The experts at Credit.com recently received this email from a reader who experienced several unpleasant — and confusing — credit surprises. Here, we help unravel the mystery of the closed credit account and the shrinking credit score:
My husband and I short sold a rental home about 18 months ago. We had an unpaid 2nd mortgage on the home which is reflecting on my credit report. Last month I checked my Equifax credit report. The 1st mortgage and the 2nd mortgage are both showing as negatives on report as expected. There is also an old credit card (Capital One) that was paid in full and always on time, but is reflecting as paid/closed under negative (not sure why). In addition, I have 10 accounts reflecting in good standing. My FICO score came back on that day as 699.
Then I decided to apply for a credit card for the sole purpose of raising my credit score and was denied. The next day I went to my credit union and opened a secured account successfully, but noticed according to them my score was now 645.
Today I received a letter from Home Depot Credit Card services that they were closing my account for the following reasons: SERIOUS DELINQUENCY, TOO FEW ACCTS CURRENTLY PAID AS AGREED, LACK OF RECENT INFO ON BANK REVOLVING ACCOUNTS, LACK OF RECENT INSTALLMENT LOAN INFO. I have not used this card in 2 years and my account with Home Depot was always in excellent standing (always paid on time/never late) so this definitely concerns me. I even paid the entire balance off before the year’s end to avoid the interest fees. They also stated my credit score was now 625.
Would you happen know why my score dropped so dramatically within a month (75 points) and why a creditor I was on good terms with would have suddenly closed my account? Do you know if this will affect my FICO score even more negatively?
[Related Article: The First Thing to Do Before Applying for a Credit Card]
As you’re probably aware, there are many different scores being used by lenders. So, unless you know for sure exactly which scoring model is being used, don’t put too much emphasis on the number of points up or down, but rather just make sure your credit report is accurate.
And speaking of accuracy, you may want to look further into why your Capital One card is being reported negatively by taking a closer look at your credit report or by contacting Capital One. If you’ve never been late, it shouldn’t be treated negatively by the scores. Simply being closed does not cause credit scores to treat an account negatively, although it may appear that way on a credit report.
Opening a new account will rarely raise your score, and is more likely to lower it. And though a credit denial doesn’t directly impact your score, the inquiry incurred from the application can lower the score by a few points.
Home Depot apparently did what many card issuers do, and that is lower your limit or close your account based on your credit score or certain recently added factors within your credit report. Fortunately, the closing of your account shouldn’t hurt your score, unless your overall utilization (total balance/limit on all cards) is high. Again, don’t spend too much time worrying about the score Home Depot quoted you, as it may not even have been calculated using the same scoring model as your mortgage lender or credit union.
What appears to be happening with your score(s) is that the late payments on the mortgages are causing the most serious damage, with your new secured card and some inquiries knocking a few more points off — at least in the short run. With on-time payments and by keeping the balance reported to the credit bureaus as low as possible on the new secured card and any other cards, you should regain any lost points within a few months. Also, while trying to raise your score, refrain from applying for any new credit or accepting any credit offers. I wish you much success in rebuilding your credit!
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