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FICO scoring hurts those who don't carry debt

Super Contributor

Re: FICO scoring hurts those who don't carry debt


annalog wrote:

Is it me or does anyone else think this is really screwed up?

I don't think it's fair for FICO to penalize people that don't have revolving debt.  

 

My FICO score dropped from 837 to 819 after my it picked up that I had paid off all of my revolving balances.

This is ridculous.   We all know the banks want us in debt, but I never expected the credit bureaus to be complicit in that arrangement.

 

Here is the text for the reason:

 

1) No recent revolving balances

Your credit report shows no recent balances on your revolving accounts. Your FICO® Score was hurt because you are not currently demonstrating active revolving credit management.
 
 
My thoughts.....Does not the fact matter  that I have credit lines over 30 years old, over 50k in open revolving credit, never lates, paid-as-agreed on all my accounts?
So if I want a higher score, I have to carry credit card debt.   It just seems wrong.   Very wrong.
 

I agree with you.

 

My theory: although it is presented as a 'risk' measure, it is also intended to measure profitability. A borrower who doesn't like to owe money is less profitable, all other things being equal. So it's not about risk at all, it's about risk AND reward.

FICO8 EQ 721 TU 772 EX 777 Total revolving credit 500k
Message 11 of 17
Senior Contributor

Re: FICO scoring hurts those who don't carry debt

Definitely some truth to what SJ stated above.  However, it's important to realize that by letting a balance report (but still PIF, never paying interest) one is not providing the creditor with any more profit, and any perceived additional risk is exactly that - perceived, as the cardholder is no less risky than someone that ensures that they report only zero balances.

 

Basically as we all know, this is just a simple work-around in order to obtain maximum FICO points for the 35% sector of scoring that comprises utilization.

Message 12 of 17
New Visitor

Re: FICO scoring hurts those who don't carry debt

Hi All,

 

Came to the board to try to find answers. I have been trying for the past year to reduce my revolving credit and recently paid off a credit card to zero balance. Once reported to the agencies, my credit scores all went down. I wish i would have done a little more due diligence on this because my initial mentality was that my score would definitely increase as i paid some of my CCs.

 

Any thoughts on what i should do now? I mean, i wanted to work on paying off the rest of the cards but i guess thats not going to help. Do i leave a minimal balance on the CC i just zeroed out?

 

 

 

Message 13 of 17
Senior Contributor

Re: FICO scoring hurts those who don't carry debt


mbugn wrote:

Hi All,

 

Came to the board to try to find answers. I have been trying for the past year to reduce my revolving credit and recently paid off a credit card to zero balance. Once reported to the agencies, my credit scores all went down. I wish i would have done a little more due diligence on this because my initial mentality was that my score would definitely increase as i paid some of my CCs.

 

Any thoughts on what i should do now? I mean, i wanted to work on paying off the rest of the cards but i guess thats not going to help. Do i leave a minimal balance on the CC i just zeroed out?

 

 

 


mbugn,

 

Welcome to the forum!  You wrote above that you paid off all credit cards to zero balances.  Later you wrote you wanted to work on "paying off the rest of the cards" which implies that you have not yet paid all of them off.  Which is it?  If you took a score hit, that only happens with all cards reporting zero balances which is why I'm confused when you suggest that you still possess other cards with balances.  If you can clarify this we can help you out.

 

If all of your cards are indeed paid off, simply make a small purchase of $5 or more on any one of your credit cards for something that you would have bought anyway... like one bill you pay monthly, a half tank of gas, etc.  Allowing this balance to report at the end of the cycle will give you back the points you lost (if you lost them) from paying off all of your cards and allowing zero balances to report across the board.

Message 14 of 17
Super Contributor

Re: FICO scoring hurts those who don't carry debt


mbugn wrote:

Hi All,

 

Came to the board to try to find answers. I have been trying for the past year to reduce my revolving credit and recently paid off a credit card to zero balance. Once reported to the agencies, my credit scores all went down. I wish i would have done a little more due diligence on this because my initial mentality was that my score would definitely increase as i paid some of my CCs.

 

Any thoughts on what i should do now? I mean, i wanted to work on paying off the rest of the cards but i guess thats not going to help. Do i leave a minimal balance on the CC i just zeroed out?

 

 

 


No, the more cards you have reporting a zero balance, the better, except that it's good to have one card reporting a small balance.

 

There are no circumstances under which you would lose points unless all your other cards were at zero balance when it occurred.

FICO8 EQ 721 TU 772 EX 777 Total revolving credit 500k
Message 15 of 17
Established Contributor

Re: FICO scoring hurts those who don't carry debt


annalog wrote:

Ok.  I pulled up the PDF of my TU score from Jan 22, 2016.    The score range is 501 to 990.    My score was 978.   (credit ranks higher than 98% of nations population)

I would paste the image in here but there is no way to do that.    :-(

 


501 to 990 would be a VantageScore 2.0... it's only with 3.0 that they switched to the 850 range).

 

EQ8:844 TU8:845 EX8:850 (MyFico) - 2017-10-16
Message 16 of 17
Senior Contributor

Re: FICO scoring hurts those who don't carry debt

I think it's important for the OP to know and anyone else that thinks that FICO scoring somehow "prefers" debt for whatever reason that a perfect 850 score can be achieved without any debt and without creating any profit for anyone outside of the pennies that a creditor would make off of a single tiny transaction in a month.

 

Assuming someone has all of the rest of the FICO criteria nailed down such as a flawless payment history over the previous 7 years, a long credit history and a file that isn't "thin" and no new accounts or inquiries... all they need is a $500 SS loan with a $45 balance and to allow one $5-$10 CC balance to report (with 3+ cards) and an 850 score can be achieved.  In this example, this person has no real debt and makes no real profit for anyone yet can have a top notch score.

Message 17 of 17