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Contributor
Posts: 94
Registered: ‎08-02-2010
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How # of cards with balance can effect FICO score

[ Edited ]

When I read articles about credit scores, the author will sometimes say that "utilization" counts for 30% of your FICO score. This statement is based on the well-known pie chart that shows how much different factors effect your score.

 

But the category that accounts for 30% is NOT utilization, it's "Amounts owed." Utilization is just one of six factors included in the "Amounts owed" category, as explained on this FICO-sponsored page:

 

http://www.scoreinfo.org/FICO-Scores/Score-Ingredients.aspx

 

 

The "Amounts owed" category includes:

 

(1) How much of total credit line is being used on revolving accounts. (This is referred to as utilization).


(2) Amount owed on all accounts.


(3) Amount owed on different types of accounts.


(4) Whether you are showing a balance on certain types of accounts.


(5) How much is still owed on installment loan accounts, compared with the original loan amounts.


(6) Number of accounts with a balance (the more revolving accounts with a balance, the lower your score will be)

 

 

The last factor (number of accounts with a balance) is often overlooked by authors who write about credit scores. For example, I recently read an article recommending that if you have a high balance on one card, you can improve your score by spreading out the amount owed over several cards.

 

This advice is questionable on two grounds. First, although it would reduce utilization of the card with the initial high balance, it would not reduce your overall utilization. Second, any positive effect on your score from reducing utilization on the high balance card might be offset by the negative effect of having more cards with balances.

 

I have not seen much information (on this board or elsewhere) about how many points your score can change based on how many cards have a balance. So I did an experiment with my own cards. Over the past 6 months, I paid my cards before the statement date to keep the reported balance on each card at either 0 or $100 (less than 1% utilization on each card). No other changes to my credit report took place during this period (no new cards, no inquiries, etc.).

 

Here is how my Equifax FICO score was effected by changing the number of cards with a balance:


Cards with $100 balance_____EQ FICO score_____Effect on score

 

_______0_____________________807

 

_______1_____________________811_____________(+4)

 

_______2_____________________806_____________(-5)

 

_______3_____________________801_____________(-5)

 

_______4_____________________787_____________(-14)

 

_______5_____________________770_____________(-17)

 


Some frequent posters on this board have said that to optimize your FICO score, have only one card report a small balance.

 

My experiment supports this advice.

EQ-04 FICO__804__(from DCU)__inquiries = 0
EQ-08 FICO__826__(from MyFICO)__inquiries = 0
EX-98 FICO__837__(from PSECU)__inquiries = 0
EX-08 FICO__813__(from MyFICO)__inquiries = 0
TU-08 FICO__820__(from MyFICO)__inquiries = 0
Oldest account 36 yrs / Newest account 2 years / Average age 12 yrs / Total accounts 10 / Accounts reporting balance = 2 / Util = 3%
Regular Contributor
Posts: 235
Registered: ‎11-30-2011
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Re: How # of cards with balance can effect FICO score

+1


Starting Score: EQ 564, TU 560
Current Score: EQ 724, TU 770, EX 789
Goal Score: 740


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Valued Contributor
Posts: 1,971
Registered: ‎02-06-2011
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Re: How # of cards with balance can effect FICO score

[ Edited ]

jello77 wrote:

When I read articles about credit scores, the author will sometimes say that "utilization" counts for 30% of your FICO score. This statement is based on the well-known pie chart that shows how much different factors effect your score.

 

But the category that accounts for 30% is NOT utilization, it's "Amounts owed." Utilization is just one of six factors included in the "Amounts owed" category, as explained on this FICO-sponsored page:

 

http://www.scoreinfo.org/FICO-Scores/Score-Ingredients.aspx

 

 

The "Amounts owed" category includes:

 

(1) How much of total credit line is being used on revolving accounts. (This is referred to as utilization).


(2) Amount owed on all accounts.


(3) Amount owed on different types of accounts.


(4) Whether you are showing a balance on certain types of accounts.


(5) How much is still owed on installment loan accounts, compared with the original loan amounts.


(6) Number of accounts with a balance (the more revolving accounts with a balance, the lower your score will be)

 

 

The last factor (number of accounts with a balance) is often overlooked by authors who write about credit scores. For example, I recently read an article recommending that if you have a high balance on one card, you can improve your score by spreading out the amount owed over several cards.

 

This advice is questionable on two grounds. First, although it would reduce utilization of the card with the initial high balance, it would not reduce your overall utilization. Second, any positive effect on your score from reducing utilization on the high balance card might be offset by the negative effect of having more cards with balances.

 

I have not seen much information (on this board or elsewhere) about how many points your score can change based on how many cards have a balance. So I did an experiment with my own cards. Over the past 6 months, I paid my cards before the statement date to keep the reported balance on each card at either 0 or $100 (less than 1% utilization on each card). No other changes to my credit report took place during this period (no new cards, no inquiries, etc.).

 

Here is how my Equifax FICO score was effected by changing the number of cards with a balance:


Cards with $100 balance_____EQ FICO score_____Effect on score

 

_______0_____________________807

 

_______1_____________________811_____________(+4)

 

_______2_____________________806_____________(-5)

 

_______3_____________________801_____________(-5)

 

_______4_____________________787_____________(-14)

 

_______5_____________________770_____________(-17)

 


Some frequent posters on this board have said that to optimize your FICO score, have only one card report a small balance.

 

My experiment supports this advice.


Yes you are correct, Fico not only scores you on your overall revolving util, but you are also scored on having several accounts with balances, as you know by reading your chart.

 

The best results (scorewise) is to have only one CC reporting a balance of 1-9% util of it's CL, for some people, they will see their highest score with one CC reporting, say, @ 7% util, for me, Fico awards me with my highest EQ Fico when I have only 1 CC reporting my util between 1-5%, my score will not change, but if I let one CC report a balance with 9% util, my score will drop 4-5 points.

 

One month I let two CC's report a balance, one with $39 and the other with $75, I was still at 1% util, but my score dropped about 9 points, just because I had two CC's reporting that cycle, but the following month I went back to letting just one CC report a very small balance, my score went right back to exactly where it was.

 

Your chart is a super example of how Fico will score you, with just one CC reporting the $100 bal (which I would assume had you at 1% util) and then letting several CC's report $100 balances as well (again assuming your util was still in the 1-9% util range). Your chart is a perfect example of how Fico not only scores you on overall revolving util, but how you are scored on several accounts with balances.

 

Very good post jello, I think other Memers who read this will see the impact to Fico scoring based on letting just one CC report a small balance opposed to letting several cards reporting small balances.

 

I highlighted red a part of your post and I will also quote it below.

 

The last factor (number of accounts with a balance) is often overlooked by authors who write about credit scores. For example, I recently read an article recommending that if you have a high balance on one card, you can improve your score by spreading out the amount owed over several cards.

 

This advice is questionable on two grounds. First, although it would reduce utilization of the card with the initial high balance, it would not reduce your overall utilization. Second, any positive effect on your score from reducing utilization on the high balance card might be offset by the negative effect of having more cards with balances.

 

The part I underlined and bolded make no sense what so ever to me, as stated earlier in my reply, Fico not only scores you on overall util, but also scores you on "accounts with balances" so if you have one CC reporting a high balance, your util will be somewhat high (this all depends on your total overall revolving credit you have avail to you) but let's just say you have that one card reporting 1000 and your util is 23%, your score will be higher with just that one CC reporting the 1000 than if you had 6 CC's reporting a total of 1000, Fico likes it better scorewise with less accounts with balances, as opposed to having that 1000 spread out across several cards.

 

Very good post jelloSmiley Happy


Starting Score: 583
Current Score: 3-03-12-EQ-802 TU-806 EX-798 (EQ Beacon 9: 804 Lender Pull 3-08-12) All FICO's
Goal Score: 800+ across all three

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Valued Contributor
Posts: 1,900
Registered: ‎01-05-2010
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Re: How # of cards with balance can effect FICO score

I certainly agree that utilization alone doesn't equal "Amounts owed".

Nice table by the way. Assuming that you have five cards and that they all count in utilization, I'm surprised though that you weren't slammed with a major score decrease having a $100 balance on the third card. It's my experience that once you enter the second half of the cards, that's where you get hit the hardest. In your case, it was the fourth card.

Valued Contributor
Posts: 1,671
Registered: ‎05-24-2007
0

Re: How # of cards with balance can effect FICO score

Based upon my experience, your conclusion is mostly correct.

 

However, I think the recommendation to spread a balance over more than one card could also be correct IF that card is maxed out (util >80%). There seems to be a penalty for most people according to number of accounts that are maxed out.

 

My own tracking of score change with number of accounts with balances has shown a bigger change when I pass 50% of accounts reporting balances. However, I have 24 accounts. When the 13th account reports a balance, I have about a 20 point drop. I saw little change from 13 to 14 to 15 to 16 and back to 13. I also saw small changes going from 12 to 11 to 10 to 9. I saw improvement going from 9 to 8 and again from 8 to 7. This became obvious when I just went from 7 back to 8 and saw the exact 14 points disappear that I had just gained.

Community Leader
Epic Contributor
Posts: 26,021
Registered: ‎03-19-2007
0

Re: How # of cards with balance can effect FICO score

[ Edited ]

Nice post jello!

 

Its another example of how simplified advice on how to improve your score is often oversimplified, and thus misleading.

Taking your example of % revolving with balance, it is often stated that closing a CC wont have much score effect since its age still counts in your AAoA.  True, but it will reduce the denominator in the % revolv with bal calculation, and could be a hidden impact, particularly for those with few CCs.  One-category or sub-category impact often does not tell it all.

Valued Contributor
Posts: 1,900
Registered: ‎01-05-2010
0

Re: How # of cards with balance can effect FICO score

[ Edited ]

It's at a time like this that you wish Score Watch would send you a credit alert whenever a balance decrease takes place, as in the case of a balance increase. As I too now work my way up, most of it within a single score alert time frame, it occurred to me there's little opportunity to monitor the EQ FICO score ascent. Any suggestions?

Senior Contributor
Posts: 3,889
Registered: ‎05-24-2011
0

Re: How # of cards with balance can effect FICO score

Thank you so much for taking the time to post your experiment's results.  This is one of the most helpful posts I've seen in a while - I love to see actual point changes based on doing certain things.

 

@Robert - I never thought about how closing a card reduces the denominator of how many report a balance.  Good point!

STARTING: 11/24/10 EQ-584 EXP-648 TU04-595
CLOSED FIRST HOME 8/19/11 EQ-630 EXP-691 TU04-653
CURRENT: EQ-701 EXP-??? TU08-720
Established Member
Posts: 20
Registered: ‎02-15-2011
0

Re: How # of cards with balance can effect FICO score

Hey, just saw this today.   +1

 

Great info, and it supports what I have been perceiving and experiencing in recent months, as I track my scores and data weekly now.

 

Again, thank you for your effort and meaningful thread!!

Regular Contributor
Posts: 154
Registered: ‎12-21-2011
0

Re: How # of cards with balance can effect FICO score

This is all such great information.

 

Just this morning I was debating on paying small balances (to zero) on 2 cards  or applying that money to a card with a larger balance. 

I opted for paying the balances to zero on 2 cards.    Appears I made the best decision for my score.

 

The card with a larger balance (my baby, Discover EscapeSmiley Tongue) has a 6 month free finanacing offer. 

 

Since Discover has yet to report to any of the credit agencies - I wonder how many points my score will drop (potentially) as a new card with a balance of around $500.

I am assuming they will report at statement end. 

 

Does anyone know if Discover will report to all three agencies?? 

 

 

Starting Score Aug 2011 590/ Gardening until 2013!!
Current Score Walmart 683/ FICO Equifax 722/738/ 708 Transunion FICO 700/ 725 Credit Karma 648/678/
Goal Score 750
Credit Cards- Orchard $300, Capitol One $300/$500, Amazon $600/$1300 Pennys $700, Walmart $250/$700, Discover $2000, Chase $1500 Pending Citi/Declined Cit- Inquires and new credit....... GARDENING UNTIL 2013 or home loan time!!! Help me stay strong!!

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