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How many CCs is considered Optimal for FICO Scoring?

Senior Contributor

Re: How many CCs is considered Optimal for FICO Scoring?

In this day and age it just makes sense to control your utilization at all times to prevent any possible AA from your creditors not just when you are applying for new credit. Just my opinion.
Message 51 of 146
Moderator Emerita

Re: How many CCs is considered Optimal for FICO Scoring?

There seem to be so many situations these days where it doesn't feel like you're applying for credit, but it's there. For instance, we've been wanting to change our insurance for a half a year now, but we had to get the collections off of DH's accounts. We're going with USAA, and I already saw where I was softed just after playing around on the website.

At first I thought that the pay-early method was insanely complicated, but I got used to it after the second month. I never was one to carry balances, so it didn't take a big change in behavior.

I do realize that for many people, this is overkill, but I've also seen where it helps people change their attitudes toward credit from "how much debt can I carry and get away with?" to "how low can I get these suckers?" And that's a pretty useful alteration of mind-set, IMO.

I've also been burned by both TransUnion and WFNNB/J.Crew in delayed updates, so even though util is a relatively quick-turnaround, it's still not something you can whip around in a week.
* Credit is a wonderful servant, but a terrible master. * Who's the boss --you or your credit?
FICO's: EQ 781 - TU 793 - EX 779 (from PSECU) - Done credit hunting; having fun with credit gardening. - EQ 590 on 5/14/2007
Message 52 of 146
Community Leader
Epic Contributor

Re: How many CCs is considered Optimal for FICO Scoring?

Back to the original question posed on this thread, FairIsaac disclosed before the FTC in 1999 the latest official public data of their risk analysis of the optimal number of credit cards.  Their risk data showed that the lowest risk level was for two cards.  The next highest risk level was 3-4 cards, and the highest risk level was 8 or more cards.  Maybe their risk analysis has shifted since then, but this is the most recent actual data released by FairIsaac that I am aware of.
Message 53 of 146
TL2
New Member

Re: How many CCs is considered Optimal for FICO Scoring?

Hi Vulgy1,
 
I do mortgages for the largest online lender in the U.S. and the number of credit cards that one has will NOT at all damage your chances of getting a mortgage (unless of course it is hurting your CS).  Mortgage underwriters look at 4 things when making the approve/deny decision.  1) Income (DTI) which is simply a ratio that measures monthly debt (which appears on your credit report) to monthly income.  You want to keep that under 50% INCLUDING your mortgage payment. 2) Property (LTV) measures the amount of the loan vs the value of the home or purchase price.  You need to keep this under 90% **However you can do 100% LTV (zero down) if you use an FHA Loan for the PURCHASE of a home. 3) Assets - Simply the amount of liquid assets you can prove (stocks, bonds, 401(k), 403(b), checking account, etc.  You want to make sure that you have at least 2X your mortgage payment, you will need more if your credit score is under 680. 4) Credit - Credit Score.  We will use the midscore (Equifax, Transunion, Experian) of the weakest borrower. 
 
There is a new scoring system when it comes to mortgages, credit, income, etc.  The scale is simply based from 0 to 100%.  100% is nearly impossible to get.  paste this link into your browser to check it out.  It's a great tool for anyone hoping to refinance or buy a home.  click here
Message 54 of 146
Established Member

Re: How many CCs is considered Optimal for FICO Scoring?

Cheddar and haulingthescoreup are "dead-on" with their posts. You have to "work" the system in your favor. Once I became clear of all credit card debt, I was now on top.

I actually 5 cards:

1 debit card (WF)
1 credit card (WF)
1 gas card (ExxonMobil)
1 credit card (ExxonMobil - Citi)
1 credit card (Chase)

I use Chase exclusively to pay my monthly bills (cell, satellite, etc...) all of of which are auto-pay. The card has a low limit ($700) but since that's just enough I'm always at the max.

Why?

Because then I pay IN FULL and get max dollar rewards in return. So I pay the minimum balance (to avoid being late) let's say $20, then 2 days before the closing statement date, I pay in full. Now I have a $0 balance. I let that report to the bureaus. Then the next statement shows, I have a min due of $0 due on this date.

So now when all the next month's bills charge, I pay almost in full not on the due date (don't have to since it's $0) but 2 days before the statement date.

Why "almost" in full?

Well I subtract from the total balance the amount of "rewards $" I have, so on the statement date, my balance goes from let's say $700 to $695, leaving a $5. But on statement date, my $5 credit is automatically applied thus.....a $0 balance.

And so the cycle continues. I'm getting free $ from Chase. Same applies for ExxonMobil credit card (not gas card) which I use to buy gas at their stations (3% rebate, 1% at non-Exxon/Mobil). Their gas card offers no rebates. So when i did this. Right after the latest statement date out of all my CC passed, I then ordered my FICO report just to see and sure enough, all balances were at or close to $0 and boy did I have a HUGE jump. All in the low to mid 700s.

Learn to play this game and you'll be on top. And I agree about playing it all the time even if you're not applying for credit in the near future.
Message 55 of 146
Member

Re: How many CCs is considered Optimal for FICO Scoring?

I agree, it doesn't matter as much how many cards you have, but how you use them.  I have collected way too much debt, but am in the process of paying it down.  I have many cards that I no longer use because of high interest rates.  I currently use 5 cards.  One monster (highest rate) holding debt that I am trying to pay off ASAP, another with debt at a better rate but pretty full, two cards that have reward programs that I use for small bills and purchases that I try to pay off each month and one that has "for the life of the loan" very low interest balance transfers (but a high under lying rate) which I keep pretty full but never risk going over my limit (its virtually all low rate balance transfers).

 

I am also now trying to save for the big bills like car insurance in which you can save big money by paying in full for six months (and taking advantage of the month with an extra pay day).

 

Despite having too much debt for my income, I have never been late, never missed a payment and my credit score is pretty good.

 

Just a warning about balance transfers, there often is a 3% transaction fee that you need to calculate into your decision.  Also very important is the interest rate of the card in general especially if you have debt on the card.  While you are paying off your balance transfer the higher rate debt on the card will continue to grow.  Also if you don't pay off the balance transfer before the rate expires, whatever is remaining will go to the higher standard rate. 

 

Finally, relying on "stealing from Peter to pay Paul" is an easy way to get yourself into deeper debt. You should try to only use balance transfers that maintain a lower interest rate for a long time and only to reduce the interest rate on your debt.

 

Note: Because of sometimes lax or mistimed reporting one credit card can show a balance transfer (or other transaction) as already happened and another not, so it can make you have more debt than you actually have.

Message 56 of 146
New Visitor

Re: How many CCs is considered Optimal for FICO Scoring?

If 4-5  or more credit cards is optimal, why did my score drop when  opened one? I currently just have received a third one
Message 57 of 146
Moderator Emerita

Re: How many CCs is considered Optimal for FICO Scoring?

Hi, welcome to the forums.

Because you get a temporary initial hit for the new account hitting. As this is only your third card, you should expect to see the points come back after the account reports again a time or two, and then your scores should continue to climb.

Progress on scores is better visualized as a zig-zag, not a smooth curve.


edit: zigged when I should have zagged
Message Edited by haulingthescoreup on 10-15-2008 01:31 PM
* Credit is a wonderful servant, but a terrible master. * Who's the boss --you or your credit?
FICO's: EQ 781 - TU 793 - EX 779 (from PSECU) - Done credit hunting; having fun with credit gardening. - EQ 590 on 5/14/2007
Message 58 of 146
Valued Contributor

Re: How many CCs is considered Optimal for FICO Scoring?


Kurt6344 wrote:
If 4-5  or more credit cards is optimal, why did my score drop when  opened one? I currently just have received a third one

 

New Accounts Gain Points for 2 reasons:

 

1) It reduces your utility (if your utility is ultra low now then this is not a real help)

or

2) It increases your credit mix (if you already have 2 revolving cards you are not improving your mix)

 

New Accounts Gain Points for 3 reasons:

1) New Credit Category takes a small hit (ALWAYS) and the effect lessens over the year

2) Your average age of accounts decreases and you lose points (USUALLY - if the effect is so slight it doesn't change your average number of years it may only delay score increases not cause an immediate drop)

3) An inquiry for requesting the account takes away points (ALWAYS) and the effect stays for a year

Message 59 of 146
Moderator Emerita

Re: How many CCs is considered Optimal for FICO Scoring?

Well, a new inq doesn't always mean lost points. I've seen that on my EQ, where I took an initial hit for 2 inqs, no additional hit for the 3rd, and got hit again for the 4th. I'm guessing that there might be something like 0-1 inqs, no hit, 2-3 a hit, add a 4th and get a new hit, and so on.

Even if a 3 revolving account doesn't increase credit mix, most people find that the scoring formula "wants" that third card. You can see this on the sim --click "apply for and get a CC for ___" (pick a figure), and some people get an increase projected. My younger daughter's scores went up immediately when she got her third open account.

So it's not just the possibility of your util being helped; sometimes it's because your scores do better with that third account.
* Credit is a wonderful servant, but a terrible master. * Who's the boss --you or your credit?
FICO's: EQ 781 - TU 793 - EX 779 (from PSECU) - Done credit hunting; having fun with credit gardening. - EQ 590 on 5/14/2007
Message 60 of 146