High utilization for new account dropped my credit score 71pts. Will my score increase again once I make my first payment?
I am 25 and still learning about credit through trial and error. For the past 3 years, I have dedicated myself to building and repairing my credit. I desperately needed furniture for my new place and decided to finance a dining room set at Ashley’s Furniture through Wells Fargo Bank. I was approved for $2200 and financed $2100 for the dining set with a 650 credit score. Wells Fargo added the account to my credit report and I recognized that my credit score went down 71 points. The new account reported that my credit utilization is 98% because the bank reported the price of the furniture as my balance on the credit report/account. The first payment is not due until next month. While I can afford my monthly payments of $60/month, I regret opening this account because it has drastically hurt my credit score. Wells Fargo is reporting the debt up front and has made it where I have to re-build my credit. Does anyone know if my credit score go back to the way it was once I start making my monthly payments? Or Do I have to start over and work my way back to earning those 71 points back? Does this make this purchase purposeless as it has already hurt my credit more than helped me?
- curtisports2Lv 78 months ago
Your utilization rate is only 98% is that is the ONLY open credit account you have. Utilization counts across all open accounts. Let's say you have three open credit cards. One has a $2,000 credit limit and the other two have $1,000 each. You're carrying a balance on the first that averages about $300 and the other two you use sparingly and pay in full. You are using $300 of your available $4,000, or below the 10% that the reporting agencies like to see.
Now you decide to open that furniture account rather than having to split the purchase over the cards you have. Your new credit limit is $6,200 ($4,000 + $2,200) and you are now using $2,400 of it ($300 + $2,100), or 39%. That would be your new utilization rate under that scenario. You wouldn't be using anywhere near 98%.
Going above 20% dings a score. Going above 30% dings it more. Going above 50% hits it pretty hard. Again, you wouldn't be at 98% unless you have no credit cards, no other open credit, and this new account was it.
If that's the case, then no, making the regular payments of $60 every month are not going to result in a rapid improvement of your score. It will improve from paying on time and from the gradual lowering of the principal balance. But you won't see any serious improvement until the utilization rate on that lone account gets below 30%.
Here's the thing, though. If you can afford the payments and don't see yourself needing new credit any time soon, don't worry about your score. People get too stressed out over something that doesn't impact their lives that much. A drop of 71 points with no negatives such as late payments, items in collection etc, is not going to affect your auto insurance rates or your ability to get a new job.
- StephenWeinsteinLv 78 months ago
It does not make the purchase purposeless, because the purpose was to get furniture you needed, not to help your credit.
Your score will go up a little when you start paying. It will not go all the way back until you have paid back most (at least $1340, maybe more) of it.
- JudyLv 78 months ago
If you just make the minimum payment or close to that, probably not.
- Anonymous8 months ago
The first payment will only help a very small amount. Because your utilization would still be very high.
I told you this yesterday.
And payments can take 15-45 days to reflect on your report so please don't ask again when your score does not increase the day after making one payment.
$60 a month for a dining room set is INSANE
Lots cheaper ways to build credit than spending thousands.
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- Beverly SLv 78 months ago
It will take more than one payment to drop it...Sounds like you don't have a lot of other credit. Maxing out credit limits always hurt your score (which isn't fair when the creditor only gives you the amount of the purchase such as in your case). Try paying more than the minimum on this account if possible.. once your balance is less than 50% of the credit limit, your score will improve. It's so easy to hurt scores but takes more time to build them up.Source(s): Mortgage lender 33 years.
- MichaelLv 78 months ago
Nothing has changed in the 12 hours since you last asked this same question. Your score will still start to recover once you start making payments.