I don't think utilization actually affects 30% of the credit score. Am I missing something?

[Anonymous]

The "credit scoring 101" faq on this site states this:

-30% affects Utilization. It is best to have several accounts with low balances distributed then it is to have fewer accounts maxed out. To figure utilization: Balance (divided) by Credit Limit = percentage. Lower than 10% recommended per account, this is one of the fastest means for increasing the over all credit score.

However, what FICO really says is that an entire category makes up 30% of the importance of the score. The category "Amounts Owed," includes 5 other factors. "Proportion of credit lines used" is only one of the six. For instance, "Number of accounts with balances" is also part of the same 30%. So, it is mathematically impossible— unless the other 5 factors of the category are all zero— for the so-called "ratio" to account for 30% of the importance of the FICO score.

The "amounts owed" category (the 30%) includes:

Amount owing on accounts
Amount owing on specific types of accounts
Lack of a specific type of balance, in some cases
Number of accounts with balances
Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)
Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)
 

[Anonymous]

Either I am wrong about this or the faq here is wrong. I hope either I or the faq is corrected. Does anybody have any input on this?

[bigtim]

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@Anonymous wrote:

The "credit scoring 101" faq on this site states this:

-30% affects Utilization. It is best to have several accounts with low balances distributed then it is to have fewer accounts maxed out. To figure utilization: Balance (divided) by Credit Limit = percentage. Lower than 10% recommended per account, this is one of the fastest means for increasing the over all credit score.

However, what FICO really says is that an entire category makes up 30% of the importance of the score. The category "Amounts Owed," includes 5 other factors. "Proportion of credit lines used" is only one of the six. For instance, "Number of accounts with balances" is also part of the same 30%. So, it is mathematically impossible— unless the other 5 factors of the category are all zero— for the so-called "ratio" to account for 30% of the importance of the FICO score.
 

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You are correct. FICO scores range from 300-850, for a total of 550 possible points. So 30% of that is: 550 x 30% = 165 points. Does this mean that you will get 165 points if your "credit utilization" in terms of simply debt/credit limit is optimal (less than 9%) - no. The other factors are considered and I'm guessing it's much more complicated in the actual algorithm.

[Anonymous]

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@bigtim wrote:

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@Anonymous wrote:

The "credit scoring 101" faq on this site states this:

-30% affects Utilization. It is best to have several accounts with low balances distributed then it is to have fewer accounts maxed out. To figure utilization: Balance (divided) by Credit Limit = percentage. Lower than 10% recommended per account, this is one of the fastest means for increasing the over all credit score.

However, what FICO really says is that an entire category makes up 30% of the importance of the score. The category "Amounts Owed," includes 5 other factors. "Proportion of credit lines used" is only one of the six. For instance, "Number of accounts with balances" is also part of the same 30%. So, it is mathematically impossible— unless the other 5 factors of the category are all zero— for the so-called "ratio" to account for 30% of the importance of the FICO score.
 

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You are correct. FICO scores range from 300-850, for a total of 550 possible points. So 30% of that is: 550 x 30% = 165 points. Does this mean that you will get 165 points if your "credit utilization" in terms of simply debt/credit limit is optimal (less than 9%) - no. The other factors are considered and I'm guessing it's much more complicated in the actual algorithm.

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Not necessarily correct

Data analyst here chiming in.

30% doesn't necessarily mean 30% of points, it can mean 30% of metrics or weighting. 

FICO is not a linear algorithm.  And the weighting is not static nor singular.  It is multi-factor.  You have combinations coming together to determine the weight of any factors used.

Therefore, 165 points of your score are not directly related to utilzation.  If you understand the concept of "fuzzy logic" then you will begin to understand what I am trying to communicate.

http://en.wikipedia.org/wiki/Fuzzy_logic

[bigtim]

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@Anonymous wrote:

Not necessarily correct

Data analyst here chiming in.

30% doesn't necessarily mean 30% of points, it can mean 30% of metrics or weighting. 

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I see. While I don't have intimate knowledge of the FICO scoring algorithm, I assumed from myFICO's statement "Approximately 30% of your FICO® score is based on this category", that score and points were essentially synonomous. Anyway, my original reply was not meant to specify any exact scoring, but rather to clarify that any points (score) for the utilization category weren't simply calculated by debt/credit_availability alone - more was involved.

Thanks for info though....

[Anonymous]

NP.  I was just trying to illustrate that 30% is subjective to how it is applied.  In fuzzy logic terms, that 30% could end up being much more or less than 30% of the points, but still remain "true" as 30% of weight.

Example, when I had 800 plus scores, Simulator said if I maxed my credit cards my score would drop almost 200 points.

[bigtim]

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@Anonymous wrote:

NP.  I was just trying to illustrate that 30% is subjective to how it is applied.  In fuzzy logic terms, that 30% could end up being much more or less than 30% of the points, but still remain "true" as 30% of weight.

Example, when I had 800 plus scores, Simulator said if I maxed my credit cards my score would drop almost 200 points.

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I see, excellent point. And this brings to my attention that maybe my first example was inaccurate altogether...

Maybe I shouldn't have said the 550 points, but rather, your total score... In your example of 800+, this would make more sense in terms of percentage weight.

Good point, thanks for the enlightenment!

[Anonymous]

You shouldn't have to be a data analyst or understand linear algorithms to make sense of the credit 101 faq on this site. As it is written it is intended to convey to a layman that utilization affects 30% of your credit score. I believe that part of the faq is in error and should be corrected.

[Anonymous]

It is accurate stated as 30%.  I was trying to explain this is not a direct linear 165 points, but that it is a weighting and logic system which 30% of the factors are comprised of in a multi-fuzzy logic methodology.

So there layman's explanation usually suffices, and is true, that 30% accounts for this portion of score.  The problem is, it does take fuzzy logic and multi-dimensional factoring to truly attempt to understand how scores are derived, which is still guesstimates.

There is no single item that creates a singular event in scoring.  All areas have graduating, multi combination effects which parlay and domino as they are accounted for.

The FICO does not intend to be easily understood by laymen.  It is designed to accurately predict risk and behavior probability.

[Anonymous]

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@Anonymous wrote:

It is accurate stated as 30%.  I was trying to explain this is not a direct linear 165 points, but that it is a weighting and logic system which 30% of the factors are comprised of in a multi-fuzzy logic methodology.

So there layman's explanation usually suffices, and is true, that 30% accounts for this portion of score.  The problem is, it does take fuzzy logic and multi-dimensional factoring to truly attempt to understand how scores are derived, which is still guesstimates.

There is no single item that creates a singular event in scoring.  All areas have graduating, multi combination effects which parlay and domino as they are accounted for.

The FICO does not intend to be easily understood by laymen.  It is designed to accurately predict risk and behavior probability.

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According to the faq, there is.

But the faq is.

Again, as the faq is written, it is wrong. The faq should state that utilization, along with 5 other factors, account for 30% of the score.