topic Help in understanding debt to credit ratio and the effects on scores in Understanding FICO® Scoring

Help in understanding debt to credit ratio and the effects on scores

jbhenrietta — Sat, 21 Mar 2009 01:36:04 GMT

Open
Accounts Total
Number Balance Available

Okay, I need some help figuring this out. Below is from DH's Equifax CR. I copied and pasted it. The installment balance shown is incorrect. I pulled this CR last night from the annual free credit report and did call Equifax today to dispute the balances. I know the ratio is crazy, however it has come down. For instance the revolving was 106% 1 month ago, so it has dropped 20% in 30 days time. As far as the installment, it should read only 1 installment loan and the balance should read $1,854.00, not what is showing. And I did not purchase a score, so I only have my score that we purchased a month ago, which is a fako through credit keepers.

So, my question is...when this updates to the correct total, will there be a score change? Now, the revolving is correct for the most part, should be a little less, but not that big of a difference to change the ration from 86% by much at all.

Available credit does not include accounts without a credit limit, such as mortgage or installment accounts.

Credit
Limit

Credit Limit includes the high balance for accounts without a credit limit, such as mortgage or installment account.

Debt to
Credit
Ratio Monthly
Payment
Amount

Monthly Payment Amount includes the amount owed per month on all accounts due on a monthly basis.

Accounts
with a
Balance Mortgage 0 $0 N/A N/A N/A $0 0 Installment 2 $2,026 N/A $958 211% $133 2 Revolving 5 $1,471 $244 $1,715 86% $120 5 Other 0 $0 N/A N/A N/A $0 0 Total 7 $3,497 $244 $2,673 131% $253 7

Account Age
Usually, it is a good idea to keep your oldest credit account open, as a high average account age generally demonstrates stability to lenders. Also, especially if you have been managing credit for a short time, opening many new accounts will lower your average account age and may have a negative impact.

Length of Credit History: 11 Years, 4 Months
Average Account Age: 1 Years, 9 Months

Oldest Account:
(Opened 11/1997)
Most Recent Account:
(Opened 02/2009)

I know this report does look bad, but we have really come a long way since August 08... Any help in what we should focus at would be greatly appreciated as we are really trying to take advantage of the housing market right now.

Re: Help in understanding debt to credit ratio and the effects on scores

haulingthescoreup — Sat, 21 Mar 2009 01:50:44 GMT

OK, can you go back to the report and click "printable report" or whatever it's called? As best as I can tell, the CL's aren't showing on what you posted here.

A very few lucky people here have managed to post in columns, but the rest of us get what you posted. Instead of copy/paste, could you instead do something like this:

Card A / CL / balance
Card B / CL / balance
etc.

We can figure out the util from that. We don't need minimum payments or APR's, unless you're going to ask for advice about paydown tactics.

Also, can you please post the info on the two installment accounts? Account A / original loan amount / current balance, etc.

As for the paydowns that you already did, as best as I can tell, you paid down your installment instead of your revolving debt. Although it's good that it won't show as maxed out, normally installment paydown doesn't help much. The real score improvement comes from paying down revolving (CC) debt.

Hard to tell about score change from the score you had, since it wasn't a FICO, and no one knows what FAKO scoring formulas are looking at. In general, yes, paying down debt helps your scores, although again, you'll get more oomph from paying down CC debt.

Message Edited by haulingthescoreup on 03-20-2009 06:50 PM

Re: Help in understanding debt to credit ratio and the effects on scores

jbhenrietta — Sat, 21 Mar 2009 02:05:20 GMT

Hauling-Thank you so very much for replying to my message. I have so many questions. Here is the following that I copied and pasted and trying to get more info.

"A" balance is correct, and high credit should be the same, $1,854.00 (new loan, no payments reporting yet)

Account Number:

XXXX Current Status:

PAYS AS AGREED

Account Owner: Individual Account.

High Credit: $700

Type of Account : Installment

Credit Limit: $0

Term Duration: 24 Months

Terms Frequency: Monthly (due every month)

Date Opened: 06/2008

Balance: $1,854

Date Reported: 02/2009

Amount Past Due: $0

Date of Last Payment: 02/2009

Actual Payment Amount: $0

Scheduled Payment Amount: $90

Date of Last Activity: 02/2009

Date Major Delinquency First Reported:

Months Reviewed: 8

Creditor Classification:

Activity Description: N/A

Charge Off Amount: $0

Deferred Payment Start Date:

Balloon Payment Amount: $0 Balloon

Payment Date: Date Closed: Type of Loan: Unsecured Date of First Delinquency: N/A Comments:

"B" balance should be $0

Account Number: XXXX

Current Status: PAYS AS AGREED

Account Owner: Individual Account.

High Credit: $258

Type of Account : Installment

Credit Limit: $0 Term

Duration: 6 Months

Terms Frequency: Monthly (due every month)

Date Opened: 11/2008

Balance: $172

Date Reported: 01/2009

Amount Past Due: $0

Date of Last Payment: 01/2009

Actual Payment Amount: $0

Scheduled Payment Amount: $43

Date of Last Activity: 01/2009

Date Major Delinquency First Reported: Months Reviewed: 2 Creditor Classification: Activity Description: N/A Charge Off Amount: $0 Deferred Payment Start Date: Balloon Payment Amount: $0 Balloon Payment Date: Date Closed: Type of Loan: Note Loan Date of First Delinquency:

N/A

Re: Help in understanding debt to credit ratio and the effects on scores

jbhenrietta — Sat, 21 Mar 2009 02:34:31 GMT

Open Total Bal Avail Credit Limit Ratio Monthly Pmt Accts w/ Bal

Mortgage 0 $0 N/A N/A N/A $0 0

Installment 2 $2,026 N/A $958 211% $133 2

Revolving 5 $1,471 $244 $1,715 86% $120 5

Other 0 $0 N/A N/A N/A $0 0

Total 7 $3,497 NaN $2,673 131% $253 7

Okay, This is how the original post should have read. I had to make some changes in the format and it took me a bit. The above is from equifax. The installment is not correct as stated in the original post.

Thanks for any help!

Message Edited by jbhenrietta on 03-20-2009 07:27 PM

Message Edited by jbhenrietta on 03-20-2009 07:31 PM

Message Edited by jbhenrietta on 03-20-2009 07:33 PM

Message Edited by jbhenrietta on 03-20-2009 07:34 PM

Re: Help in understanding debt to credit ratio and the effects on scores

haulingthescoreup — Sat, 21 Mar 2009 02:45:06 GMT

jbhenrietta wrote:

                       Open         Total Number   Available   Limit   Debt to         Monthly             Accounts with
                      Accounts     Balance                                 Credit Ratio    Payment               Balance

Mortgage              0              $0                 N/A       N/A        N/A             $0                         0

Installment            2             $2,026             N/A      $958       211%          $133                      2

Revolving              5              $1,471            $244    $1,715       86%          $120                      5

Other                   0               $0                 N/A        N/A        N/A            $0                          0

Total                    7              $3,497            NaN     $2,673      131%         $253                       7

Okay, This is how the original post should have read. I had to make some changes in the format and it took me a bit. The above is from equifax. The installment is not correct as stated in the original post.
Thanks for any help!

*uncrosses eyes*

OK, here's what I see:

For revolving (CC's):

5 accounts - total balances - $1,471 - total CL: $1,715 - total util - 85.77% --> 86%

The installment accounts are fine, once the original loan figures are reported correctly. We'll take that as read.

So that leaves the revolving, and your util is killing you. Util (utilization) is the sum of your balances being reported divided by the sum of your (CL's) credit limits. Your total of balances reporting should be $150 or less (9% of total credit limits.) Since you have two open installment loans plus 5 open CC's for a total of 7 open accounts, only 3 should report balances. As open installment loans always have a balance, that means that only one CC can report a balance for maximum scoring.

Pay off all your CC's except the one with the largest CL. Multiply the CL on that card by .09 (9%) and pay down your balances to that figure or lower. That is the figure that should report on that one card, with all the others reporting $0.

Most CC's report to the credit bureaus on your statement dates. Not the due date, but the date of the statement; when it posts. All you have to do is go online 3-4 days before you expect the next statement, and make your payment. Check again the night before or morning of the statement date to make sure that nothing snuck in. Pay again if there's a balance. On the card that you're allowing 9% or less to report, pay down to that figure 3-4 days before the statement date, let the new statement show online with that balance, and then pay it off.

If you don't have any baddies, and if that installment mess gets cleaned up, you should get a big score boost from this.

If you are hoping to take on a mortgage, you need to be in complete control of your CC debt, along with having a big chunk of money in savings.

Re: Help in understanding debt to credit ratio and the effects on scores

jbhenrietta — Sat, 21 Mar 2009 03:07:11 GMT

I was cross-eyed as well. Thank you for replying! We have been working on paying the debts down. As far as the installments, there is actually only 1, not 2. And the ratio should be a little under 100% after reporting this month. I know that will not make any difference in scoring, however it will make the total util decrease some. We also just paid a judgment that was on the cr, so it will update to satisfied, crossing fingers to have it deleted all together, but not holding my breath either. It has been a work in progress. There is a med collection that hit 01/09 but will be taken care of and with hippa laws, should be deleted. There is another collection from 08/08 still reporting from NCO, and will also be paid at the end of this month. I will have to send gw letters faithfully as they are swearing they will not accept a pfd. So, we have made alot of progress, however the biggest wall we were up against was paying the judgment because there was not ifs and or buts getting around not paying that in order to get financed. Any pointers as to what exactly we need to focus on 1st would be appreciated. As you stated, and from everything I have read on here, util should be #1. We are very motivated to get financed for a home with the shape the market is in. The more progress we make, the more nervous I get about something back-firing. Thanks for your help!

Re: Help in understanding debt to credit ratio and the effects on scores

Guardian — Sat, 21 Mar 2009 03:32:56 GMT

@haulingthescoreup, you are better than me, I can't make any sense of this as it is so hard to read and I got a headache trying. I was going to say a few things but I wasn't sure if I got it right. So, have fun handling it and this way I can just watch this thread and see what you figure out.

Re: Help in understanding debt to credit ratio and the effects on scores

haulingthescoreup — Sat, 21 Mar 2009 17:49:53 GMT

jbhenrietta, the best I can say is to keep doing what you're doing --working to get the serious baddies off. I hope some of these do come off for you. It sounds like you've read through the processes on the Rebuilding board, and I never pretend that I know the details on all that.

Again, though, do realize that the util on your installment loan is considered completely separately from the util on revolving, and it's revolving util that drives your scores so strongly.

For instance, my installment util is 79%, my mortgage util is 85%, and my revolving util is essentially 0%. The fact that I'm only a year into my car loan and a third of the way into my mortgage doesn't affect my revolving util scoring at all, and I don't get any negative comments about high installment util. (That's one of the very last dings they throw at you, once you've reached near-perfection everywhere else on your reports.) So throw any extra money at the credit cards, and then into savings, before doing something on the loan, unless your mortgage lender specifically says to get your loan down to a certain figure. If s/he does, you can then use some of the savings for that purpose.

I hope that makes sense. I know it feels like being in the middle of a tornado sometimes.

So, pay down and keep down CC's, paying them off as you go and only letting one report a tiny balance to the credit bureaus, and then sock money away in savings, and only pay extra on the loan if specifically told to do so by your mortgage lender. And keep working, working on the clean-up stuff. Good luck!

Re: Help in understanding debt to credit ratio and the effects on scores

jbhenrietta — Sun, 22 Mar 2009 19:53:41 GMT

Haulingthescoreup-thank you very much for your help! Everything you said makes perfect sense to me. We found a home this morning that we would love to purchase. So, with that being said-we plan on making sacrifices for the next month or two if needed to get financed. I know that we can get the ratios down and the collections paid. I have been reading the forums and this site and have made so much progress already! Scores did not increase based on fakos this past month, but it is good to have that service for monitoring purposes. Not sure that I want to pull ficos just yet as a mortgage company pulled in Feb a few days before we signed up for the fako and the scores were actually exactly what they pulled for us. We were told to just get the judgment paid and we were good to get qualified, however we want to improve a bit more the get the scores as high as possible before getting financed and also before we obligate. In this economy no one knows what could happen from one day to the next. And we are keeping that in mind. Kudos to you for helping!