“My score dropped in spite of paying all my bills on time.  Buckets are probably the reason says a lady at work.  What are buckets?” Mona wanted to know.

So Mona called Sue, a mortgage loan officer and a friend.  Risk is everything to FICO (FICO), Sue explained.  People of similar risks find themselves grouped together.

How does FICO do this?  Little is known for sure.  The best information Sue had went like this:

– They separate the people who use cash from those who use credit.  Mona used credit.

– Clean and dirty files are separated.  Dirty files include folks with a 60+ days late, a charge off or collection and a negative public record like bankruptcy or judgment.  After her divorce, Mona was guilty on all 3 counts.

– Revolving accounts with low balances separated from those with high credit balance.  Mona’s balances were very high at one time.

– Average age of accounts sorts those with a 10+ years from those under 10.  The average age of Mona’s accounts was over 10 years.

What does FICO do with this information?  Mona was placed in a group (bucket) that included people with similar situations.  Mona is compared with people in her group when FICO calculates her score.

Mona works hard to improve her score – she wants to buy a house.  Paying all her bills on time and reducing her credit card balances improves Mona’s scores.  Why all of a sudden a slight dip?

Mona improving her credit file caused FICO to change her bucket.  People in her new bucket have better credit files than her old bucket.  The competition is stiffer and her score drops a little.

Don’t worry about it.  This is a short-term consequence.  Mona should continue paying all her bills on time and reducing her credit card balances.  The negative items in her file will cost her fewer points as they get older.  The new items will win the day.  It just takes time.