Help! Paid down debt by 10k and my credit dropped?

Question

Hi everyone, bran new here and to real estate investing. Last month i took the little money I had (10k) and used it to pay down my high interest credit card debt. Thinking this needed to be done prior to my real estate investing career and in hopes it would help me get better interest rate once I start the pre approval process.

I had about 20k in credit debt I paid 10k and did a balance transfer to 2 zero APR cards for 5k each which gave 12-15 months zero APR. Ive been waiting for this to be reported to the credit agency and when I looked today TransUnion had me up 80 points but Equifax has me down 72 points! My utilization is under 20% I don't understand? Did I hurt myself because while I brought my overall utilization from 36% down to under 20% those 2 cards are "maxed out" ? Will this hurt me when I go apply for a conventional loan? I currently own a condo but I'm interested in getting a multi family home to house hack. B

Are there any lenders that can clarify this for me?

Thank you

Lynnette E. · Answer

They consider how long you have had the credit cards and the percent of the available credit that is used. So that is what brought your score down. No problem, as you pay off the cards your percent credit used will go down and the cards will be older. Also keep those old cards that you no longer owe on as they will add to your score....old cards with 100% of the available $ available!

Timmi Ryerson · Answer

I have just been through this with credit on my husband's cards. Your score went down because you opened two new cards and that basically increases the amount of credit open to you. It takes a month for the payoffs to show we found. It happens when the next billings, on the cards you paid down, go out. So since you only transferred money into the new accounts and show less debt than before and (the best part) you are under 49% debt ratio all should clear up then. Be sure to make payments on each card every month and you should be good to go if you can qualify otherwise for a mortgage. I am an investor and own a software company, not an accountant or lawyer. So this missive only represents my experience.

Natalie Kolodij · Answer

First off- Congrats! Transferring over to 0% cards so you can aggressively pay off was a smart move. They look at both your OVERALL utilization and on each individual card- so now those 2 cards are quite high. Ignore it for now and keep throwing as much money as possible to the debt.

Joe Splitrock · Answer

@Lizbeth Castellano opening cards counts as a hit, but that works out over time. As other said, it could be that you have maxed out two cards. It could also be that one bureau sees the new cards but doesn't yet show the old card paid off. My guess is within a couple months it will stabilize.One thing you can do that may help is call the two cards that are maxed out and see if they will increase your limit. They may give you another thousand or two on each card and then they are no longer full. Also do not close credit cards. Reducing your total available credit will then show your credit utilization went up. When I last closed a card, I had another card increased by similar amount.Rest assured that paying down that $10K credit card debt was the right decision and it will pay off over time on your credit score.

Lizbeth Castellano · Answer

@Natalie Kolodij. Thank you Natalie I think that's why I was so upset bc I thought I was making a smart move and I did expect a slight drop bc of those 2 cards but not 70+ drop 😲! None the less Im saving hundreds if not thousands in interest charges so even if it takes a lil longer to start investing im hoping it was the best move.

Daniel Hennek · Answer

Maxed out revolving debt is a big hit on most credit scoring models so that is definitely going to contribute to a score drop. However, it's interesting that one score is up and one is down. A good lender can use re-score software through their credit vendor to see what paying down any revolving debt might do to a score.

Aaron K. · Answer

Your score likely went down because you opened new accounts, this will fade over time but it is great you are paying down your credit card debt, since you still have $10k to go before you invest in RE you should see your scores recover over time especially if you continue to pay down your balance and pay everything going forward on time and in full.

Account Closed · Answer

There another factor I didn’t see mentioned... pull your score from multiple sources and you’ll get multiple numbers. I’ve had them up to 240 points apart in come cases here in Canada..

Kyle Tipton · Answer

@Lizbeth CastellanoShort answer. Yes. By opening two accounts and maxing out those two cards. I agree with your strategy and think long term it’ll help you. Just keep working it and the score will bounce back.

Craig Jeppesen · Answer

When you get new debt your score drops. I would never play the interest rate game with new credit cards. Your score will recover and improve in a few months and you will be fine.