topic Re: 0% utilization worse than 40-50% utilization. in Understanding FICO® Scoring

0% utilization worse than 40-50% utilization.

Anonymous — Wed, 14 Sep 2016 21:13:19 GMT

I just thought I'd post this because I would expect the opposite to be true. At least that was my perception. I know all profiles are different, so I'm speaking about my profile here.

I've always read how letting a small balance report on one card maximizes scores, so I always thought the "second best" option would be simply to PIF all accounts while letting nothing report. Not true. Letting much higher aggregate utilization report, at least for me, results in far better scores.

When I dropped my aggregate utilization by about 40%+, I saw on average a gain of 3 points across each bureau. I started monitoring my scores with aggregate utilization at about 48%, dropped it to 36% and then dropped it to 6%. I did this over the course of a few weeks so this was the only major change to my profile. A couple of weeks back I accidentally let all $0 balances report, so my scores all dropped, 14-20 points. This week I allowed a balance to report, repulled my scores and regained the 14-20 points lost, +/- 1 point.

So for my profile, in summary, compared to reporting 1%-9% utilization:

0% reported = 14-20 point drop

36-48% reported = 3 point drop

Re: 0% utilization worse than 40-50% utilization.

pipeguy — Thu, 15 Sep 2016 02:13:41 GMT

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Paid-off-car-loan-FICO-dropped-Got-a-new-car-loan-FICO-dropped/m-p/4731961#M113392

Re: 0% utilization worse than 40-50% utilization.

805orbust — Thu, 15 Sep 2016 13:35:44 GMT

36-48% util = they've got you where they want you

0% util = you've got them where you want them. Not to mention in your back pocket if you need them.

Still surprised?

Re: 0% utilization worse than 40-50% utilization.

Anonymous — Thu, 15 Sep 2016 23:07:45 GMT

@pipeguy wrote:
http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Paid-off-car-loan-FICO-dropped-Got-a-new-car-loan-FICO-dropped/m-p/4731961#M113392

I'm not seeing how that thread has any relevance to what I posted.

Re: 0% utilization worse than 40-50% utilization.

Anonymous — Thu, 15 Sep 2016 23:12:25 GMT

Yes, still surprised as I would expect someone with 35-45% utilization to be viewed as more of a risk over someone that reports 0% utilization. Don't get me wrong, I completely get the concept of taking a hit for not showing any utilization. However, FICO scores are supposed to attempt to gauge risk, and someone at 35-45% utilization especially with big credit lines is quite a risk IMO. For some people on here with $100-$200k in credit lines, 35-45% could represent $35,000 - $90,000 in debt. Just my opinion here, but that to me seems like a far greater risk than someone reporting no utilization.

Re: 0% utilization worse than 40-50% utilization.

805orbust — Fri, 16 Sep 2016 02:12:42 GMT

Totally agree with your opinion, however I'd submit that the missing variable for us is what Is the end game for the creditor? Sure calculating risk, but to what end? Profit. Period. Motivation is the lynchpin. We're all just decent people trying to sift thru data, and make good decisions, but for them? It's all about money. When you look at it like that, the guy their making it off of is higher up the conga line than the guy who isnt. That's why it doesn't make sense to us. We just think is all about risk... not even close.

Re: 0% utilization worse than 40-50% utilization.

Anonymous — Fri, 16 Sep 2016 11:33:35 GMT

I can understand that from the perspective of the creditor, but we're talking FICO scores here which aren't designed by the creditor. Were FICO algorithms designed with creditor profit in mind?

Re: 0% utilization worse than 40-50% utilization.

pipeguy — Fri, 16 Sep 2016 12:11:02 GMT

@Anonymous wrote:
@pipeguy wrote:
http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Paid-off-car-loan-FICO-dropped-Got-a-new-car-loan-FICO-dropped/m-p/4731961#M113392
I'm not seeing how that thread has any relevance to what I posted.

If you have a $00 balance on the revolving credit factor, it doesn't get scored resulting in a drop of "current and future" credit risk aka FICO scores. Let 1 account "report" a $1 open balance and "revolving" gets scored, it's that simple - same thing happens when you pay off a car (installment) loan.

Re: 0% utilization worse than 40-50% utilization.

Anonymous — Fri, 16 Sep 2016 13:50:35 GMT

@pipeguy wrote:

If you have a $00 balance on the revolving credit factor, it doesn't get scored resulting in a drop of "current and future" credit risk aka FICO scores. Let 1 account "report" a $1 open balance and "revolving" gets scored, it's that simple - same thing happens when you pay off a car (installment) loan.

Again, I don't see how that has any relevance to my post. If you read my original post, I understand completely how reporting $0 results in a score drop as revolving utilization isn't being used. What I don't agree with, however, and my point of the post is that I don't believe that a person reporting 0% utilization is "more" of a risk than someone reporting 40%-50% utilization.

I understand the score drop for showing no utilization, I just would have expected a greater score drop to exist for most people if they went from 1% utilization to 50% for example, as that represents a large risk increase. For someone with $100k in credit lines, going from $1000 in debt to $50,000 in debt to me is much more significant than them paying off that $1000 and having no debt (utilization) reported... but scoring doesn't reflect that.

Re: 0% utilization worse than 40-50% utilization.

pipeguy — Fri, 16 Sep 2016 14:26:18 GMT

I was replying to your comment:

If I misread your intent, my bad....

Re: 0% utilization worse than 40-50% utilization.

sarge12 — Fri, 16 Sep 2016 15:04:36 GMT

Utilization must be the most discussed topic on these boards. The reason no cards hurts is because it is a point in time metric. If they all show 0 balance, it is scored utilization wise just as someone who does not ever use credit cards, and will cause a fairly large drop in score. If you show a balance of <9% of cl on 1/5 or less of your cards you should get the maximum utilization points. It is their rules, we just play the game!

Re: 0% utilization worse than 40-50% utilization.

marty56 — Fri, 16 Sep 2016 17:02:05 GMT

@sarge12 wrote:
It is their rules, we just play the game

Yes and when you are in the position to control your reported util, you win.

Also don't forget that some looking at your CR might prefer 0% util being reported, like a potential employer or mortgage company.

Re: 0% utilization worse than 40-50% utilization.

Anonymous — Fri, 16 Sep 2016 17:45:39 GMT

@pipeguy wrote:

If I misread your intent, my bad....

It's all good. I took your reply as if I were one of the people on here posting another "I don't get why my scores dropped when I paid off all my CC's" when I was simply making a comparison between paying off CC's and raising utilization... both of which are known factors to adversely impact scoring.

If I didn't have relatively high credit lines, I'd love to test what raising utilization from 1% to 90%+ would do. If going from 1% to almost 50% means 3 lost points for me, maybe 1% to 90% only means 10 or so, who knows... but if that's the case, I find it quite amusing (and ridiculous to some extent) that taking utilization from "ideal" to "maxed out horrible" would result in less of a score drop than going from "ideal" to no balances at the same point in time.

Re: 0% utilization worse than 40-50% utilization.

805orbust — Fri, 16 Sep 2016 20:53:05 GMT

I don't know. If I had an auto repair shop and I used algorithms to score potential customers, the guy with the old clunker would be scored VERY high because I know he's money in the bank for me. The guy with the shiny new Accord gets me what, $45 bucks every 4 months for an oil change? No one would doubt that a shiny new Accord beats an old clunker (or whatever shiny new car fits the taste), however for the guy who makes money fixing them, Accords are the worst thing on the planet.

I think 27 years in business has me a little jaded

Re: 0% utilization worse than 40-50% utilization.

iv — Sat, 17 Sep 2016 23:45:15 GMT

@Anonymous wrote:
I can understand that from the perspective of the creditor, but we're talking FICO scores here which aren't designed by the creditor. Were FICO algorithms designed with creditor profit in mind?

Well... yeah.

Risk-based scoring is all about maximizing profits.

Beyond the basic lend/don't lend decision, the whole reason for a score range vs interest rate scale is to maximize profits at ALL risk levels.

Ensuring creditor profit is literally the reason credit score models exist, FICO and otherwise.

Re: 0% utilization worse than 40-50% utilization.

Anonymous — Sun, 18 Sep 2016 12:26:21 GMT

Right, but I was writing that in reference to an above post which suggests that "less" risk factored data may be scored as "more" risky in order to be more profitable for creditors.

To me, that just seems counter productive.

Re: 0% utilization worse than 40-50% utilization.

Anonymous — Sun, 18 Sep 2016 16:53:25 GMT

I don't think profit is really tied to fico scoring, at least not directly. After all the most profitable customers are the ones carrying large bals with high interest only paying the min. It's up to banks to decide how much they are willing to risk on those types of customers. Fico simply gives the probability of loss based on comparative data.

Re: 0% utilization worse than 40-50% utilization.

Anonymous — Sun, 18 Sep 2016 21:22:01 GMT

OpenG and BBS are on the mark, as far I know. Although it's quite possible that FICO may make specialized products for lenders that attempt to assess how profitable a person might be (e.g. how likely is the person to carry a large balance on a CC and pay a lot of interest) the basic score we are all familiar with does not do that.

It's a measure of one thing: the probability that a person will be become "severely delinquent" on one or more accounts in the next X months. I think SD is defined as 90 days or more overdue and the projected timeframe is 18 months. Here's an article on it, which I found by googling What does your credit score measure?:

https://www.savvyoncredit.com/credit-score-measure/

ThomThumb or others may be able to reference a white paper that gives the actual specifics for what FICO 8 is attempting to predict. But I think it is something like that. Basically, how likely is the person to get into serious trouble in the fairly near future. Not how likely is the person to make us money.

Re: 0% utilization worse than 40-50% utilization.

Thomas_Thumb — Sun, 18 Sep 2016 23:05:06 GMT

Here is what Fico said regarding Fico 8 score models:

http://www.fico.com/landing/Webinar_PDFs/Get_the_Benefits_Now.pdf

http://www.fico.com/en/wp-content/secure_upload/FICO_8_Validation_Results_Mortgage_2632FS.pdf

Here's an article on Fico 8 mortgage that Fico has been trying to push as a replacement for Classic Fico 8.

http://cashmoneylife.com/fico-8-mortgage-score-could-make-it-harder-to-get-approved/

... And if you are interested in a deep dive beyond Fico, check out the following

https://www.teamupturn.com/static/files/Knowing_the_Score_Oct_2014_v1_1.pdf

Delinquency "risk rate" has been a primary focus for Fico scoring (below is from EQ Scorepower) but that appears to have broadened with Fico 08.

Re: 0% utilization worse than 40-50% utilization.

sarge12 — Sun, 18 Sep 2016 23:01:07 GMT

@Thomas_Thumb wrote:
Here is what Fico said regarding Fico 8 score models:
http://www.fico.com/landing/Webinar_PDFs/Get_the_Benefits_Now.pdf
http://www.fico.com/en/wp-content/secure_upload/FICO_8_Validation_Results_Mortgage_2632FS.pdf

Here's an article on Fico 8 mortgage that Fico has been trying to push as a replacement for Classic Fico 8.
http://cashmoneylife.com/fico-8-mortgage-score-could-make-it-harder-to-get-approved/

... And if you are interested in a deep dive beyond Fico, check out the following
https://www.teamupturn.com/static/files/Knowing_the_Score_Oct_2014_v1_1.pdf

Delinquency "risk rate" has been a primary focus for Fico scoring (below is from EQ Scorepower) but that appears to have broadened with Fico 08.

The main difference between my profile and yours is you have went 5 years since last new account....coming to join you with 850's across the board...just need to stay in the garden.