Re: # of Accounts - Really help or hurt?
11-07-2012 11:37 AM
A vast oversimplification to just state that more accounts are better.
Some "number of accounts" issues to chew on...
1. Apart from pure FICO scoring, it is difficult to juggle many open accounts... meeting due dates, etc. So they can be negative from that perspective.
2. The scoring categories
Of the FICO basic scoring categories, no. of accts comes into real play wrt length of credit history, mix of credit, new credit, and util of credit.
a. Length (approx 15% total)
Oldest acct is but one acct, so no. of accts doesnt matter, but it does matter as to avg age of accts. Opening any new account will mathematicall lower your avg age of accounts. No way around it.
b. New credit (approx 10%)
Same general issues as withAAoA, but with the unknown of how "news" are defined by FICO, and weighted in scoring. Accts under one year, for example, may affect New Credit as being a newbie. There is little in the published literature of how New Credit is scored based on having "new" accounts, or what "new" credit even is.
c. Credit Mix (approx 10%)
Yes, showing a mix of different types of credit is scored, however it seems to be the consensus that multiple revolving of 2-3, and at least one installment, are the most significant, and therafter having many more does not significantly score as improved risk. Additionally, use of installment credit is not weighted highly by FICO, so becomes much less important to have multple installment accounts.
d. Util of Credit (30%)
For revolving, FICO scores both overall % util and the % util on individ accts, and additionally considers % revolv with reported balance.
One maxed out card will hurt under individ card scoring, but be smoothed out in calculting overall % util.
Having increased revolving accts gives a larger denominator in the % with balance ratio, and thus could make it easier to keep a lower % with bal.
A simple example: with one card, you are always at 0 or 100% with balance; with two cards, you can be at 0, 50, or 100%; with three, at 0, 33,66, or 100%, etc.
Thus, use of one card might have less impact from month to month.
Those, and many other factors, make generalizations about number of accounts kinda meaningless. It depends.