topic Re: Does a CLD lower FICO score? in Understanding FICO® Scoring

Does a CLD lower FICO score?

SouthJamaica — Fri, 28 Oct 2016 23:03:11 GMT

1. Apart from a possible effect on revolving utilization, does a credit line decrease operate negatively towards one's credit score?

2. If so, does it make a difference in FICO scoring whether it is initiated by borrower or by lender?

Re: Does a CLD lower FICO score?

Thomas_Thumb — Fri, 28 Oct 2016 23:48:40 GMT

Neither CLIs nor CLDs impact Fico score directly because the events themself are not factors in the algorithms.

The event may trigger a rescore. However, the result of the rescore would be based on a change in individual and/or aggregate utilization %.

Re: Does a CLD lower FICO score?

SouthJamaica — Sat, 29 Oct 2016 02:24:53 GMT

@Thomas_Thumb wrote:
Neither CLIs nor CLDs impact Fico score directly because the events themself are not factors in the algorithms.

The event may trigger a rescore. However, the result of the rescore would be based on a change in individual and/or aggregate utilization %.

Thanks T_T.

Re: Does a CLD lower FICO score?

Anonymous — Sat, 29 Oct 2016 03:50:06 GMT

Hey SJ. Are you still of the opinion that big credit limits give you a bigger score? (Other things being equal)

If that's true, then a CLD could lower your score. And a CLI could raise it.

But if what TT said is true (that CLDs and CLIs cannot alter your score, except by altering utilization) then there's no way size of a credit limit could be related to one's score (again, except as it affects utilization).

Just curious whether you have been having second thoughts.

Re: Does a CLD lower FICO score?

Anonymous — Sat, 29 Oct 2016 07:13:43 GMT

I'd like to know the answer to that as well CGID.

Re: Does a CLD lower FICO score?

SouthJamaica — Sat, 29 Oct 2016 12:55:05 GMT

@Anonymous wrote:
Hey SJ. Are you still of the opinion that big credit limits give you a bigger score? (Other things being equal)

If that's true, then a CLD could lower your score. And a CLI could raise it.

But if what TT said is true (that CLDs and CLIs cannot alter your score, except by altering utilization) then there's no way size of a credit limit could be related to one's score (again, except as it affects utilization).

Just curious whether you have been having second thoughts.

No I'm not.

I'm just wondering if the event of a CLD has any impact one way or the other.

Let's say, e.g., one had a CLI or new card coming on line to report, and (a) one chose to lower the CL on another account to offset the increase, or (b) one of one's lenders decided this was too much new credit and took adverse action by a CLD...... I was wondering whether either of those events, in and of themselves, would have any negative effects on one's score.

Re: Does a CLD lower FICO score?

Anonymous — Sat, 29 Oct 2016 14:42:01 GMT

Ahhh... I see. Then, even operating within your framework, the answer is still No, but for a deeper and more general reason, which is that a credit score is generated purely off of stuff in the credit report, and I don't think the fact of a CLD or CLI is captured within the report.

The report contains your current CL, but the historical data leading up to it (a blow by blow record of what your credit limit was each month and who initiated the change in the CL and why) are not. At least I think that is true. Even the trended data on credit cards (where the CRA does capture your monthly balance and any payments you made on it -- and does so for every month stretching back 24 months or so) do not include your CL for each month. I could be mistaken here and would be delighted to learn differently (truly) but I think this is the case.

If I am right, then the reason why the answer is "no" is not because FICO has chosen not to make it part of its algorithm, but because FICO couldn't do that even if they wanted to. The historical data about CLIs and CLDs is simply not in the credit report.

Of course, operating outside your framework, there's another reason why someone would argue that the answer is No. And that is because credit limits (it would be argued) are not included by FICO in their algorithms except as they affect CC utilization. FICO could choose to do that, since your current CL is in the report, but in fact they don't. And since CL-size is not a factor in your score, then changes to your CL are not a factor either. That may have been TT's argument.

Re: Does a CLD lower FICO score?

Anonymous — Sat, 29 Oct 2016 19:06:14 GMT

Past CL are reported on your reports. On all 3 I have my past CL listed and when they changed.

Re: Does a CLD lower FICO score?

Anonymous — Sat, 29 Oct 2016 19:51:37 GMT

Fascinating! I have never seen that, and I know of cards where my CL has definitely gone up. Where on the report does it list all your past CLs? Does it list the CL for each month stretching back 24 months (say) like it does for balances and payments?

It's been a while since I have pulled my full credit report via annualCreditReport.com -- do you need to pull a true ACR report to see this? I typically just rely on Karma and its reports when I need one, though I realize they are a bit abridged.

Thanks very much for the heads up. Delighted to learn something new.

Re: Does a CLD lower FICO score?

Thomas_Thumb — Sat, 29 Oct 2016 20:14:10 GMT

@Anonymous wrote:
Past CL are reported on your reports. On all 3 I have my past CL listed and when they changed.

Yes, that is true - CRA reports do include a history of changes in both credit limits and high balances. [Fico summary reports don't include that detail]

In review of my TU credit report I see that each account includes the following:

High Balance: High balance of $X from --/---- to --/----; $y from--/---- to --/----; $Z from --/---- to --/----

Credit limit: Credit limit of $X from --/---- to --/----; $y from--/---- to --/----; $Z from --/---- to --/----

However, changes in revolving account status (open/closed), changes in high balances and changes in credit limits are not scoreable as events. Also, as has been mentioned on other threads, the reason why a credit card account was closed or why the account had a CLI/CLD is not scored in Fico 08. In reality many people experience a CLD or an account closure by a creditor due to inactivity. Both have happened to me. That event is not an indication of a change in risk nor does the event impact score.

That's not to say creditors won't allow those statements/events to influence their decision process if the file undergoes a manual review.

Re: Does a CLD lower FICO score?

Anonymous — Sat, 29 Oct 2016 20:10:12 GMT

Thanks so much, guys. Delighted to learn that. As I say it has been a while since I have pulled a full credit report via ACR.

Re: Does a CLD lower FICO score?

CreditDunce — Sun, 30 Oct 2016 00:59:03 GMT

Many of the free credit sites provide Vantage scores. VS 3 likes to see higher limits. Insurance risk models also like to see larger limits. FICO only looks at your utilization. FICO doesn't care how big your limits are. This is one area where if the free sites are giving advice on how to increase your VS 3 scores doesn't help your FICO scores.

Re: Does a CLD lower FICO score?

Anonymous — Sun, 30 Oct 2016 01:24:36 GMT

Hey CD, thanks for your take on FICO. I hadn't thought about the fact that there might be advice rooted in non-FICO models that might influence how people perceive how FICO works.

Do you happen to know in what way Vantage rewards consumers for having higher credit limits? In the case of the LexisNexis auto insurance score, they do not appear to reward you for having an especially large total credit limit. Instead, you benefit from having a high average credit limit (and conversely are penalized for having one that is not high). The penalty starts I think when your ACL is less than $10,200. And then there are increasing penalties below that, each with its own reason code. But I was not able to see any codes that referenced total credit limits.

Thus, with LN, a person with 20 cards and a total CL of $80k would experience a penalty related to CL (due to his average CL of 4k) -- whereas a person with three cards and a total CL of 36k would experience no CL related penalty (an ACL of 12k).

Have you heard anything about how Vantage works in this respect? TT, do you know?

Re: Does a CLD lower FICO score?

Thomas_Thumb — Sun, 30 Oct 2016 03:38:44 GMT

I have studied/researched a wide variety of CBIS and credit scoring models. Both LexisNexis and TransUnion CBIS models look at average credit line as a factor. Experian's educational Plus Score looks at average as well.

Lookng at total aggregate credit limit as a scoring factor could be considered a "wealth metric" and if so may be discriminatory.

That being said, here is a cut-paste from a VS infographic I had saved. The "did you know" is summary data.

However, there is the below which certainly suggests VS looks at available credit independent of utilization.

Still, the main thing I have seen relative to scoring of available credit is based on a percentage utilization. I have not seen any explicit evidence indicating VS looks at average CL.

Here is a link to an article speaking to VS and utilization along with links to a couple articles in a VS series

http://thescore.vantagescore.com/article/174

http://thescore.vantagescore.com/article/213

http://thescore.vantagescore.com/article/218

Here is a link to a full list of VS reason codes according to reasoncode.org .The nice thing about VS is they provide positive reason codes as well as negative ones.

https://www.reasoncode.org/allcodes

Re: Does a CLD lower FICO score?

Anonymous — Sun, 30 Oct 2016 04:22:29 GMT

Thanks TT. The list of VS reason codes was illuminating. There are a number of version 3.0 codes that specifically call out size of credit limit. E.g...

30: Too few of your bankcard or other revolving accounts have high limits
36: Your largest credit limit on open bankcard or revolving accounts is too low

The word "average" appears in several codes for version 1 and 2 of the model, but I could not find the word in any V3 codes.

So a reasonable question is, if V3 clearly has codes solely for CL size, but they are not doing it via an average CL, what do those codes mean? My guess is that the wording is probably very revealing. The phrase "too few" suggests that it might be looking for a certain minimum percentage of your cards as having a "high limits." For example, the algorithm might be looking for at least 50% (minimum 2) of your cards having a CL of > 10k. Obviously I just made up those particular numbers, but it seems like code 30 implies that something like that might be going on.

Likewise, code 36 seems to suggest that it wants to see that you have at least one card with a CL greater than a certain number. E.g. at least one card with a CL > 15k.

PS. I like your observation that total CL might be too close of a proxy to actual annual income for it to be legal.

Re: Does a CLD lower FICO score?

CreditDunce — Sun, 30 Oct 2016 23:01:10 GMT

Thanks TT for the VS reason codes. I had never seen them before.

I believe last time I looked, Alliant said my #2 reason code was, "Your largest credit limit on open bank revolver is too low". At the time, I thought it meant I needed at least one card with a very high limit. I was very surprised by the code being so high because it was soon after an app spree. I had several new accounts and INQs. INQs was the #1 reason code. I am not sure when the score was pulled, but I also normally have the majority of my cards reporting at least a small balance. As far as limits, my highest limit is a 35k Lowes card. If I restrict it to only bank CCs, I have several in the 25-26k range.

As far as the LN reason codes, I think the magic number was an average bank CL of $13,002. I don't recall if it was for both the home and auto or only one. I also wasn't sure if bank accounts excluded store and/or CU cards.

Re: Does a CLD lower FICO score?

CreditDunce — Sun, 30 Oct 2016 23:08:40 GMT

I have only skimmed the articles so far. What stood out for me is one of them said VS counts all INQs within 14 days as one. I always assumed VS would only group like INQs (i.e. house or auto) together. It also said you were likely to gain most of the points back within 90 days assuming nothing else negative. I am not sure if that squares with my experience during the time when INQs were disappearing from TU. My VS 3 score jumped almost 20 points while my INQs were not showing up. Most of the INQs were over 1 year old.

Re: Does a CLD lower FICO score?

Thomas_Thumb — Mon, 31 Oct 2016 01:27:28 GMT

CD -

I believe the point gain being referred to is associated with the "recent new accounts" factors not the inquiries that often are associated with new accounts. The inquiries are a separate scoring factor from new accounts. Also, I had one inquiry on EQ and when it reached 2 years age I gained 3 points. My TU VS3 score did not change (no inquiry) and my file had no significant changes in utilization, # cards reporting - so I attributed to EQ score increase to the inquiry.

I did catch the 14 day statement but, given the ambiguity, I choose to interpret it as grouped by type. So a if you had 3 auto loan, 3 mortgage loan and 5 credit card inquiries in a given 14 day period, you would net one each for car, mortgage and credit cards for a total of three.

Re: Does a CLD lower FICO score?

Anonymous — Mon, 31 Oct 2016 02:41:36 GMT

@CreditDunce wrote:
Thanks TT for the VS reason codes. I had never seen them before.

I believe last time I looked, Alliant said my #2 reason code was, "Your largest credit limit on open bank revolver is too low". At the time, I thought it meant I needed at least one card with a very high limit. I was very surprised by the code being so high because it was soon after an app spree. I had several new accounts and INQs. INQs was the #1 reason code. I am not sure when the score was pulled, but I also normally have the majority of my cards reporting at least a small balance. As far as limits, my highest limit is a 35k Lowes card. If I restrict it to only bank CCs, I have several in the 25-26k range.

As far as the LN reason codes, I think the magic number was an average bank CL of $13,002. I don't recall if it was for both the home and auto or only one. I also wasn't sure if bank accounts excluded store and/or CU cards.

There appear to be two families of reason codes related to average credit limits. They can be found here and are codes 3030-3038 and 3039-3045. My guess is that one of them corresponds to an older version of the model. They can't both be for the same model, since they specify different thresholds.

https://consumer-solutions.custhelp.com/app/answers/detail/a_id/2523/~/how-do-i-learn-more-about-scores-and-reason-codes%3F

With 3030-3038 the most punitive is an ACL of < $725 and you reach no penalty once your ACL > $10,532.

With 3039-3045 the most punitive is an ACL of < $1168 and you reach no penalty once your ACL > $7500.

All the codes from both families refer to to the average credit line for open bank revolving accounts. This is done by summing the credit lines for all open bank revolving accounts and dividing by the number of bank revolving accounts on file. A bank revolving account is one such as a Visa, MasterCard, etc.

(Thus store cards are not included in this calculation. I am guessing that a VISA/MC/etc. issued by a CU counts.)

Note that if you close a bank card, it still counts in this calculation but its credit limit becomes effectively $0. Thus (purely from the perspective of this family of codes) it is in a consumer's interest to keep bank cards open when possible.

Re: Does a CLD lower FICO score?

CreditDunce — Mon, 31 Oct 2016 13:50:47 GMT

The codes are for two different models. The auto insurance model and the home insurance model. Some codes are for both models. Some codes are only for one of the models. It was one of the things that makes it difficult to make sense of the codes. When I found duplicate codes, I used the more stringent codes on my scratch pad.

When I was calculating my average bank CL, I wasn't sure about my CU CC's and my target CC. Target is backed by a TD Bank and it is coded as a credit card, not a charge card. It was just a curiosity thing. Even if I was below the cutoff, my biggest negative would be all of my new credit.