How many Credit cards with balances is optimal when you have more than 3 cards?

[Anonymous]

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@Anonymous wrote:

The FICO scoring method for EQ, EX and TU vary in this case.  I believe it's EQ that penalizes the worst for having more than 1 card reporting a balance, whereas the other ones appear to penalize if you carry a balance on half your cards or more, rounded up.

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Hello ABCD!  I think you meant to use report instead of carry above.  The thing that the OP is confused about is this distinction between reporting and carrying, which the folks here have been trying to clear up for him in the last several posts.

Thomas Thumb has done some interesting research that seems to indicate that the mortgage models are much more sensitive to this issue of having almost all your cards at $0 except one.  FICO 8 cares, but not so much and perhaps as you say the FICO 8 impact is bureau dependent.

[Thomas_Thumb]

Pasted below is what I experience with my File on Fico 04 and Fico 98. With all Fico models up through Fico 8 the CRAs can and do tweak how factors are weighed. One of the factors tweaked is cards reporting balances. [I will add a Fico 8 Bankcard graph on cards vs score later for comparison]

Pasted below are EQ Fico 8 Bankcard scores by # cards reporting balances. Some card counts have more than one data point. The slight difference in scores for the same card count is to be expected as noise factors have a minor influence. Note: my single AU card is not included in count because it is ignored in Fico 8. That card reports a balance every month and is included in the above because Fico 04 and Fico 98 models do consider the AU card

Cards Reporting (out of 5)	EQ Fico 8 Bankcard Score
1	892
1	886
1	886
2	887
2	882
4	881
4	881
5	874

[NRB525]

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@Anonymous wrote:

I know it's "optimal" for scoring if one of three cards carries a 9% or less balance...

If I have 4 CC's, should only 1 still have a balance?

If I have 5 CC's, can 2 then carry a balance (Again, less than 9% total)?

If I have 6 CC's, can 2 carry a balance?

If I have 7 CC's, can 3 carry a balance?

And so on?

so that it's always LESS THAN half with a balance, does optimal scoring still occur? 

Sometimes you want to carry a balance on, say Lows for the 24 months financing.... and have a 0% BT on another.... But if you have 5 cards, three with 0 balance... and your under 9% total....

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save the money on financing.

The games that can be played with number of cards reporting are small differences in FICO scoring. If you want to optimize for a mortgage, then look closely at reducing the number of cards reporting. Otherwise, a reasonably activey set of cards is going to report balances, and the rewards set on each card can mean the entire range of cards is busy in any given month. Number of cards can be a change in score, bur interest savings or good rewards is actual money you earn in the near term. No one pays you for a good FICO score, except at the time you apply for a new loan or mortgage, then the interest rate makes a difference.

[Anonymous]

To our OP:

As a postscript on the issue of taking advantage of "special financing" offers, it is crucial to make sure that any such offer is not going to be classified as a Consumer Finance Account.  A 0% credit card (e.g. a 0% promotion on that Lowe's card) will almost certainly not be classified as such, but unless it is being purchased on a true credit card, then the risk of it being classified as a CFA is quite high.  Classic examples of things that can be classified as a CFA:

       * A washer/dryer at Lowes

       * A sofa at Rooms To Go

       * A big screen TV at Best Buy

CFAs harm your score for the entire time they appear on your report, which is typically ten years after they are closed.

[Anonymous]

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@Anonymous wrote:

To our OP:

As a postscript on the issue of taking advantage of "special financing" offers, it is crucial to make sure that any such offer is not going to be classified as a Consumer Finance Account.  A 0% credit card (e.g. a 0% promotion on that Lowe's card) will almost certainly not be classified as such, but unless it is being purchased on a true credit card, then the risk of it being classified as a CFA is quite high.  Classic examples of things that can be classified as a CFA:

       * A washer/dryer at Lowes

       * A sofa at Rooms To Go

       * A big screen TV at Best Buy

CFAs harm your score for the entire time they appear on your report, which is typically ten years after they are closed.

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CGID -

If one has a Lowes card, just say it's a 10K limit...

And you buy that washer/dryer on special 0%/24m terms, on that card that you already have, it would NOT be a CFA.

If I walk into best buy, apply for a card, get a 5K limit, buy a 2K tv, this should also not be a CFA

A CFA is when you get an account to pay for the item, that ha a set time frame, and is closed when it's paid off, like buying a mattress with 0% for 60 months etc...?

does this sound correct?

Not to further side track my original question, but why are these looked at so bad, why do they do harm?

[Anonymous]

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@Anonymous wrote:

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@Anonymous wrote:

To our OP:

As a postscript on the issue of taking advantage of "special financing" offers, it is crucial to make sure that any such offer is not going to be classified as a Consumer Finance Account.  A 0% credit card (e.g. a 0% promotion on that Lowe's card) will almost certainly not be classified as such, but unless it is being purchased on a true credit card, then the risk of it being classified as a CFA is quite high.  Classic examples of things that can be classified as a CFA:

       * A washer/dryer at Lowes

       * A sofa at Rooms To Go

       * A big screen TV at Best Buy

CFAs harm your score for the entire time they appear on your report, which is typically ten years after they are closed.

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CGID -

If one has a Lowes card, just say it's a 10K limit...

And you buy that washer/dryer on special 0%/24m terms, on that card that you already have, it would NOT be a CFA.

If I walk into best buy, apply for a card, get a 5K limit, buy a 2K tv, this should also not be a CFA

A CFA is when you get an account to pay for the item, that ha a set time frame, and is closed when it's paid off, like buying a mattress with 0% for 60 months etc...?

does this sound correct?

Not to further side track my original question, but why are these looked at so bad, why do they do harm?

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That sounds right on target.

In answer to your question about why FICO historically has viewed these as bad, the simple answer must be: because the statistical data at FICO's disposal indicates these as a risk factor (and FICO has datasets on millions of consumers that it uses to build its models).  People with CFAs on their files must be, considered together as a big group, substantially more risky than people who do not.

If that is the case, all we can do is speculate as to why that might be the case.  My guess is that people who buy a mattress on a CFA are almost certainly doing so because they are wanting to buy things that they do not have money for -- any money.  From which it almost certainly follows that they have no savings and are living hand to mouth.  Such people are (I would expect) at much higher risk of defaulting on debts -- all it takes is for it to rain tomorrow and they won't have the funds to make payments.  Of course there might be individual exceptions to this, but we are now speculating on why as a group they'd be more likely to default on debts (which is what the FICO score measures).