inactive accounts -- effect on FICO score?

[Anonymous]

Hello everyone.  This question came up (implicitly) on another thread recently.

Let's define a credit card as inactive if the issuer has not reported an update to the credit bureau in the last ____ days.  We can make that 90 days, 120, 180, whatever. 

Question:  What does FICO do with inactive cards?

One possibility is that it treats them no differently then active ones.  In other words, you can have a card that has not been updated for two years, and FICO will still consider its credit limit as part of your total credit limit and will count the balance as part of your total debt.  It will still factor it into your AAoA.  Etc.

But it is possible that it is treated differently.  For example, perhaps its credit limit is dropped from your total credit limit.  Perhaps if it has a $0 balance, that $0 balance is ignored when FICO looks to see how many open cards are showing a $0 balance.  (For example: five cards total, three of them inactive and showing $0 and two active showing a positive balance.  Perhaps FICO would treat that as 100% of your cards showing a positive balance, rather than the far more beneficial 2 out of 5.)

Does anyone have any definite opinions on what FICO does?  And do different FICO models treat inactivity in different ways?

Another question: should the question above be generalized to include inactive accounts of any kind (including installment)?  For example, if I pay an SS loan down to a small dollar value, and then I don't engage in any activity with the account for a long time (next payment not due for another 4.5 years) could FICO begin ignoring it in its "installment utilization" calculation?  Again, due to inactivity?  Is this an argument for making a small payment to such an installment account at least once every 90 days?

Yet another question:

Is it possible that my definition for "inactive" is not quite right for this purposes?  I have defined inactivity as meaning that the creditor has not updated the record in a while.  But is a better definition that there hasn't been any activity on the account in a while?  In other words, should it be the Date of Last Activity -- a field that the CRAs do collect?

https://blog.equifax.com/credit/what-is-the-date-of-last-activity-on-my-credit-account/

All these theoretical questions do have practical impact in two ways.

(1)  For people preparing for a mortgage

(2)  For people trying to understand the best strategy for cards (or installment loans) that they have effectively "shoeboxed."

In the case of #2, you can easily get by with showing activity very rarely -- if all you are trying to do is prevent the account from being closed.  With a store card that might be every two years.  Even with a major card, once every 12 months might be fairly safe.  But if your FICO score starts ignoring the account in some important way after ___ days, then a more frequent strategy is implied.

For people who think that FICO might indeed do this, what kind of window do you guess they give?  90 days? 180 days?

Curious to hear what anyone thinks -- and on what basis.  Thanks in advance!

[Anonymous]

FICO patents don't really answer this but the reading is interesting.

• https://www.google.com/patents/US20090106141 -- search page for "inactive"

Also there is some evidence that having all your TLs as inactive cards may hurt your ability to get a mortgage or other credit product (older posts here on MFF) -- I wonder if ALL your TLs are inactive if you end up with no score.

[Anonymous]

Thanks ABCD.  The relevant language from that patent appears to be:

Before proceeding, it will be helpful to define certain terminology commonly used within the industry in defining the status of specific trade lines, as these terms are often used herein in association with describing certain characteristics used for analysis. Trade lines may be either open or closed. Open trade lines are available to the consumer to use. Closed trade lines are those the consumer no longer has access to for additional credit. Trade lines may also be active or inactive. Though different lending institutions utilize different cutoff points to label a term “active,” whether or not a trade line is considered active depends generally on the level of activity on that trade line within a given period of time (i.e. whether there is a balance in the account, the amount of that balance, and how frequently/to what extent the balance is changing based on transactions). Whether a trade line is open or closed is thus a separate concept from whether it is active or inactive. A trade line might be open, but inactive (e.g., an available credit card that is not used and has no balance). Alternatively, a trade line might be closed, but active (e.g., a cancelled credit card with a remaining balance due).

It's interesting that they define inactive/active as something that lenders internally define (with definitions varying by institution).  The fact that they mention it, however, opens the door to the possibility that FICO has its own definition -- possibly based on the DOLA -- and that its own models use it to drop otherwise beneficial tradelines from a person's score, e.g.

"an available credit card that is not used and has no balance"

[Anonymous]

That's how I read it too -- lenders/creditors define what activity means, and then FICO themselves appears to define what activity means.

Would be interesting for a person with no AAoA movement and no inq changes to activate an old TL and let it report $0 and see if their FICO changes.  I can't imagine how it would affect anything unless they have a borderline utilization (say, 11% utilization but activating an old TL might get them to 9%).

[Anonymous]

This may not be relevant at all to the discussion but has some interesting tidbits -- search for "inactive" again to spot them.

https://www.google.com/patents/EP1145166A1

Patent by Mastercard.

[Anonymous]

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@Anonymous wrote:
I can't imagine how it would affect anything unless they have a borderline utilization (say, 11% utilization but activating an old TL might get them to 9%).

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Utilization is one way.  But here is another possibilty that I mentioned in my initial post.

Perhaps if [the inactive card] has a $0 balance, that $0 balance is ignored when FICO looks to see how many open cards are showing a $0 balance.  For example: five cards total, three of them inactive and showing $0 and two active showing a positive balance.  Perhaps FICO would treat that as 100% of your cards showing a positive balance, rather than the far more beneficial 2 out of 5.

I can imagine that being really common.

I'm also curious about the possible FICO effects of "inactivity" as it touches installment accounts (which I also give an example of in my initial post).  This doesn't affect ordinary consumers (who are making a payment every month on their open installment loans) but it would affect people here (who often pay down their student loans or their SS loans to a small balance and then make no more payments for years).

[Anonymous]

Good topic.  Question though.  If someone has a card that they never let a balance report on, but they use the card regularly (several times per month) wouldn't FICO view that account exactly the same as they would a card that was "inactive" (not used) for a long period of time?  In both instances, the creditor would be reporting "$0" every month, whether the card is being used or not.  I could see if creditors stopped reporting on accounts every month due to a period of inactivity, but as far as I know they continue to report, so I'm not FICO would have any way of differentiating between an account being inactive or being active and always reporting a $0 balance?

[Anonymous]

FiCO can't generally see multimonth balance history, tho, right? Merely payment status in prior months.

[Thomas_Thumb]

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@Anonymous wrote:

Good topic.  Question though.  If someone has a card that they never let a balance report on, but they use the card regularly (several times per month) wouldn't FICO view that account exactly the same as they would a card that was "inactive" (not used) for a long period of time?  In both instances, the creditor would be reporting "$0" every month, whether the card is being used or not.  I could see if creditors stopped reporting on accounts every month due to a period of inactivity, but as far as I know they continue to report, so I'm not FICO would have any way of differentiating between an account being inactive or being active and always reporting a $0 balance?

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I believe information reported to CRAs includes monthly payment information. Given that is true, activity will show regardless of whether or not balances report as 0. I have seen payments included on past CRA reports. The free annual reports I got last week only show payment info on two cards. My other cards show nothing in that field. However, I did take another look at my reports AND the minimum payment field is always filled in even though actual payments are blank. Interestingly, some months that show a $0 balance also list a non zero minimum payment. So perhaps this field can be used to monitor inactivity.

It is possible credit card companies have another means of sending CRAs a yes/no indicator regarding card activity on a monthly basis extraneous of what we see. If not, the inactivity trigger would need to come from the CC company.

This topic has come up before and cards that are used but alway report a 0 balance are not tagged as inactive by Fico. Does prolonged inactivity impact whether or not the card's CL is included in total CL? Not sure but, if the card is open I hope not. That being said, I have experienced different total CL on Experian 3B reports depending on the CRA. This happened although all cards were on all reports. At the time I wondered the card (not used in 4 months) had been tagged as inactive by the CRA file showing the lower total CL. The card with the missing CL was my Best Buy store card. 

Does a card that has been inactive for 6 months or more prompt a score drop when it 1st reports activity again? Can't say personally but, a few posters have reported experiencing a temporary drop.

Since I experienced a CLD many years ago do to prolonged inactivity, I don't allow cards to remain inactive more than 5 months. 

[Anonymous]

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@Anonymous wrote:

Good topic.  Question though.  If someone has a card that they never let a balance report on, but they use the card regularly (several times per month) wouldn't FICO view that account exactly the same as they would a card that was "inactive" (not used) for a long period of time?  In both instances, the creditor would be reporting "$0" every month, whether the card is being used or not.  I could see if creditors stopped reporting on accounts every month due to a period of inactivity, but as far as I know they continue to report, so I'm not FICO would have any way of differentiating between an account being inactive or being active and always reporting a $0 balance?

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Great question, BBS. The first way I suggested that FICO might define "inactive" was by Date Last Reported (which is a field in the credit file).  If the consumer stopped using his credit card for a long stretch of time, the issuer might well stop reporting it.  There was someone this happened to very recently.  It was a Victoria Secret card, managed by Commenity.  Apparently they stop reporting once you stop using the card for a few months.

A card that was being used each month but regularly paid to zero would almost certainly be reported each month, even if there were 30 such statements in a row.  (SouthJ probably has the most exhaustive data on that since he almost never let cards report a positive balance and yet used every card each month.)  Thus it would never be flagged as inactive.  A card that was unused for a long period might well stop being reported, however. 

Toward the end of my initial post I suggested that FICO might use a different method of defining Inactivity, which would be to rely on Date of Last Activity (DOLA) which is also a field in the credit file.  Using the DOLA, a person who paid his card to zero each month would also never be declared Inactive, whereas a person who stopped using it certainly would be identified as such.