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I made a large payment on a credit card and lowered my balance, why did it make my score drop?
I got financed at zales to by my wife a new ring and it shows on my credit report as a credit card, the amount I was approved for shows up as my credit limit, the amount of the ring was the same as I was approved for so it showed my credit utilization in the 90%. Last month I made a large payment and it dropped my credit utilization to 70% but my score dropped 39 points. My payment history is 100% I thought loading my credit utilization would help, why did my score drop?

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An explanation of ‘in-house’ financing

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When a merchant provides ‘in-house’ financing, they are really just playing middle man between you and the bank actually providing the loan for the purchase.  When you consider the liabilities the bank would take on in this situation if they were actually giving an unaffiliated merchant’s employees the power to grant loans on behalf of the bank, you will begin to see how the bank would quickly become inundated with law suits of people saying they were not treated fairly. 

The reason for this is because banks actually have discretion on how they issue personal loans, but underwriting conditions of credit cards are completely spelled out with little to no margin of discretion for the bank to grant credit limits.  Meaning you might have the ability to write a letter to the bank explaining a derogatory mark on your credit and still get personal loan, but with credit cards, the information used at the time of the application is all the bank can go by.  So there’s little to no room for the bank to consider an applicant’s actual reasons for a derogatory mark thus meaning it can’t be considered and they go by nothing but the cold hard facts.  In this way the bank avoids liabilities resulting from a standard application and approval process regardless of who gathers the information.

So what’s all this mean?  Basically it just allows banks to sell their products through untrained, unaffiliated personnel outside their bank, as well as allowing a merchant to sell their products to more people.  Making it a win-win-win for the banks, merchants, and the consumers, by allowing everyone to get what they want.  Banks get the credit business, merchants get the sale, and the consumer doesn’t have to go to a bank, then back to the merchant, to get the item they want to finance.

But it also means the credit shows up as a credit card instead of a personal loan.  And since it’s only a credit for the total of the sale price, the credit utilization automatically gets calculated as a 100% of the credit limit.  For this reason, it’s usually better to skip the middle man, go directly to the bank and ask for a personal line of credit or loan to get the item you want. 

Hope that helps understand.

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