Score Increase Over Time

[Anonymous]

Hello everyone, in recent months I've gotten my first card, the Discover Secured, as well as becoming an AU on various family members' cards and getting really interested in keeping a high credit score. Since I won't have my first official FICO until December, I've had too much time reading up on the best ways to maximize your score and the importance of utilization and so on in these forums.

My question is that since utilization is only a snapshot and has no memory effect, what are the main drivers in causing a score to rise over time? Assuming that a person keeps the ideal utilization and number of cards for months, is the only FICO factor that changes and therefore causes the score increase the age of accounts? Since it only accounts for 15% of the score overall that would be pretty surprising but also interesting to note. Some have shown that initial scores ~700 or less is pretty common and I was just wondering what would cause it to increase to the higher 800 range from there if utilization and payment history were already ideal. I'm just really anxious to get my first real credit score and start building from there, and I've just been obsessing over the tiniest of details that won't matter for now and making sure that I get off to the right start with credit.

Thanks for your insights.

[Anonymous]

With perfect on time payments and single-digit aggregate utilization, you are maximizing 2/3 of your FICO score.  The rest really has to do with time and new accounts.  You want time to progress of course, aging the 3 different aging factors:  AAoA, AoOA and AoYA.  As far as new accounts, you want to not apply for new credit unless you need it.  Unnecessarily applying for credit will result in inquries at the very least and inquries plus new accounts if approved, two factors that can lower score. 

For maximizing the utilization sector of the FICO pie, you're going to want to have a total of 3 revolvers with two reporting $0 balances and 1 reporting a small balance every month.  You may also wish to look into the SSL technique, which basically throws a meaningless installment loan on your credit report which will satisfy the "credit mix" sector of the types of credit portion of your score.  Using the AZEO technique with 3+ revolvers and adding a SSL combined could be good for around 50 points added to your FICO score.  It could be the difference between a 700 and 750 score, give or take, when you have 6-8 months of credit history.

[Anonymous]

Thanks for the great concise info. To better understand the snapshot nature of utilization for FICO scoring, I have one more hypothetical.

If one person consistently has a high utilization say 80% for a year and then on the 13th month follows azeo etc and has below 9% aggregate utilization report for that month, will their score be equal to a person’s if they had kept a low utilization the entire time? Assuming everything else equal.

If so that makes starting out building credit much easier and less nitpicking with paying before the statement posts. Thanks again!

[Anonymous]

Yes, in your hypothetical illustration above both otherwise equal profiles would yield the same score.

Say someone has a score of 750 when they're at 1% utilization and that score drops to 650 at 90% utilization.  It doesn't matter if their utilization sits at 90% for a month, 6 months, a year, etc.  The moment they drop their utilization back to 1%, their score will go up by the amount of points lost originally, so back to 750 in this example.  Of course over time other factors are changing, so on a longer time line here such as 1 year things like AAoA can grow, AoOA can grow, inquiries can age off etc. which may yield a greater score over time anyway. 

One thing that's important to consider, though, is that "trended data" may be a consideration.  It's believed that creditors in the near future (next couple of years) could start having the ability to look back as much as 2 years at your utilization.  For all we know, this data could be being collected now even if it isn't used yet.  That said, say 2 years from now trended data IS being used commonly.  Going back to the illustration above, if the person with 90% utilization kept it at that level for 1 year as opposed to someone that just spiked their utilization to 90% for 1 month and then brought it back to 1%, the person with a full year of 90% utilization would be much more adversely looked upon upon a manual review [of trended data] since it would suggest they were a far greater risk for a far longer period of time.  Both of their scores could still be 750 still, assuming both were back at 1% utilization, but a quick look at trended data would paint quite a different picture of these two individuals.

[HeavenOhio]

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@Anonymous wrote:

One thing that's important to consider, though, is that "trended data" may be a consideration.  It's believed that creditors in the near future (next couple of years) could start having the ability to look back as much as 2 years at your utilization.  For all we know, this data could be being collected now even if it isn't used yet.  That said, say 2 years from now trended data IS being used commonly.

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Credit reports are currently structured to collect that data, EQ and EX for 24 months and TU for 30. But as of now, not all cards report it. In the trended data slots, if a card doesn't report a number, you'll see a blank space or a notation that says "no data."

For the cards that report the data, it's easy to tell what you've been doing over a period of time, e.g. paying in full, carrying balances and paying minimums, carrying balances and paying substantial amounts toward them, carrying balances and piling on new charges, etc.

In theory, lenders could look at trended data right now. But with the spotty reporting, it'd be hit and miss. For a scoring model to consider these numbers, they'd have to be reported consistently.

[Anonymous]

Perceptive questions by the OP.  And good answers by the contributors.

Here's a summary.

Use AZEO in the immediate run-up to a new application for credit.  Also use AZEO if you are rebuilding and your credit scores are really low.  The logic behind the decision is the same for both cases, namely a need to squeeze out every additional point possible.  (For rebuilders, they are under monthly scrutiny by their creditors; rebuilders therefore want close to the best score they can have every month.)

When not using AZEO...

Always strive to keep your total reported utilization under 29% and individual utilization under 49%.  Again this is to avoid spooking an existing creditor.  Although the current FICO models may not have any memory for utilization, your existing creditors may very well be pulling your reports and scores every month, and if they see a particular card go way up in utilization (even if it is not issued by them) they might freak out.  People with higher scores and long histories of perfect payments have greater freedom in this regard.

So, the simple approach as a long game strategy:

Use your cards as needed.  Let them report positive balances (if you happen to use the card).  Always pay the statement balance in full.  But keep your utilization under reasonable control.

[jamie123]

You will need to make a decision about building a thick file or just maintaning a thin file. You need high scores to get more credit at good terms and to qualify for better cards, but everytime you apply and get new credit, it will knock your scores down for about one year.

Think for the long term. You should end up with 5 to 8 high quality credit cards when you are done building your credit foundation that will grow with you for life. Yes, credit cards are the only true way to get and keep high credit scores that will be stable when you actually use your credit for things that you need like mortgages and auto loans. Having 5 to 8 well aged credit cards will give you rock solid high credit scores for the long term. A credit card account is really the only account that you have a chance at keeping open for the rest of your life. Sure you can get a 30 year mortgage but most people sell their house and move every 5 to 6 years which restarts the mortgage clock.

It is a tough choice starting out because you need more cards but you also know that you will have to sacrafice your scores for a while to get it.

[Anonymous]

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@jamie123 wrote:

... but everytime you apply and get new credit, it will knock your scores down for about one year.

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I disagree with the above statement.  Maybe this is true with some profiles, but not all profiles.  And, I'm not sure a single new account could knock down any score for a year.  I've done 2 "sprees" in the last 2 years, each one consisting of 3-4 new accounts and within 4-5 months my scores were back where they were pre-spree and within 6 months both times they were higher than they were pre-spree.  And, that's with 3-4 accounts, not just 1.

[Anonymous]

I agree with BBS and I have a dirty profile!

My first 3 credit cards were of course free FICO boosts just for having 1, 2 or 3 revolvers.  #4 hurt me for 2 months, maybe 3.  #5 and 6 hurt me for 3 months or so, maybe 2.  

My history was:

• 1 card August 2012 -- helped FICO but then went derogatory (120D late ouch) -- goodwilled this one and they removed all the lates after a lot of letters, emails, faxes and singing clowns
• 2nd card Discover secured March 2017 -- helped FICO immediately when posted (inquiry hurt a few points initially)
• 3rd card Williams Sonoma store card April 2017 -- didn't report for more than 2 statements but no inquiry (SCT)
• 4th card Capital One secured May 2017 -- showed up on credit reports very fast, major FICO boost, small inquiry hit
• 5th card Chase Freedom Unlimited May 2017 -- showed up prequal on Credit Journey, took a month to show up, FICO dropped a little bit
• 6th card Amazon store card May 2017 -- inquiry hurt a little, didn't post to CRs for 2 months
• 7th card Capital One QS1 August 2017 -- inquiry hurt a little, FICO can't tell because my Alliant SSL also posted and my score skyrocketed up.

I started in February 2017 with FICO08s all in the 560-580 range.  By September I have a TU FICO08 of 674 or so and the rest are close.  TU still shows an unpaid tax lien (2010) and unpaid collection (2017) and it's my high score.  All thanks to new accounts, SSL, very low utilization

AAoA is pretty low now but honestly I expect all scores in the 700s next year even if that paid collection doesn't delete or that tax lien doesn't go away.

Most people screw up FICO by getting new cards and maximing them out instantly.  Don't do that.

[Anonymous]

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@Anonymous wrote:

I agree with BBS and I have a dirty profile!

My first 3 credit cards were of course free FICO boosts just for having 1, 2 or 3 revolvers.  #4 hurt me for 2 months, maybe 3.  #5 and 6 hurt me for 3 months or so, maybe 2. 

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Slightly related, but I’m an AU on three Chase FUs as well as a secured card in my own name. Since having less than half your cards show a balance with at least three cards is best, does being an AU and having secured cards count the same towards scoring as unsecured cards? Including the score boost you mentioned?

Edit: is it true that AUs do not hold as much weight as your own cards? And do the AUs count the same as normal cards in number of cards with a balance for things like AZEO in that section of scoring?