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Card churning and mortgage reviews.

Regular Contributor

Re: Card churning and mortgage reviews.

From a recent WSJ article ("If You Have 29 Credit Cards, You’re Probably a Millennial"):

 

Over the past year, Chase has signed up tens of thousands of new credit-card customers, with more than half of the high-priced Sapphire Reserve cards going to millennials, the spokeswoman says.

San Antonio engineer Marshall Sharp, 31, uses an Excel spreadsheet to track the due dates for the 24 credit cards he has acquired in the past 11 months.

Because he doesn’t spend enough to qualify for all the rewards, he heads to a local mall and uses his credit cards to buy cash-equivalent prepaid cards, earning points in the process. Then he uses the prepaid cards to pay off his credit-card balances. He recently had to wait a long time to check out because someone ahead of him in line was doing the same, he says.

“The same sort of loop is used for money laundering,” Mr. Sharp says. “Some of my co-workers joke that if the FBI comes, we’ll know where to point them.”

The practice is legal, though discouraged by card companies.

 

That is a pretty good description of what is meant by "churning" in the sense of balance churning (cleverly rolling the same money around from one account to the next to rack up bonuses). Issuers are increasingly using sophisticated AI to detect customers whose activity fits similar patterns and close their accounts... in some cases, all of their accounts including bank accounts.  As CGID wrote, opening new cards periodically and actually using them to buy stuff is a much more benign behavior but is also sometimes referred to as churning in the sense of account churning.

 

This can be done without ever having to close accounts, exactly as CGID describes. (I would add a potential #3, which is card where the actual rewards to be earned over the course of the year exceed the annual fee.) From a long-term credit scoring perspective, it makes sense to try to keep open any accounts that you do create now for as long as possible; there is no benefit to closing them (or letting them close) because they will then stop contributing to your AAoA after 10 years.

Established Contributor

Re: Card churning and mortgage reviews.

Oh yeah how much does Lexis Nexis penalize for all the open accounts? I also thought cards close from inactivity.


Starting Score: Ex08-732,Eq08-713,Tu08-717
Current Score:Ex08-765,Eq08-749,Tu08-741
Goal Score: Ex08-760,Eq08-760,Tu08-760


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Community Leader
Senior Contributor

Re: Card churning and mortgage reviews.


Subexistence wrote:

Oh yeah how much does Lexis Nexis penalize for all the open accounts? I also thought cards close from inactivity.


Not sure what you are asking above.  Can you explain a bit further?

Valued Contributor

Re: Card churning and mortgage reviews.


Subexistence wrote:

Oh yeah how much does Lexis Nexis penalize for all the open accounts? I also thought cards close from inactivity.


LexisNexis is convoluted. It is impossible to tell how much impact changes in your file will have on score. They don't provide guidelines for how factors are weighted.The best you can do is look at their confusing reason statements and develop a strategy to address shortcomings under your control. 

 

Note: If you have 11 open accounts or less there is no "count penalty" just for having the accounts. You may experience other count penalties relating to # of accounts opened in the last 24 months and # of inquiries.

 

Here is a link to their list of reason codes:

 

https://consumer-solutions.custhelp.com/app/answers/detail/a_id/2523/~/how-do-i-learn-more-about-sco...

 

P.S. Cards can be closed due to inactivity but, LN does not influence closure. LN considers department store and retail cards a risk factor. My interpretation is LN may count them as a risk even after they are closed.

 

Fico 8: .......EQ 850 TU 850 EX 850 (3/2017)
Fico 9: .......EQ 850 TU 850 EX 850 (3/2017)
Fico 4 .....:. EQ 804 TU 823 EX 830 (3/2017) EX Fico 98: 839 (3/2017)
VS 3.0:...... EQ 832 TU 832 EX 832 (3/2017)
Fico 8 BC:. EQ 887 TU 899 EX 900 (3/2017)
CBIS: ........EQ LN Auto 940 EQ LN Home 870 TU Auto 902 TU Home 950 (4/2017)
Moderator

Re: Card churning and mortgage reviews.


Thomas_Thumb wrote:

Subexistence wrote:

Oh yeah how much does Lexis Nexis penalize for all the open accounts? I also thought cards close from inactivity.


LexisNexis is convoluted. It is impossible to tell how much impact changes in your file will have on score. They don't provide guidelines for how factors are weighted.The best you can do is look at their confusing reason statements and develop a strategy to address shortcomings under your control. 

 

Note: If you have 11 open accounts or less there is no "count penalty" just for having the accounts. You may experience other count penalties relating to # of accounts opened in the last 24 months and # of inquiries.

 

Here is a link to their list of reason codes:

 

https://consumer-solutions.custhelp.com/app/answers/detail/a_id/2523/~/how-do-i-learn-more-about-sco...

 

P.S. Cards can be closed due to inactivity but, LN does not influence closure. LN considers department store and retail cards a risk factor. My interpretation is LN may count them as a risk even after they are closed.

 


Seems a safe bet given every other algorithm in existence to our knowledge does the same with regards to closed accounts (deliquencies, CFA tag, etc).  FICO and Vantage both certainly do, and they're far more mainstream credit oriented than LN's algorithm(s).

 

Personally I don't have enough interest to worry about LN on the theory that a pretty file will result in a pretty score regardless of algorithm chosen, and that applies to alternative scoring algorithms too in my estimation.

 

Starting Score: EQ 5 561, TU 98 567, EX 2 599 (12/30/11)
Current Score: EQ 5 771, TU 4 758, EX 2 758, EQ 8 795, TU 8 762, EX 8 786 (7/28/17)
Goal Score:    EQ 5 750, TU 4 750, EX 2 750, EQ 8 800, TU 8 Blah, EX 8 800 (01/01/18)


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Established Contributor

Re: Card churning and mortgage reviews.

I mean accounts get closed for inactivity.


Starting Score: Ex08-732,Eq08-713,Tu08-717
Current Score:Ex08-765,Eq08-749,Tu08-741
Goal Score: Ex08-760,Eq08-760,Tu08-760


Take the myFICO Fitness Challenge