or 500s by next spring. Many lenders can do manual underwriting and get you approved even with no credit score (if you have a very stable job and good savings, etc), but if you have a BAD credit score you may be out of luck. And those lenders usually charge higher rates/fees on average.

If I were you I would DEFINITELY open a credit card to keep your credit history going at least until you get the mortgage. You can always close the card then if you don't want to keep it. Make sure your spouse is on the card too and that it's being reported on her credit report (or get her her own) if she's going to be on the loan too. Some lenders take the average score or even the worse of the two borrowers' scores to determine the interest rate.
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livesoft
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Re: Paid off Debt...credit score dropping and future mortgage

Post by livesoft » Wed Sep 27, 2017 4:24 pm

Vantage score is reportedly weighted to help credit card issuers decide whether to give you a credit card or not. I personally would not try to get a mortgage without having had 3 credit cards with history going back 3 years or more. I will put this bluntly: Why buy a house unless you have saved for a down payment for more than 3 years and used credit cards during that time?

So for someone who has not had credit cards, I don't how a Vantage score or even a FICO 8 score which are all scores one can get for free would apply to getting a mortgage loan. OTOH, what you do with your credit and loans now will not have much affect on your scores and the ability to get a mortgage nor the interest you would be offered. All that is water under the bridge and you are stuck with what you have for a few years. So if you are going to get a mortgage, what you do will not matter in the near term.
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Re: Paid off Debt...credit score dropping and future mortgage

Post by testing321 » Wed Sep 27, 2017 4:48 pm

livesoft wrote:
Wed Sep 27, 2017 3:28 pm
One should have credit cards that provide rewards, especially cash-back rewards. Use them and pay them off in full every month. Your credit score will drop if you get new cards, but so what?
I agree with this.

Good cash back cards are Discover and Chase Freedom (5% on categories that change each quarter, Amazon and Target next quarter for Discover, Walmart and department stores for Chase),
Amex cash blue (grocery 3% gas 2%),
BoA cash rewards (2% grocery and Sam's, 3% gas),
Target card if you shop there often (5% at Target)
Amazon card (5% at Amazon)
Sam's Plus (5% gas, 3% travel)
Lowes card if you shop there often (5% at Lowes) and
Fidelity card if you invest there (2% on everything).

None of these cards have an annual fee and I got several hundred dollars signup bonus for some of these. There are also some cards with an annual fee that will be cost effective in some circumstances. My electric utility does not have a convenience fee, so I get 2% cash back from fido. It all adds up.

zig25
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Re: Paid off Debt...credit score dropping and future mortgage

Post by zig25 » Wed Sep 27, 2017 6:41 pm

Thanks for the list of cards. I will check them out and figure out which one to apply for and be sure to put both of our names on the card if we decide to get one. I do understand that some places do manual underwriting and we could theoretically get mortgage even if our scores are low or zero (if we open no credit card), I did follow Dave Ramsey plan for the most part to get debt free and I know he talks about church-hill mortgage. We would most likely be looking at a maximum house cost of 110K (once my wife does not work, we will make 50K per year pre tax etc).

I understand that the banks uses these numbers to determine how good of a borrower you are and all but it is just upsetting. We paid off 75k in loans in under two years to get them off our backs and now I have to turn around and possibly jump through hoops to try and get a mortgage due to having a low score that does not reflect our ability to manage money. It is seemly designed to keep people in a cycle of debt.

Anyone have any experience with the Barclaycard CashForward?

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Re: Paid off Debt...credit score dropping and future mortgage

Post by rotorhead » Wed Sep 27, 2017 7:21 pm

OP, don't obsess over paying cash for everything. Get a no fee credit card, put both your names on it; and do your normal spending each month using the card(s). Pay the bill in full when it comes each month. Watch your credit score go up.

What could be simpler?!

I've been using credit cards for more than 50 years (currently have 3), and never carried a balance on any of them. The scale doesn't go high enough to measure my credit rating.

zig25
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Re: Paid off Debt...credit score dropping and future mortgage

Post by zig25 » Wed Sep 27, 2017 7:36 pm

rotorhead wrote:
Wed Sep 27, 2017 7:21 pm
OP, don't obsess over paying cash for everything. Get a no fee credit card, put both your names on it; and do your normal spending each month using the card(s). Pay the bill in full when it comes each month. Watch your credit score go up.

What could be simpler?!

I've been using credit cards for more than 50 years (currently have 3), and never carried a balance on any of them. The scale doesn't go high enough to measure my credit rating.
Thanks for being so blunt lol. Applied for a Chase Freedom Unlimited just now, with spouse as an authorized user.

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Re: Paid off Debt...credit score dropping and future mortgage

Post by rotorhead » Thu Sep 28, 2017 9:27 am

Great! Glad to hear. That's a good card. Judicious use of credit can actually make one's life much easier, and enjoyable.
My wife & I put every $ we spend on our card(s). I post the expenditure on our excel monthly spending spreadsheet, & save the receipts until the monthly credit card statement arrives.
Then I reconcile the receipts to the statement, & shred the receipts. Pay the card statement balance couple of days before due date. For sometime now have been doing this via EFT. Works like a charm.
At end of month transfer the spreadsheet totals to our annual spending summary. Sounds like a lot, but in reality only takes a few minutes. At any time we have good picture of our spending. At year end it's all there.
Enjoy life.

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Re: Paid off Debt...credit score dropping and future mortgage

Post by hightower » Thu Sep 28, 2017 9:34 am

rotorhead wrote:
Wed Sep 27, 2017 7:21 pm
OP, don't obsess over paying cash for everything. Get a no fee credit card, put both your names on it; and do your normal spending each month using the card(s). Pay the bill in full when it comes each month. Watch your credit score go up.

What could be simpler?!

I've been using credit cards for more than 50 years (currently have 3), and never carried a balance on any of them. The scale doesn't go high enough to measure my credit rating.
Yep, that's what we do. We get tons of rewards point every year. Our credit cards function like our checking account. We pay for virtually everything on credit cards. I pay off our card balances in full every time I get paid. It's also great because it's easy to keep track of what you're spending money on. You won't have problems with your credit score if you use cards that way.
However, I will say, congrats for paying off all your debt. A falling credit score because you are debt free is actually a GREAT problem to have. That puts you in a class of people that is very rare in the US. I would save up a big down payment for a house if I were you and take out only a minimal mortgage and plan on paying it off early with a 15 year loan. You won't have a problem getting a good rate on a 15 loan with a big enough down payment and a decent credit score (in the 700's is fine).

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Re: Paid off Debt...credit score dropping and future mortgage

Post by chevca » Thu Sep 28, 2017 9:37 am

Meg77 wrote:
Wed Sep 27, 2017 4:14 pm
I'm a banker, and I think you are right to be concerned. Typically once you close all your credit accounts, your score will begin to drop after about 6 months and then it will really nosedive all the way to zero over the course of the next year or so. Reports vary and we don't know the exact algorithm, but usually between 9-18 months after closing the last account, your score will disappear.
Do credit scores really just disappear? I didn't know that happened.

That's odd. So, even if someone had a great credit history for 20 years or whatever... if they paid everything off and went to all cash/debit, their score would go from 800 to 0?

Man, what a goofy system the credit score thing is, IMO.

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Re: Paid off Debt...credit score dropping and future mortgage

Post by djpeteski » Thu Sep 28, 2017 9:39 am

In my case, I paid off all my debt, including my mortgage.

I do keep a credit card for rewards, but have closed all other accounts. There were short term drops, but as of right now I have the highest credit score of my life.

Ironic as I no longer need or want credit.

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Re: Paid off Debt...credit score dropping and future mortgage

Post by eleighj » Thu Sep 28, 2017 9:48 am

We paid off our house over 20 years ago and have had no consumer debt such as car payments etc for over 30 years. We have 3 credit cards which are paid off promptly. Our credit score is +/- 800. As to your future house purchase, I would recommend saving enough cash for a 20% down payment and take a 15 year mortgage.

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Re: Paid off Debt...credit score dropping and future mortgage

Post by jhfenton » Thu Sep 28, 2017 9:56 am

chevca wrote:
Thu Sep 28, 2017 9:37 am
Meg77 wrote:
Wed Sep 27, 2017 4:14 pm
I'm a banker, and I think you are right to be concerned. Typically once you close all your credit accounts, your score will begin to drop after about 6 months and then it will really nosedive all the way to zero over the course of the next year or so. Reports vary and we don't know the exact algorithm, but usually between 9-18 months after closing the last account, your score will disappear.
Do credit scores really just disappear? I didn't know that happened.

That's odd. So, even if someone had a great credit history for 20 years or whatever... if they paid everything off and went to all cash/debit, their score would go from 800 to 0?

Man, what a goofy system the credit score thing is, IMO.
That is a new concept for me too. It's odd.

I'll just join the chorus of Bogleheads who put almost every dime on rewards cards. I hardly ever carry cash. I don't carry my debit card. We have three rewards cards (MC, Visa, Amex), and put everything we can on there. Even our water bill gets put on a CC. But we haven't paid a penny of interest to a credit card since our early 20's (more than 20 years).

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Re: Paid off Debt...credit score dropping and future mortgage

Post by zig25 » Thu Sep 28, 2017 10:04 am

rotorhead wrote:
Thu Sep 28, 2017 9:27 am
Great! Glad to hear. That's a good card. Judicious use of credit can actually make one's life much easier, and enjoyable.
My wife & I put every $ we spend on our card(s). I post the expenditure on our excel monthly spending spreadsheet, & save the receipts until the monthly credit card statement arrives.
Then I reconcile the receipts to the statement, & shred the receipts. Pay the card statement balance couple of days before due date. For sometime now have been doing this via EFT. Works like a charm.
At end of month transfer the spreadsheet totals to our annual spending summary. Sounds like a lot, but in reality only takes a few minutes. At any time we have good picture of our spending. At year end it's all there.
Enjoy life.
This year my wife and I have started tracking expenses in excel in different categories like Gas, Grocery, Medical, Recreational Etc...it really does provide great feedback on what we spend. I also have line graphs of the spending which makes it easy to see which months we have a tendency to spend more. We will most likely set up a direct payment straight from our credit union checking to the Chase card because It will be paid in full each month.

zig25
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Re: Paid off Debt...credit score dropping and future mortgage

Post by zig25 » Thu Sep 28, 2017 10:08 am

chevca wrote:
Thu Sep 28, 2017 9:37 am
Meg77 wrote:
Wed Sep 27, 2017 4:14 pm
I'm a banker, and I think you are right to be concerned. Typically once you close all your credit accounts, your score will begin to drop after about 6 months and then it will really nosedive all the way to zero over the course of the next year or so. Reports vary and we don't know the exact algorithm, but usually between 9-18 months after closing the last account, your score will disappear.
Do credit scores really just disappear? I didn't know that happened.

That's odd. So, even if someone had a great credit history for 20 years or whatever... if they paid everything off and went to all cash/debit, their score would go from 800 to 0?

Man, what a goofy system the credit score thing is, IMO.
I completely agree.

zig25
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Re: Paid off Debt...credit score dropping and future mortgage

Post by zig25 » Thu Sep 28, 2017 10:15 am

Seems the consensus is a 20% down payment and 15 year mortgage. That would be our ultimate goal and that was our goal until we found our we were pregnant and my wife will be staying home. We could have saved that in year. Our living situation is unique in that we are extremely close to family (which is good and bad at times) and are wanting our own space (we could rent for a few years but my wife is not receptive to it currently.)

As far as the chase card. I was approved for a 4K limit. Would it help or hurt me to use it for a while and then request a higher limit to shrink the utilization ratio?

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Re: Paid off Debt...credit score dropping and future mortgage

Post by flamesabers » Thu Sep 28, 2017 10:20 am

chevca wrote:
Thu Sep 28, 2017 9:37 am
Meg77 wrote:
Wed Sep 27, 2017 4:14 pm
I'm a banker, and I think you are right to be concerned. Typically once you close all your credit accounts, your score will begin to drop after about 6 months and then it will really nosedive all the way to zero over the course of the next year or so. Reports vary and we don't know the exact algorithm, but usually between 9-18 months after closing the last account, your score will disappear.
Do credit scores really just disappear? I didn't know that happened.

That's odd. So, even if someone had a great credit history for 20 years or whatever... if they paid everything off and went to all cash/debit, their score would go from 800 to 0?

Man, what a goofy system the credit score thing is, IMO.
I wasn't aware of this either but it makes sense. Having large gaps in other areas such as employment, renting history or insurance coverage also tends to be unfavorable. It reminds me of the saying "if you don't use it, you lose it."

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Re: Paid off Debt...credit score dropping and future mortgage

Post by Dottie57 » Thu Sep 28, 2017 10:25 am

rotorhead wrote:
Wed Sep 27, 2017 7:21 pm
OP, don't obsess over paying cash for everything. Get a no fee credit card, put both your names on it; and do your normal spending each month using the card(s). Pay the bill in full when it comes each month. Watch your credit score go up.

What could be simpler?!

I've been using credit cards for more than 50 years (currently have 3), and never carried a balance on any of them. The scale doesn't go high enough to measure my credit rating.

I have 2 cards. One is for internet purchasing - I receive an email when purchasing online.
The second is a cashback card from fidelity.

I,like to keep a minimum of cards.

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Re: Paid off Debt...credit score dropping and future mortgage

Post by Meg77 » Thu Sep 28, 2017 1:53 pm

jhfenton wrote:
Thu Sep 28, 2017 9:56 am
chevca wrote:
Thu Sep 28, 2017 9:37 am
Meg77 wrote:
Wed Sep 27, 2017 4:14 pm
I'm a banker, and I think you are right to be concerned. Typically once you close all your credit accounts, your score will begin to drop after about 6 months and then it will really nosedive all the way to zero over the course of the next year or so. Reports vary and we don't know the exact algorithm, but usually between 9-18 months after closing the last account, your score will disappear.
Do credit scores really just disappear? I didn't know that happened.

That's odd. So, even if someone had a great credit history for 20 years or whatever... if they paid everything off and went to all cash/debit, their score would go from 800 to 0?

Man, what a goofy system the credit score thing is, IMO.
That is a new concept for me too. It's odd.

I'll just join the chorus of Bogleheads who put almost every dime on rewards cards. I hardly ever carry cash. I don't carry my debit card. We have three rewards cards (MC, Visa, Amex), and put everything we can on there. Even our water bill gets put on a CC. But we haven't paid a penny of interest to a credit card since our early 20's (more than 20 years).
Yep, it's very odd but definitely true. Technically I am not sure if it goes to "0" but it disappears; any credit inquiry will come back "no records found" or "no score" much like a young person's will if they have never borrowed in the first place. This is because records don't stay on your report forever - which helps people who may have blemishes in their payment history during youth or a bad period of course.

My own father was shocked recently when he was turned down for a car loan due to having such a low score on one report and no score at all on another. He didn't have his check book with him when he finally decided to buy a car he'd been eyeing and figured he'd finance it for a month or two. But no dice. He hasn't had a loan for years and only has one business Amex he uses occasionally. Doesn't matter that he has plenty of money and could buy that car dealer if he wanted to.

There is some talk in the industry about adding things like utilities or even rent payments to credit reports in order to give people the opportunity to build/maintain a credit history without borrowing. But tracking that kind of thing would be a massive undertaking to say the least, and would require hundreds more companies and landlords to opt to report to the credit bureaus every month. Unlikely now given the recent headlines...
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Re: Paid off Debt...credit score dropping and future mortgage

Post by flamesabers » Thu Sep 28, 2017 2:13 pm

Meg77 wrote:
Thu Sep 28, 2017 1:53 pm
Yep, it's very odd but definitely true. Technically I am not sure if it goes to "0" but it disappears; any credit inquiry will come back "no records found" or "no score" much like a young person's will if they have never borrowed in the first place. This is because records don't stay on your report forever - which helps people who may have blemishes in their payment history during youth or a bad period of course.

My own father was shocked recently when he was turned down for a car loan due to having such a low score on one report and no score at all on another. He didn't have his check book with him when he finally decided to buy a car he'd been eyeing and figured he'd finance it for a month or two. But no dice. He hasn't had a loan for years and only has one business Amex he uses occasionally. Doesn't matter that he has plenty of money and could buy that car dealer if he wanted to.

There is some talk in the industry about adding things like utilities or even rent payments to credit reports in order to give people the opportunity to build/maintain a credit history without borrowing. But tracking that kind of thing would be a massive undertaking to say the least, and would require hundreds more companies and landlords to opt to report to the credit bureaus every month. Unlikely now given the recent headlines...
I wonder now if this has happened to my mom's credit report. She doesn't have any outstanding debt, (car loan and mortgage were paid off years ago) she had a Target visa credit card but closed it after the Target breach. She has several different store cards, but none of them are co-branded so I'm doubtful any of them are listed on her credit report. She doesn't have any foreseeable need for a credit card or any other form of debt, but if she did, what would your recommendations be if she finds out she has no records or no score? Is it any different from young college students building up their credit report for the first time?

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Re: Paid off Debt...credit score dropping and future mortgage

Post by Earl Lemongrab » Thu Sep 28, 2017 3:47 pm

Technically, you can't have a FICO score of 0. The lowest possible score is 300. It's tough to get much below 600 because at that point it's difficult to get any new credit. It is possible that they can't determine a score because you don't have any qualifying items on your report (or no report).

It's important to remember what the FICO score is. It's a measure of how you handle credit. Not having credit isn't a sign that you can handle it well. You don't demonstrate your ability to drive safely by selling your car. It's true that you aren't likely to get a ticket or cause an accident, but that doesn't mean you're a safe driver. FICO wants to see that you can get credit, make payments on time, not run your balances up (debt to credit ratio), and do it on a continuing basis for a long time.

FICO doesn't know or care what job you have or how much money, investments, or other assets you have. None of that is on your credit report. And none of it shows how well you handle credit.
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Re: Paid off Debt...credit score dropping and future mortgage

Post by Meg77 » Thu Sep 28, 2017 4:15 pm

flamesabers wrote:
Thu Sep 28, 2017 2:13 pm
Meg77 wrote:
Thu Sep 28, 2017 1:53 pm
Yep, it's very odd but definitely true. Technically I am not sure if it goes to "0" but it disappears; any credit inquiry will come back "no records found" or "no score" much like a young person's will if they have never borrowed in the first place. This is because records don't stay on your report forever - which helps people who may have blemishes in their payment history during youth or a bad period of course.

My own father was shocked recently when he was turned down for a car loan due to having such a low score on one report and no score at all on another. He didn't have his check book with him when he finally decided to buy a car he'd been eyeing and figured he'd finance it for a month or two. But no dice. He hasn't had a loan for years and only has one business Amex he uses occasionally. Doesn't matter that he has plenty of money and could buy that car dealer if he wanted to.

There is some talk in the industry about adding things like utilities or even rent payments to credit reports in order to give people the opportunity to build/maintain a credit history without borrowing. But tracking that kind of thing would be a massive undertaking to say the least, and would require hundreds more companies and landlords to opt to report to the credit bureaus every month. Unlikely now given the recent headlines...
I wonder now if this has happened to my mom's credit report. She doesn't have any outstanding debt, (car loan and mortgage were paid off years ago) she had a Target visa credit card but closed it after the Target breach. She has several different store cards, but none of them are co-branded so I'm doubtful any of them are listed on her credit report. She doesn't have any foreseeable need for a credit card or any other form of debt, but if she did, what would your recommendations be if she finds out she has no records or no score? Is it any different from young college students building up their credit report for the first time?
The advice for rebuilding credit wouldn't be any different from building it initially, but I will say that most store branded credit cards are reported to the bureaus, so she probably still has an active score. It's easy to check online at creditkarma.com (totally free) or annualcreditreport.com (small fee to see the score but you can get reports free).
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Re: Paid off Debt...credit score dropping and future mortgage

Post by prudent » Thu Sep 28, 2017 5:14 pm

Meg77 wrote:
Wed Sep 27, 2017 4:14 pm
I'm a banker, and I think you are right to be concerned. Typically once you close all your credit accounts, your score will begin to drop after about 6 months and then it will really nosedive all the way to zero over the course of the next year or so. Reports vary and we don't know the exact algorithm, but usually between 9-18 months after closing the last account, your score will disappear.

Lots of people, notably Dave Ramsey followers, relish and aim for a zero credit score. But if you're planning to apply for credit it can cause a lot of problems, PARTICULARLY in your situation where your score may not quite be zero but may have dropped into the low 600s or 500s by next spring. Many lenders can do manual underwriting and get you approved even with no credit score (if you have a very stable job and good savings, etc), but if you have a BAD credit score you may be out of luck. And those lenders usually charge higher rates/fees on average.

If I were you I would DEFINITELY open a credit card to keep your credit history going at least until you get the mortgage. You can always close the card then if you don't want to keep it. Make sure your spouse is on the card too and that it's being reported on her credit report (or get her her own) if she's going to be on the loan too. Some lenders take the average score or even the worse of the two borrowers' scores to determine the interest rate.
Meg77, could you clarify about scores dropping to zero? Is that a literal zero?

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Re: Paid off Debt...credit score dropping and future mortgage

Post by Earl Lemongrab » Thu Sep 28, 2017 5:22 pm

prudent wrote:
Thu Sep 28, 2017 5:14 pm
Meg77, could you clarify about scores dropping to zero? Is that a literal zero?
It can't be, as there is a minimum. It can be "no score". Just like I didn't get a 0 on the SATs, as that's not possible because there's a minimum score. I didn't take that test so I have no SAT score. If your credit report or lack thereof doesn't support computing a score, FICO will say that you have no score.
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eleighj
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Re: Paid off Debt...credit score dropping and future mortgage

Post by eleighj » Thu Sep 28, 2017 6:54 pm

Earl Lemongrab wrote:
Thu Sep 28, 2017 5:22 pm
prudent wrote:
Thu Sep 28, 2017 5:14 pm
Meg77, could you clarify about scores dropping to zero? Is that a literal zero?
It can't be, as there is a minimum. It can be "no score". Just like I didn't get a 0 on the SATs, as that's not possible because there's a minimum score. I didn't take that test so I have no SAT score. If your credit report or lack thereof doesn't support computing a score, FICO will say that you have no score.

Both FICO and Vantage Score have a score range from 300 to 850. I can not see how how the poster got to zero!
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sco
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Re: Paid off Debt...credit score dropping and future mortgage

Post by sco » Fri Sep 29, 2017 12:20 am

Really though, at the point where your credit score drops because you have no credit (again) who cares?

takeshi
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Re: Paid off Debt...credit score dropping and future mortgage

Post by takeshi » Fri Sep 29, 2017 7:25 am

It is possible to end up with no score. FICO requires at least 6 months reported on a recently active account to generate a score. Scoring range of FICO models is not relevant to this.
http://www.myfico.com/crediteducation/q ... score.aspx
zig25 wrote:
Wed Sep 27, 2017 3:17 pm
I use the credit karma monitoring and since we don't have any more open lines of Vantage Score has dropped to over 20 points since August. My worry is that it will keep going down and by the time we go to apply for a mortgage in the spring we will have abysmal credit and have a hard time getting a loan. Even though I really don't want to we have thought about getting a credit card and using it for groceries and gas and paying it off at the end of the month in order to have some active credit. Would this be a helpful idea?
Credit Karma can be a handy tool for general credit monitoring but, as mentioned above, mortgage lenders don't use the VantageScores that Credit Karma provides. That said, you do want at least one active account on your reports though, IIRC, ideal is 3 or more though it is possible to have good scores with less. If you don't have any active accounts after paying off your student loans it would certainly help to have at least one active credit card. You don't have to incur debt to build/maintain credit with credit cards. Pay every statement balance in full and you won't incur debt or accrue interest.

Also, it's normal to see a drop in scores when you pay off your last active installment (student loan, auto loan, mortgage, etc).

To see where you potentially stand with mortgage lenders you'll want to pull the FICO models used for mortgages and AFAIK you'll need to get those from myFICO. There may be some creditors that offer a relevant FICO model free to their customers but at best you'd get one model based on one CRA and you want to see where stand with all 3 of the major CRA's which myFICO will provide.
zig25 wrote:
Wed Sep 27, 2017 4:05 pm
If we were to get a card we would be focusing on one with the cash back rewards, creditkarma has approval odds for certain suggested cards.
Be careful relying on those. Again, most credit decisioning isn't based on the VantageScores provided by CK. CK doesn't know the specific underwriting criteria for the different credit products out there. Additionally they generate income from the referral links to products they suggest.
zig25 wrote:
Wed Sep 27, 2017 4:05 pm
The only credit card I have ever had was with a jeweler and they closed it on me due to inactivity. The last time we inquired about getting a mortage Maybe I am worried about nothing as Livesoft has said. If we try to get a decent card now that hard inquiry 8 months from now probably won't be very significant. I didn't know that using too much of your balance can throw up a "red" flag either, thanks for that.
All these factors are taken into consideration with roughly this sort of weighting:
http://www.myfico.com/credit-education/ ... dit-score/

Credit Karma has similar information on its site. After logging in, click on "View score details" and you'll see what they indicate as the impact level for the different factors. CK refer to this as "Credit card use" with "High Impact". For FICO this falls under "Amounts Owed" at 30% which is second only to "Payment History".

Impact of everything 8 months down the road isn't something I can accurately predict for you but it sounds like you have a thin (few accounts) credit profile and such profiles tend to be more volatile and will see bigger impact from hits to Average Age of Accounts, having new accounts report,m hard inquiries, etc. That said, those impacts from opening a new credit card are preferable to having no score if you're going to be seeking a mortgage. Ideally you'd want to be doing this at least a year out but 8 months still gives you some time to recover.
eleighj wrote:
Thu Sep 28, 2017 6:54 pm
Both FICO and Vantage Score have a score range from 300 to 850.
FICO has many models and they do not all have a range of 300 to 850. VantageScore doesn't have just one model either. Older models had a different range.
sco wrote:
Fri Sep 29, 2017 12:20 am
Really though, at the point where your credit score drops because you have no credit (again) who cares?
Those who intend to apply for credit care. Don't just assume that everyone in a given situation is identical. Some intentionally end up with no active accounts. Others do not end up that way by intent.

SimonJester
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Re: Paid off Debt...credit score dropping and future mortgage

Post by SimonJester » Fri Sep 29, 2017 8:39 am

Earl Lemongrab wrote:
Thu Sep 28, 2017 5:22 pm
prudent wrote:
Thu Sep 28, 2017 5:14 pm
Meg77, could you clarify about scores dropping to zero? Is that a literal zero?
It can't be, as there is a minimum. It can be "no score". Just like I didn't get a 0 on the SATs, as that's not possible because there's a minimum score. I didn't take that test so I have no SAT score. If your credit report or lack thereof doesn't support computing a score, FICO will say that you have no score.
This is correct I have experienced this. Basically you have "no calculable score". It took 12 to 18 months after closing the last credit line to hit this point. However it only took 3 months with a new credit line for my score to show back up...
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magicj
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Re: Paid off Debt...credit score dropping and future mortgage

Post by magicj » Fri Sep 29, 2017 8:43 am

We were just in the same boat. I know I’m probably repeating what the others say, but get a credit card and use it very sparingly. We use the card only for gas.
We are building a new home, and when they checked our credit it was 700+ vs the 640-660 that credit karma listed.

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Meg77
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Re: Paid off Debt...credit score dropping and future mortgage

Post by Meg77 » Fri Sep 29, 2017 1:18 pm

Earl Lemongrab wrote:
Thu Sep 28, 2017 5:22 pm
prudent wrote:
Thu Sep 28, 2017 5:14 pm
Meg77, could you clarify about scores dropping to zero? Is that a literal zero?
It can't be, as there is a minimum. It can be "no score". Just like I didn't get a 0 on the SATs, as that's not possible because there's a minimum score. I didn't take that test so I have no SAT score. If your credit report or lack thereof doesn't support computing a score, FICO will say that you have no score.
The above is correct. It doesn't literally go to "0" (Or "13" or "92") because there is some minimum score which I believe varies from bureau to bureau but is around 300. But it will go to "zero" in the sense that many people have no credit score. If an inquiry is submitted the report will come back with "insufficient data" or "undetermined" or something to that effect. Same for non US citizens who recently immigrated, for young people who have never borrowed, and for those who closed all their accounts at some point and eventually get back to the point of having no history.
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Re: Paid off Debt...credit score dropping and future mortgage

Post by radiowave » Fri Sep 29, 2017 1:41 pm

If you have 2-3 rewards credit cards and use them like debit cards, and pay them off at least monthly if not more often, that will help maintain a healthy credit score. Most major banks, e.g. BoA, Chase, Wells Fargo, etc. have both rewards cards as well as eBilling. So you could, for example, set up automatic balance payments each month. Just keep an eye on your balance to avoid fees. I've been paying my main card several times each month and seems to have increased my FICO scores over time. Also, increasing your credit limits and paying off frequently improves your overall score by keeping your $ in credit as a percent of your total credit line as low as possible.
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zig25
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Re: Paid off Debt...credit score dropping and future mortgage

Post by zig25 » Mon Oct 02, 2017 9:40 pm

Thank you all for the help regarding this matter. Just waiting on the card to come in the mail.

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