topic Re: inactive accounts -- effect on FICO score? in Understanding FICO® Scoring

inactive accounts -- effect on FICO score?

Anonymous — Tue, 16 May 2017 19:32:31 GMT

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!

Re: inactive accounts -- effect on FICO score?

Anonymous — Tue, 16 May 2017 19:28:03 GMT

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.

Re: inactive accounts -- effect on FICO score?

Anonymous — Tue, 16 May 2017 19:44:52 GMT

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"

Re: inactive accounts -- effect on FICO score?

Anonymous — Tue, 16 May 2017 19:47:02 GMT

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%).

Re: inactive accounts -- effect on FICO score?

Anonymous — Tue, 16 May 2017 19:51:13 GMT

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.

Re: inactive accounts -- effect on FICO score?

Anonymous — Tue, 16 May 2017 20:30:26 GMT

@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%).

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).

Re: inactive accounts -- effect on FICO score?

Anonymous — Tue, 16 May 2017 21:35:39 GMT

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?

Re: inactive accounts -- effect on FICO score?

Anonymous — Tue, 16 May 2017 21:56:03 GMT

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

Re: inactive accounts -- effect on FICO score?

Thomas_Thumb — Wed, 17 May 2017 00:02:28 GMT

@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?

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.

Re: inactive accounts -- effect on FICO score?

Anonymous — Tue, 16 May 2017 22:37:18 GMT

@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?

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.

Re: inactive accounts -- effect on FICO score?

Anonymous — Tue, 16 May 2017 23:14:24 GMT

The case I mention of the recent person with the VS card has been making me think about this very intentionally the last few days.

But it also has given me a possible framework for understanding a very odd reason code that I got on my 3B report from myFICO (which I pulled in early April). And this was something I posted about at the time.

My mortgage scores came with the usual four reason codes for why they were not higher. But at least one of the codes was really crazy. I have 12 credit cards and 10 out of 12 were reporting $0. And yet I got the reason that I had too many accounts reporting a balance.

I ended up concluding that this must have been just crazy BS from FICO, a random reason code pulled out of the hat. But in retrospect I realize that a number of my credit cards had not been used for 90 days, a few for 120 or 150, and one for 180. So if all of those were suspended from that particular calculation then my ratio of "accounts with a balance" to "total open accounts" was substantially higher than I thought.

Re: inactive accounts -- effect on FICO score?

Anonymous — Tue, 16 May 2017 23:46:01 GMT

You never know, that could be the case. I guess the best test for that would be for you to put a small transaction on each of your "inactive" cards and PIF, allowing it to report $0 again and then see if the reason code goes away?

I understand your post on the previous page about inactive accounts possibly ceasing to report eventually. I've never had this happen on my file though, which is why I wasn't thinking from that angle. In fact, I have 3 accounts that have been closed for years but still report every month. I started a thread about that last year at some point and others reported the same thing. So, for me, if anything I've experienced the opposite where inactive or even closed accounts continue to report for whatever reason.

Re: inactive accounts -- effect on FICO score?

Anonymous — Tue, 16 May 2017 23:56:57 GMT

Yeah, it makes sense that, if FICO wanted to have an inner metric that distingusihed between accounts it defined as "active" vs. "inactive", that it would do that with the DOLA (Date of Last Activity) as opposed to Date Last Reported. Both fields are part of your credit file, but the DOLA would be a lot better.

Re: inactive accounts -- effect on FICO score?

Anonymous — Wed, 17 May 2017 01:33:03 GMT

CGID, what is the DOLA line on your credit report expressed as? I was just looking at my Experian hard copy report from about 2 weeks ago and I don't see this field. Just date opened and last reported. There is a field for recent payment, which looks like it just shows if last cycle you made a payment or if you didn't have a transation that month it reads as $0. I don't have a hard copy of my EQ or TU report handy at the moment so I can't reference those.

Re: inactive accounts -- effect on FICO score?

Anonymous — Wed, 17 May 2017 02:01:45 GMT

When you mention looking at your hard copy report, do you mean the one from AnnualCreditReport.com?

ACR certainly has the most info of all of the places you can get your credit report, but it is still an abbreviated version of the much bigger datafile that is in the CRA database. So while it is part of the credit file that FICO gets, it may not be in the high level summary provided to consumers by ACR.

Here is what EQ says about the DOLA:

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

RobertEG mentioned recently that, by the FCRA, a consumer has a right to request any piece of data in his file but not on his report.

Often the people most interested in the DOLA are people with derogs, but according to the EQ piece the DOLA exists for all accounts, including open accounts in good standing. ("If you have a credit card that you pay off in full every month, the date of last activity will indicate the last date you paid the bill.")

Re: inactive accounts -- effect on FICO score?

Anonymous — Wed, 17 May 2017 02:45:43 GMT

All of my hard copy reports are from the CRAs directly. In my quest for GW removal of multiple baddies, I filed a few complaints with the BBB and CFPB which resulted in hard copy credit reports being sent to me from all 3 CRAs. I've got multiple copies of those reports from each bureau from the last 2 months... sort of "before" and "after" reports showing that things I was trying to get changed did in fact get changed.

I'm not sure I've ever requested or received reports form annualcreditreport.com - If I have, it was YEARS ago. Perhaps I should do that again? Do they send you one for all 3B?

Re: inactive accounts -- effect on FICO score?

Anonymous — Wed, 17 May 2017 02:58:57 GMT

Naw, you get a different report for each CRA. It's just that the ACR is a one stop shop for requesting them. You do not have to request all three at the same time.

Re: inactive accounts -- effect on FICO score?

Thomas_Thumb — Wed, 17 May 2017 12:00:06 GMT

@Anonymous wrote:
CGID, what is the DOLA line on your credit report expressed as? I was just looking at my Experian hard copy report from about 2 weeks ago and I don't see this field. Just date opened and last reported. There is a field for recent payment, which looks like it just shows if last cycle you made a payment or if you didn't have a transation that month it reads as $0. I don't have a hard copy of my EQ or TU report handy at the moment so I can't reference those.

The paste below is from a 3B report but, the info comes from the CRAs. So, status date could be compared to last activity. The condition of the account open/closed/not reported comes from the credit card company. I wonder if they could also report "inactive" and if so, would "inactive" be listed in the condition field.

Re: inactive accounts -- effect on FICO score?

Revelate — Wed, 17 May 2017 19:37:08 GMT

To offer not much but what I suggested in the other thread:

At a SWAG if there is an inactivity exclusion, it would be at the six month mark for no other reason than one has to have a tradeline which is active (which I always have assumed meant to be DOLA) to generate a FICO score at all.

I've never had a file where I could actually test it, if someone had a few number of cards and some / most / all of those were retail lines from Synchrony who doesn't report to the bureaus unless there is a balance, and I think Commenity may do this as well, then one could test it.

I tried leaving my Walmart card idle for 7 months and then letting a balance report but my scores didn't do anything... but I had plenty of other revolvers at the time (think 8 others back then) so it wasn't really an effective measurement.

I guess it could be done via number of cards with balances calculation, if you know you're good up to 1/3 on EQ FICO 8 for example, if you let your store cards idle does at some point your score change and do you now need to have smaller counts reporting to get back to pretty because your number of active revolvers has decreased? That's really all I could think of trying other than having a painfully thin file for a test.

Re: inactive accounts -- effect on FICO score?

Thomas_Thumb — Wed, 17 May 2017 21:11:12 GMT

I suspect the credit card issuer needs to report the card "condition" as inactive to the CRAs - like they do for open/closed. I would anticipate "bank cards" are much more likely to be reported as inactive relative to store cards.

Fico obviously does look at the condition Open/Closed so why not inactive as well (assuming the CC issuer sends that to the CRAs). I'd be interested to know if anyone has a report that lists "inactive" in the condition field as opposed to open or closed. I have a couple accounts that were closed due to inactivity and that is stated in the comment section. However, that was long before I started looking at various credit reports.