How # of cards with balance can effect FICO score

[pakman92]

Nicely done.  Now please help futher decode the formula by seeing how the effect is worsened/lessoned  when one is one different buckets (let's just call it ranges).  And it's multiplication effect with owning crap 1 credit cards.  

Engage!

[Student_Loans_Kill]

I have 3 cards, so please advise me on my FICO building strategy Capital One Platnum $300 limit (increases to $500 in May) Capital One Rewards $500 limit (increases to $750 in Aug) USAA AmEx limit $1000 Reporting zero balance on Capital One cards, and < $90 on AmEx card

[pakman92]

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@pakman92 wrote:

Nicely done.  Now please help futher decode the formula by seeing how the effect is worsened/lessoned  when one is one different buckets (let's just call it ranges).  And it's multiplication effect with owning crap 1 credit cards.  

Engage!

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Note to self.  Not good to post when drunk.

[Duke-of-Earl]

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@Anonymous-own-fico wrote:

On another note, I take it your 823 is TU 04, not TU 98?

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Your question deserves a specific answer, but the best I can say is "I think so".  I applied to three different lenders, and they *all* reported the identical scores as quoted in my siggy.  The names they reported differ a bit, for the 823: "Transunion FICO Classic 2004", "FICO Risk Score Classic 04", and "Trans Union Empirica", and the score ranges also don't match.

There's a similar confusion with the other scores, not just the names but the score ranges.  I started a new thread with a more generic title ("What kind of scores are these?") so as not to hijack this one.

[Duke-of-Earl]

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@crunching_numbers wrote:

Wait, is the SIZE of my mortgage factored into my FICO??!!!   I live where houses cost more. That does not seem fair.

Am I being penalized for doing a Re-fi? I  refi'd with no cash out, so my mortage started over with 100% due, nothing paid off. Are you penalized for % paid/not paid  too? I am not even underwater...  again not fair.

It will be years until a new mortgage gets a good ratio.

Please tell me I am misunderstanding this tidbit of information.

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I trust lel did so, and I apologize if my post caused you unnecessary concern.  My situation was similar to, actually worse than yours: I also did a refi, but *with* a substantial cashout.  I assumed that was the cause of my scores dropping a bit, but now I don't know what the cause was.

[Duke-of-Earl]

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@Lel wrote:

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@crunching_numbers wrote:

Wait, is the SIZE of my mortgage factored into my FICO??!!!   I live where houses cost more. That does not seem fair.

Am I being penalized for doing a Re-fi? I  refi'd with no cash out, so my mortage started over with 100% due, nothing paid off. Are you penalized for % paid/not paid  too? I am not even underwater...  again not fair.

It will be years until a new mortgage gets a good ratio.

Please tell me I am misunderstanding this tidbit of information.

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Installment loan balances have a very small effect on FICO score, if any.  I, too, live in an area in which basically everyone has jumbo loans, so I would be annoyed if this had a major effect on scores.  It doesn't.

The primary negative FICO pressure of a refinance is not that you've reset the loan to "100%" utilization, but rather because there's a new account reporting, a new inquiry associated with the loan application, and a possible effect on average account age.  However, in my experience the effect is temporary.  When I refinanced a home equity loan, there was a small drop in my FICO scores, but within a few weeks it was back where it had been for a while.  As I have paid down my loans, there really hasn't been any effect on FICO scores.  My credit card balances are what drive the small fluctuations in score.

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I guess I was wrong about what caused my scores to go down, but now I don’t know what it could have been.  The AAoA impact for my new mortgage should have been very minor, since I already have a long history.  It reduced it from 17 years 0 months, to 15 years 3 months.  Supposedly, “FICO High Achievers have an average age of accounts between 6 and 12 years".  The new INQs (total of 9 in my case) would have had an effect for a year, but the comparison I was reporting occurred about 20 months after that time.  My EQ report (with the higher score) has one recent INQ that isn't on the TU report, for a new CC.  That new card is being reported (with the same CL) to all three CRAs.

[Goal810]

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@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.

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Fantastic post jello. So we know that at least up to 5 cards it is ideal to have 1 showing a balance, and it's a really nice relationship where each added card causes another decrease in the credit score. I imagine that 1 is a ratio in this case and not an absolute number.

Has anyone done experiments like this by changing the utilization? I am wondering if 1% is ideal.

What would I need to sign up for in order to do an experiment like this? Eg I just looked at Equifax Score Watch and it's $14.95/month but I only get 2 score reports/year? It looks like jello was getting his credit score monthly x 6 months.

[Anonymous]

Awesome work Jello!

I trust your real world figures more than the Score Estimator, but it is interesting to note that I ran the Score Estimator for my credit profile for 4 cards (2-4 category) and 5 cards with all else the same (8 year credit history and 5 year loan history, no lates or derogs etc, under $500 balance and 0-9% util), and found that a 5th card boosts my score range by 5 points. Obviously this theoretical line of credit would have to be aged 6 months to a year and not carry a balance to have that positive impact, but it is yet another data point that your experiment is very valid. 5 revolving lines (likely with one being a store card) with only one reporting a balance seems like the best long term advice for people for minimum credit profile to max out your score.

[marty56]

I have 3 cards reporting a balance.  Two of which are under 10% util and total util is 13%.  This was enough to keep me out of the 800 club.   You could loose 15 points for a second card reporting a$1 balance.  Yes # of cards matters.  LOL I knew that already as I learned to my sorrow.

[vanillabean]

I take it you mean three cards reporting a positive balance? If so, there may be cards, whose util is zero? If you have two of those and the two below 10% are at 9% and all credit limits are the same, the fifth card has a util of 47%! This one card alone, with the other four being at 0%, can put you below 800. Also, I have seen two cards with positive balances, small of course, and the score was well past 810. So having just one card with a positive balance may not be the primary factor.