Understanding scoring

[gagum129]

So I am curious. If credit utilization is 30% of your score that means it is worth a Max of 255 points. 255 being 30% of 850. So does that mean a person who has credit cards maxed out and he pays them off could see an increase in their score of 255? I know the answer is probably no but I am curious if a person could see a 100+ point increase paying down debt like this. If not what other factors are taken into consideration in the Credit Utilization category? Thank you all for your help. I learn more each and every day from this board.

[RobertEG]

Utilization is not all just util of revolving credit, but the vast majority is.  FICO has not stated the specific, relative weights of installment vs revolving.

Making a pure guess based on anecdotal experiences, assume that 90% of that 255 points is based on revolving util, and 10% based on installment.

That leaves somewhere around 230 pts weighted towards revolving % util.  FICO has, fortunately, statted in one of its webinars a few years ago, that approx halff of revolving util is based on overall $ util, and the other half being based on a combination of your utils on each individual card.and the % of the total number of cards reporting any balance.

Trying to put some very rough numbers on all of these factors, you arrive, under the assumptions made, that approx 25 points are based on util of installment loans, with115 points.based on overalll revolving % util.  Assuming you had four credit cards, you would have 5 sub-categories under invid card util, i.e., the % utill or each of the four cards, and the % of the number of cards reporting a bwlance.  115 divided by 5 is 23 points for each sub-category.

You can, of course, change those basic assumptions, but the bottom line is still pretty clear. Overall revolving % util is clearly by far and above the most important.

The % util of each indiv cc, then the number of cards reporting balances, and  the  % util of installment accounts.

[stan_the_man]

FWIW -- I've hypothesized that since the differential between the maximum and minimum score is 550 (850-300=550), that when FICO says factor impacts 30% of your score that they really mean 30% of the 550 points that can actually change -- not 30% of the maximum possible score.

[llecs]

And to throw a monkey wrench into the discussion, you can't calculate it w/ 30% of the score because of scoring buckets. Util can weigh in more for some than others.

[RobertEG]

+1

The 30% weighting is an average across all consumers.  What "bucketing" really means is that different FICO categories/buckets  have different weighting levels.  Since FICO has not disclosed the weighting levels or individual buckets, I fully agree that no such thing as a uniform, precise weighting can be assumed.

I dont offer any specifiic score predictions, just relative levels.

However, in my opinion, based on what FICO has disclosed, overall % util is more important than each, indiv card % util.  I think that is about as far as the assumptions permit.

[TColl10aolcom]

I currently have a high credit/debt ratio. FICO simulator indicates if I pay down 90%-100% of my debt, my score would increase 100-120 points. 

[stan_the_man]

@TColl10aolcom --

That's entirely possible, and you'll definitely see a nice score boost, but you can't count on receiving the full score boost the score simulator says you will.

[gagum129]

I am slowly figuring some of this out and really appreciate everyone's feedback. The whole bucket thing brings up another question. So, if there is a bucket for people who have one major derog and there score is just say 700. Then they do a PFD and the major derog fall off. Some people are saying it is possible for a person's score to actually dip a little because they will be rebucketed. Wouldn't it make sense for a person seeking a loan not to do a PFD prior to obtaining their loan since their score could drop? Just seems crazy that their credit file would be getting better but their score would drop. Just when I start to think I am understanding things I realize I don't!! lol.

[haulingthescoreup]

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@gagum129 wrote:

I am slowly figuring some of this out and really appreciate everyone's feedback. The whole bucket thing brings up another question. So, if there is a bucket for people who have one major derog and there score is just say 700. Then they do a PFD and the major derog fall off. Some people are saying it is possible for a person's score to actually dip a little because they will be rebucketed. Wouldn't it make sense for a person seeking a loan not to do a PFD prior to obtaining their loan since their score could drop? Just seems crazy that their credit file would be getting better but their score would drop. Just when I start to think I am understanding things I realize I don't!! lol.

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Understandable question.

The people who have to worry about their scores dropping when their only serious derog and/ or public record falls off are those who also still have lots of 30's, or high util, or some other fairly important negative scoring factor.

That's because when you come out of the negative score bucket, you're being compared with people who don't have serious lates or charge-offs or collections or BK's or liens or all the rest. So while you might have compared pretty well to others who had awful stuff on their reports, if you still have enough lesser negatives present, you're not looking so hot once you're compared with the new group.

Most people do find that their scores rise when the last serious derog comes off. For instance, people with otherwise clean reports and one collection often see 50-75 points when it's removed. I gained around 15 points or so (maybe more, can't remember right now) when my only serious late, a 60-day, came off, even though I still had some 30's littered around. In most cases, as long as that serious negative is listed first on your reports, your scores will rise when it comes off.

Again, it's only an issue when it's your last serious late or public record. If there are still one or more remaining, you're still in one of the negative score buckets.

If someone is trying to get a mortgage or other loan that is heavily dependent on FICO scores, I'd like to think that they've already gotten their util down very low first.

edited in a feeble attempt to make this less head-hurting

[larinoriani]

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@gagum129 wrote:

So I am curious. If credit utilization is 30% of your score that means it is worth a Max of 255 points. 255 being 30% of 850. So does that mean a person who has credit cards maxed out and he pays them off could see an increase in their score of 255? I know the answer is probably no but I am curious if a person could see a 100+ point increase paying down debt like this. If not what other factors are taken into consideration in the Credit Utilization category? Thank you all for your help. I learn more each and every day from this board.

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That will depend on the rest of the information in your file. But is known that CC utilization drives the scores significantly. My FICOs bumped from ~690 to ~740 during the past two years after reducing my UT from 90% to 28%. I have a 8-year credit history and no baddies.