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## Calculation Question

Established Member

## Calculation Question

Hiya Folks
I have a quick question. My current score Fico score in the "Myfico Score Simulator" is 611.
I have 3 cards with a max of 300 dollars. My total revolving debt is 339 dollars, which is way above what is should be. I didnt know it should be 1-9% until I saw this great site. I can pay this down to the recomended 1-9% next month.

There are two options showing how to pay this off.

One: Paying X amount of dollars right now.

Two: Pay X amount of dollars per month for X amount of months.

My question is this, when I choose to pay 300 of the 339 dollars right now it says it will raise my score from 611 to 641-681

When I choose to pay 100 dollars a month for 3 months (the same amount, just payed in 3 equal payments) it shows my score could go from 611 to 651-691. A difference of =10 points!

I've heard it's better to pay cards off in equal payments. Is this true? Or is that a rumor, and the simulator is just showing a flaw? After all, It's only a simulator intended for ball bark figures. Any advice on this would great. Thanks!!

Message Edited by catadm123 on 07-11-2007 05:05 PM

Message Edited by catadm123 on 07-11-2007 05:12 PM
Message 1 of 7
6 REPLIES
Valued Contributor

## Re: Calculation Question

Paying off over time is not intrinsically a better strategy. The reason paying off over time appeared to have a greater impact on your score than paying at once is because the pay over time scenario included the elapsed time.

If your FICOs are below 730 to 750, and you pay all your bills on time, your score will naturally increase if everything else remains the same. If your FICO is 650 today, even if you kept your credit card balances exactly as they are, provided you paid everything on time your score would likely be 660 to 675 by the end of the year, simply because you a) paid your bills on time, and b) put some more distance between yourself and whatever baddies from the past dropped your score.

If you have the means to lower your utilization on all three cards below 10% now, do so. You'll reap the immediate (well, within a month to six weeks) benefits of lower utilization (probably a FICO increase of ten points or so) AND, over time, the benefit of aging accounts, baddies receding further into the past, and adding to your record of paying bills on time.
- - - -
in a credit-scoring postnuclear Stone Age...
Message 2 of 7
Established Member

## Re: Calculation Question

HA! That makes perfect sense. Should have thought about that, thanks a ton NewWorld.
Message 3 of 7
Legendary Contributor

## Re: Calculation Question

New World hit it right on the head.  Paying now only decreases % utilization, but paying off the same amount over three months results, in the simulation, the combined effeects of the same reduction in % utilization AND the three month addition of timely payments on all accounts.  The bottom line is, yes, the FICO simultator is limited.  They do not want to disclose more about their calculation algorithm for combined effects than necessary, so dont let you combine real world scenarios of multiple effects simultaneously.  I have developed my own FICO simulator on an Excel spreadsheet that allows me to alter each and every category indepedently, and approximate the combined effects.  It has closely approximated the results I actually have achieved for several months now.  While crude, it give me a better understanding of what to actally do that the very limited FICO simulator affords me.  It tells me approximate result for each month into the futured based on amount paid each account each month, how far into the future each account has aged, and other factors, such as the resulting effect over the same period the accounts age on the effect of the addition or dropping of credit inquiries and the addition or dleletion of new accouts for any time I choose.  I would bde glad to share a copy of my simulator with anyone interested.  It has opened my eyes, while not being exact, on the approximate effect of each FICO category.
Message 4 of 7
Legendary Contributor

## Re: Calculation Question

Ponder this calculation question as an example of why it is dangerous to look at the effect of a single action in a single FICO category and rely upon it for an overall credit score increase.  Let's say you decde to pay off an installment loan immedately, expecting a jump in credit score.  Based only on that single factor, that would seem only logical, right?  Well, that account is now closed, and no longer active.  Hmmmm.  So FICO in the Sky, which is also calculating another factor called types of credit, or credit mix, finds that in a month or two,  eliminates that account from the mix, and you them get a bump down of ten or more points in that category for no longer have a good mix of revolving and installment loans.  Installment loan utilization is only a fraction of the importance of revolving account % utilization in calculating that category, but installment loan presence is a major factor in the %mix of credit category.
So the right hand gives, and the left hand taketh, even though connectd to the same FICO body.  Other examples abound.....  Such as, getting a new CC to increase credit limit, and thus improving % utilization.  But, oops!  A new inquiry to get that CC hits you with an immediate ten point loss in the inquiry category of FICO, which is a much bigger hit than the trivial increase in %revolving util. gave you.  A simulator that takes simultaneous account of the effect in each and every category is essential for one to fully understand overall FICO scoring.  My efforts are channeled, not into developing a spreadhseet that accurately predicts the micro mathematical effect of actions in each category, but at least to show in a comprehensive spreadsheet the combned macro effects.  That is what my spreadsheet has done for me, and it is enlightening, even though not an exact replication of the secret FICO algorithms.
Message 5 of 7
Legendary Contributor

## Re: Calculation Question

I would LOVE to get a good interchange on this topic. I have, sometimes, been a lemming FICO score chaser.  But seals, with big tusks, lead lemmings to slaughter.  When I sat and pondered, I realized that future projections of current and short term actions are what FICO is all about.  Today's FICO is a measure of creditor's willingness to take our money.  But today's FICO is not a measure of our, the consumers', future worthiness unless the current FICOs can be projected with simulated calculations.  If not, we are lambs to the slaugher.
So if the FICO orgasm of today is but an excuse to chase new debts, isnt FICO trying, in sometimes stupid ways, to tell both we and our creditors of some carefully thought out thoughts? And today's FICO can lead to tomorrow's disaster.  So back to the point.  I want to develop a projection tool that gives a comprehensive, albiet simplified, idea of what our actions today wll mean to our FICO in the future.  The current FICO simulators avaiable on-line are deceptions, for they promise score increases based on only one category, without showing the comprehensive impact that those actions have on all categories, and thus future FICO scores.
I just dont know how to go about this.  There was a previous thread on here directed to FICO score simulation that has now disappeared.  I have a first cut at a spreadsheet that is, while admittedly very simple, at least provides a starting point for the views of others on the intricacies of how each category is mathematically calculated.
But I cannot simply, as far as I know, post what I have done to date on here.
So I only offer you my email, and if you are iterested in seeing my speadhseet, or presenting others, I will be a focus.
Reply soon, for experience has shown that the ether rapidly sucks up attempts to collaborate.
Message 6 of 7
Senior Contributor

## Re: Calculation Question

Good luck Robert. The scoring models provided by TC and the other CRA's show how difficult it can be to replicate the FICO model. It doesn't mean all the others are incorrect just that they are different.
Message 7 of 7