topic Re: Breaking a scoring plateau? in Understanding FICO® Scoring

Breaking a scoring plateau?

iced — Fri, 08 Jul 2016 17:21:47 GMT

Greetings to everyone from a long-time lurker and first-time poster.

I have been trying to rebuild my credit, and while I have met with some success, I seem to have hit a plateau in raising my score. I am looking for some advice as to what I am doing wrong (or not doing) in order to push things higher. For about the last year, I have been checking scores monthly and credit reports quarterly, and my scores fluctuate a bit from month to month, but the average of my scores stay in the 750-780 range on any given month. I would really love to push these over 800.

I have 5 open credit cards on my report ($30,000, $10,500, $7,400, $5,000, and $700), though I only use 2 with any regularity (the 2 largest lines). One card ($5000) is a store card; the rest are regular credit cards. I pay statement balance in full each month. I tend to show a utilization average of between 5 to 10% on reports. I have found to my surprise that the lower my utilization is, the lower my score tends to be and vice versa.

There is one open auto loan and one student loan on my report. I also currently have a mortgage (but want to purchase another home soon hence my sensitivity to the scoring). The number of inquiries on my reports range from 1 to 3. My current AAoA is just under 6 years with oldest open accounts coming up on 10 years.

There are no public records and I haven't had any late payments since 2012 though they do continue to show on my report since the 7 years haven't passed yet.

I thought it was the old late payments holding me back but I have met several other people who have confided in me they have late payments and 800+ scores, so I feel like there's something else I'm doing that's keeping my scores from moving again.

Any advice the experts out there can share is appreciated.

Re: Breaking a scoring plateau?

SouthJamaica — Fri, 08 Jul 2016 21:04:51 GMT

@iced wrote:
Greetings to everyone from a long-time lurker and first-time poster.

I have been trying to rebuild my credit, and while I have met with some success, I seem to have hit a plateau in raising my score. I am looking for some advice as to what I am doing wrong (or not doing) in order to push things higher. For about the last year, I have been checking scores monthly and credit reports quarterly, and my scores fluctuate a bit from month to month, but the average of my scores stay in the 750-780 range on any given month. I would really love to push these over 800.

I have 5 open credit cards on my report ($30,000, $10,500, $7,400, $5,000, and $700), though I only use 2 with any regularity (the 2 largest lines). One card ($5000) is a store card; the rest are regular credit cards. I pay statement balance in full each month. I tend to show a utilization average of between 5 to 10% on reports. I have found to my surprise that the lower my utilization is, the lower my score tends to be and vice versa.

There is one open auto loan and one student loan on my report. I also currently have a mortgage (but want to purchase another home soon hence my sensitivity to the scoring). The number of inquiries on my reports range from 1 to 3. My current AAoA is just under 6 years with oldest open accounts coming up on 10 years.

There are no public records and I haven't had any late payments since 2012 though they do continue to show on my report since the 7 years haven't passed yet.

I thought it was the old late payments holding me back but I have met several other people who have confided in me they have late payments and 800+ scores, so I feel like there's something else I'm doing that's keeping my scores from moving again.

Any advice the experts out there can share is appreciated.

What are the original loan amounts and the present balances?

I seriously doubt one can get 800+ scores with late payments btw.

Re: Breaking a scoring plateau?

RonM21 — Fri, 08 Jul 2016 22:01:27 GMT

Welcome to the forums! I feel pretty confident in saying the late payments are what is holding you back from breaking down that wall. Until they are removed, they are accounting for a loss of points that you could have, and it is probably a decent sized amount of points.

Re: Breaking a scoring plateau?

iced — Fri, 08 Jul 2016 22:11:37 GMT

The open loan balances are:

Student - Original balance was ~$35,000, now at ~$27,000

Car - New loan (June 2016), ~$31,000, so still at same

House - Original balance was ~$157,000, now at ~$138,000

I'm also worried that the late payments are imposing a lower ceiling on my score, though I also keep reading that they're supposed to hurt less over time.

Re: Breaking a scoring plateau?

Revelate — Fri, 08 Jul 2016 23:48:28 GMT

@iced wrote:
The open loan balances are:

Student - Original balance was ~$35,000, now at ~$27,000
Car - New loan (June 2016), ~$31,000, so still at same
House - Original balance was ~$157,000, now at ~$138,000

I'm also worried that the late payments are imposing a lower ceiling on my score, though I also keep reading that they're supposed to hurt less over time.

They effectively do hurt less over time, but for example the highest we've anecdotally seen on a FICO 8 score was a 785 IIRC with a 90 day late about to fall off. That said I've been sitting at virtually the same score on every FICO algorithm I have access to for the past two years if I discount the installment utilization fun... and probably will for the next 1.5 years as well.

Different algorithms score things differently, and I'd recommend taking anything you have "confided" in you with a grain of salt as even these days it's still statistically less likely they're looking at a FICO score, and even less likely they're using the same ones you are as a benchmark even if they are.

Lates and your installment utilization when talking FICO 8 isn't pretty but short of dropping a boatload of cash there's nothing you can do the optimize that second bit (same as me incidently, I would be >740 on EX and maybe even TU/EQ too without my darned mortgage lording over installment utilization metric); fortunately when talking mortgage 2/3 of the trifecta of scores used ignore installment utilization altogether.

See if you can GW off the lates, and it'd be worth taking a peak at your mortgage scores if you haven't already as you might actually be higher on those from what you describe than the FICO 8 benchmark most people have.

Re: Breaking a scoring plateau?

iced — Sat, 09 Jul 2016 00:48:49 GMT

Revelate,

You bring up an interesting angle with the loans. I always had believed that carrying a mix of credit and installment loans was essential to having a high score. I also did not realize the balances factored in my utilization. If I were to apply for a new mortgage in a year, because of the lag between a loan closing (selling house and paying off mortgage) and it showing up on a credit report, would the ~$138,000 utilization work against me when trying to get the new mortgage?

I could pay off the student loan, but it would tap out the emergency fund and I feel that the benefits to doing so don't justify the costs at present. However, I have been thinking about partially paying it down (making an additional $10,000 payment) just because it's currently my highest interest loan and I would prefer it be gone sooner rather than later. Would this reduction actually boost my score, and if so are we talking somewhere closer to 5 points or 30?

Re: Breaking a scoring plateau?

Revelate — Sat, 09 Jul 2016 01:25:17 GMT

@iced wrote:
Revelate,

You bring up an interesting angle with the loans. I always had believed that carrying a mix of credit and installment loans was essential to having a high score. I also did not realize the balances factored in my utilization. If I were to apply for a new mortgage in a year, because of the lag between a loan closing (selling house and paying off mortgage) and it showing up on a credit report, would the ~$138,000 utilization work against me when trying to get the new mortgage?

I could pay off the student loan, but it would tap out the emergency fund and I feel that the benefits to doing so don't justify the costs at present. However, I have been thinking about partially paying it down (making an additional $10,000 payment) just because it's currently my highest interest loan and I would prefer it be gone sooner rather than later. Would this reduction actually boost my score, and if so are we talking somewhere closer to 5 points or 30?

It's all aggregate (and only on FICO 9, FICO 8, and FICO 98), so for me I'd have to get down to ~80% (might be 70%, think we're close to isolating the higher breakpoint whereas we know the low breakpoint at 10%, or 9% depending on FICO's rounding) of a 258K mortgage on my report since my other baby loan doesn't contribute much to the calculation.

AKA I'd have to kick 50K and change to the loan in order to materially effect a change. In your case it's unlikely to make a difference at all in paying down the debt signifncantly, and you are MUCH better off keeping that cash in the bank from a mortgage perspective.

Mortgages are underwritten on a fixed set of FICO scores, and the Equifax and Transunion scores there utterly ignore installment loan balances so I wouldn't worry about it. Basically if you need clearance on a DTI calc, then you pay off a loan, but if you don't, let it ride.

Re: Breaking a scoring plateau?

SouthJamaica — Sat, 09 Jul 2016 03:21:18 GMT

@iced wrote:
The open loan balances are:

Student - Original balance was ~$35,000, now at ~$27,000
Car - New loan (June 2016), ~$31,000, so still at same
House - Original balance was ~$157,000, now at ~$138,000

I'm also worried that the late payments are imposing a lower ceiling on my score, though I also keep reading that they're supposed to hurt less over time.

Your installment loan utilization is quite high. That is definitely depressing your scores in a major way.

Your focus should be paying those down.

Re: Breaking a scoring plateau?

SouthJamaica — Sat, 09 Jul 2016 03:26:23 GMT

@iced wrote:
Revelate,

You bring up an interesting angle with the loans. I always had believed that carrying a mix of credit and installment loans was essential to having a high score. I also did not realize the balances factored in my utilization. If I were to apply for a new mortgage in a year, because of the lag between a loan closing (selling house and paying off mortgage) and it showing up on a credit report, would the ~$138,000 utilization work against me when trying to get the new mortgage?

I could pay off the student loan, but it would tap out the emergency fund and I feel that the benefits to doing so don't justify the costs at present. However, I have been thinking about partially paying it down (making an additional $10,000 payment) just because it's currently my highest interest loan and I would prefer it be gone sooner rather than later. Would this reduction actually boost my score, and if so are we talking somewhere closer to 5 points or 30?

With 88% installment loan utilization, your scores aren't going anywhere. A $10k reduction in your debt, taking you down to 83.5% utilization, isn't going to cut it.

So if I were you I'd either stop fretting about my credit scores, or I'd start getting serious about getting the installment balances seriously reduced.

Re: Breaking a scoring plateau?

driftless — Sat, 09 Jul 2016 03:28:36 GMT

I believe that nothing trumps baddies, not new CC's nor LOC's. Once you have 3 clean CRA's after your 2012 baddies fall off then you can climb!

Re: Breaking a scoring plateau?

yapsalot — Sat, 09 Jul 2016 06:11:25 GMT

The lates are relatively old, but probably depressing your score. Maybe try asking the lenders to delete them as a courtesy for an otherwise good customer or if that doesn't work, try disputing them with the bureaus and see if they fall off?

Re: Breaking a scoring plateau?

iced — Sat, 09 Jul 2016 18:25:16 GMT

Thanks to those who replied.

It seems the consensus at this point is it's probably the old late payments. I'll just have to ride things out for 3 more years (goodwill attempts have borne no fruit). Thankfully, it's not impacting my ability to get approvals, just my ability to get approvals with the best interest rates.

I'll also do some more reading up on the impact of installment loan utilization. I had always thought it had a very little impact, and I must admit I'm a bit concerned about this revelation. I am planning to sell off the house the mortgage is on later this year without taking on a new mortgage right after, so I will have an opportunity to reduce the utilization percent and observe how my score changes then.

Re: Breaking a scoring plateau?

SouthJamaica — Sat, 09 Jul 2016 19:15:07 GMT

@iced wrote:
Thanks to those who replied.

It seems the consensus at this point is it's probably the old late payments. I'll just have to ride things out for 3 more years (goodwill attempts have borne no fruit). Thankfully, it's not impacting my ability to get approvals, just my ability to get approvals with the best interest rates.

I'll also do some more reading up on the impact of installment loan utilization. I had always thought it had a very little impact, and I must admit I'm a bit concerned about this revelation. I am planning to sell off the house the mortgage is on later this year without taking on a new mortgage right after, so I will have an opportunity to reduce the utilization percent and observe how my score changes then.

Installment loan utilization has a huge effect. In my profile it provides swings of over 30 points.

I don't want to be a party pooper, but if you sell the house, close out the mortgage, and don't reduce the student and car loans, I predict that you still won't see a pop in your score, because you'd still have a high percentage of your then reduced installment loan debt out there, so the utilization percentage will not have dropped. FICO (stupidly in my opinion) doesn't seem to care about the size of the installment loans, it only seems to care about the percentage outstanding.

On the other hand, if you can come out of the house sale with enough money to bring the student and car loan balances down to a total less than $6000, then you'll probably see a large score increase once everything has reported.

I know it's intuitive to think that paying off a big loan like that would score points for you with FICO, but it doesn't.

Re: Breaking a scoring plateau?

iced — Sat, 09 Jul 2016 19:22:13 GMT

SouthJamaica,

My plan is to pay down/off the student loan with some of the equity realized.

Unfortunately, if I pay off the student loan, my utilization (as you point out) doesn't really move because I would still have around a 94% utilization (~$29k balance on a $31k car loan), whereas if I merely pay down the loan but not completely I could reduce it to 60% or more ($10k balance on a $35k student loan + $29k on $31k car loan).

I could also make large payments against both but the interest rate on the student loan is 4.75% versus 1.5% on the car loan, so that makes for a poor allocation of funds IMO.

Basically, when it comes to installment utilization, I can either strategize my funding to boost my credit score or enhance my savings, but not both.

Re: Breaking a scoring plateau?

SouthJamaica — Sat, 09 Jul 2016 19:37:51 GMT

@iced wrote:
SouthJamaica,

My plan is to pay down/off the student loan with some of the equity realized.

Unfortunately, if I pay off the student loan, my utilization (as you point out) doesn't really move because I would still have around a 94% utilization (~$29k balance on a $31k car loan), whereas if I merely pay down the loan but not completely I could reduce it to 60% or more ($10k balance on a $35k student loan + $29k on $31k car loan).

I could also make large payments against both but the interest rate on the student loan is 4.75% versus 1.5% on the car loan, so that makes for a poor allocation of funds IMO.

Basically, when it comes to installment utilization, I can either strategize my funding to boost my credit score or enhance my savings, but not both.

Well, installment loan utilization -- unlike credit card utilization -- only counts the overall utilization, not the per-account utilization. So, for FICO score purposes, the trick is to pay the student loan down to a small number but not to zero, so that the face amount of the loan will still be in the game. If you pay the student loan down to $1k, and the auto loan were at $29k, you'd have installment loan utilization of 45%, which would probably get you some points.

Yes it's true that often one has to prioritize economics vs. FICO score. Many times something that saves you bucks costs you points. Classic example: someone who's carrying balances of $5k paying 15% iinterest gets Slate card with $5k credit limit and 0% interest and zero-fee balance transfer offer. Economically it's a no brainer to take the balance transfer for the whole thing, but FICO scores take a hit because of the 100% utilization on the Slate card.

It's just a matter of priorities.