5 Credit Cards?

[trusty]

I've seen it stated that, "5 credit cards," is ideal for Fico. The question becomes, does that include retail cards? To wit: If someone had 2 credit cards, and 3 retail cards... would that work? Or, is this equation precise down to the type of revolving account.

In other words, is this a revolving equation, or is it more specific than that?

As an aside, is their an ideal number of installments, or other account types?

[Anonymous]

I think bank cards are best. 1 installment should be good. Someone else may chime in.

[HeavenOhio]

For the purpose of having "x number of cards," FICO counts retail cards the same as major cards.

One open installment loan is all you need for credit mix purposes, although if a loan is new, a second loan that's mostly paid off will help pad your utilization. And while closed installment loans don't help with the installment portion of your score, they'll help with overall file "thickness."

[trusty]

Thanks for the replies. That clarifies it pretty good.

What is a good outstanding percentage of an installment, for best scoring?

[Anonymous]

Less than 8.99% is the optimal place for installment utilization (total amount owed / total original loan amounts, for all loans currently open, ignoring all closed loans). 

It's easy to remember because the same rule applies to CC utilization -- you want a total revolving utilization of < 8.99%.  In both cases you still need one open account showing a positive balance (one credit card and one loan).

There's some belief that there can be an ideal ratio between the number of revolving and installment accounts.  E.g... 3 revolving for every 1 loan.  (I just made up that ratio, but I think it's supposed to be in that ballpark.)  If you deviate a lot from that ideal ratio (e.g. 3 cards and 4 loans, or 15 cards and 1 loan, then you'd take a penalty.  That's all highly conjectural.  Contributor Thomas Thumb knows something about it I think.  Questions that apply, to which I think nobody knows any of the answers:

      * Does this ideal ratio exist for any of the scoring models?

      * Which models and is it the same ratio for all of them?

      * Does the ratio consider open accounts only or does it also count closed?

BTW, regarding the question about store cards, the models used by the insurance industry don't like it when they see that you have store cards.  Not a huge deal, but one reason to make as part of any one's long range plan reducing the number of store cards that you have.

[Anonymous]

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@trusty wrote:

Thanks for the replies. That clarifies it pretty good.

What is a good outstanding percentage of an installment, for best scoring?

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Hey Trusty.... do you have any open loans of any kind? 

[trusty]

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Hey Trusty.... do you have any open loans of any kind? 

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Yes. I have a mix of credit.

Otherwise, sometimes the advice is just a refresher so that I stay up do date with score model changes. Also, I share advice with others, and in particular, I was recently helping a family member out. So, I'm trying to make sure to stay up on these things.

By the way, I was trying to place the card images down in my signature. How does everyone do that?

[Anonymous]

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@trusty wrote:

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By the way, I was trying to place the card images down in my signature. How does everyone do that?

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I should know but have no idea.  I am sure someone will chime in and explain.

[Anonymous]

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@trusty wrote:

What is a good outstanding percentage of an installment, for best scoring?

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CGID replied to this referencing the < 8.9% number that is idea for most installment loan utilization.  The one exception from what I understand though would be a mortgage.  With mortgages, it is believed that a number significantly higher than 8.9% utilization may result in maximum scoring.  The theory is that it has to do with the length of time that the loan has been paid down.  For example, someone may pay down a mortgage for 10 years and still be at 65%-70% utilization on it (for example) where on an auto loan it would have been paid off already.  For this reason, most that have a mortgage that's been paid down maybe 1/3 of the way often report similar gains/scores to someone else with a non-mortgage installment loan that's almost completely paid off.

[Anonymous]

FICO scoring is based on more than the number of credit card accounts, but some parts of FICO scoring gives you many more points for your initial credit cards than for later ones.

For example:

1. First credit card: gives you a FICO boost regardless of credit mix, AAoA, AoYA, AoOA, inquiries, etc.
2. Second credit card: gives you a FICO boost regardless of the values, but not as big of a boost as the first card
3. Third credit card: also gives you a FICO boost regardless of other values.
4. Cards #4 and #5: these cards are needed for maximum FICO points (except on very old profiles) but they ding you for AAoA, AoYA, inquiries, etc.  They help in "credit mix" FICO points when they're 2 years aged each.

So if you have < 5 cards and a very young profile, I'd say aim for getting 5 cards from prime lenders (not store cards or predatory cards if you can avoid it) so that your AAoA ages nicely together and after 2 years of aging on all your cards, you'll be in a slam dunk position FICO-wise.

If you have an old profile and only have 3 cards, be more careful on apping cards #4 and #5.  Calculate your AAoA and make projections to see what 2 new accounts will do to it, and time it so you stay in the same integer if possible.