topic Re: Score Increase Over Time in Understanding FICO® Scoring

Score Increase Over Time

Anonymous — Tue, 26 Sep 2017 03:27:01 GMT

Hello everyone, in recent months I've gotten my first card, the Discover Secured, as well as becoming an AU on various family members' cards and getting really interested in keeping a high credit score. Since I won't have my first official FICO until December, I've had too much time reading up on the best ways to maximize your score and the importance of utilization and so on in these forums.

My question is that since utilization is only a snapshot and has no memory effect, what are the main drivers in causing a score to rise over time? Assuming that a person keeps the ideal utilization and number of cards for months, is the only FICO factor that changes and therefore causes the score increase the age of accounts? Since it only accounts for 15% of the score overall that would be pretty surprising but also interesting to note. Some have shown that initial scores ~700 or less is pretty common and I was just wondering what would cause it to increase to the higher 800 range from there if utilization and payment history were already ideal. I'm just really anxious to get my first real credit score and start building from there, and I've just been obsessing over the tiniest of details that won't matter for now and making sure that I get off to the right start with credit.

Thanks for your insights.

Re: Score Increase Over Time

Anonymous — Tue, 26 Sep 2017 03:56:08 GMT

With perfect on time payments and single-digit aggregate utilization, you are maximizing 2/3 of your FICO score. The rest really has to do with time and new accounts. You want time to progress of course, aging the 3 different aging factors: AAoA, AoOA and AoYA. As far as new accounts, you want to not apply for new credit unless you need it. Unnecessarily applying for credit will result in inquries at the very least and inquries plus new accounts if approved, two factors that can lower score.

For maximizing the utilization sector of the FICO pie, you're going to want to have a total of 3 revolvers with two reporting $0 balances and 1 reporting a small balance every month. You may also wish to look into the SSL technique, which basically throws a meaningless installment loan on your credit report which will satisfy the "credit mix" sector of the types of credit portion of your score. Using the AZEO technique with 3+ revolvers and adding a SSL combined could be good for around 50 points added to your FICO score. It could be the difference between a 700 and 750 score, give or take, when you have 6-8 months of credit history.

Re: Score Increase Over Time

Anonymous — Thu, 28 Sep 2017 03:10:13 GMT

Thanks for the great concise info. To better understand the snapshot nature of utilization for FICO scoring, I have one more hypothetical.

If one person consistently has a high utilization say 80% for a year and then on the 13th month follows azeo etc and has below 9% aggregate utilization report for that month, will their score be equal to a person’s if they had kept a low utilization the entire time? Assuming everything else equal.

If so that makes starting out building credit much easier and less nitpicking with paying before the statement posts. Thanks again!

Re: Score Increase Over Time

Anonymous — Wed, 27 Sep 2017 04:41:27 GMT

Yes, in your hypothetical illustration above both otherwise equal profiles would yield the same score.

Say someone has a score of 750 when they're at 1% utilization and that score drops to 650 at 90% utilization. It doesn't matter if their utilization sits at 90% for a month, 6 months, a year, etc. The moment they drop their utilization back to 1%, their score will go up by the amount of points lost originally, so back to 750 in this example. Of course over time other factors are changing, so on a longer time line here such as 1 year things like AAoA can grow, AoOA can grow, inquiries can age off etc. which may yield a greater score over time anyway.

One thing that's important to consider, though, is that "trended data" may be a consideration. It's believed that creditors in the near future (next couple of years) could start having the ability to look back as much as 2 years at your utilization. For all we know, this data could be being collected now even if it isn't used yet. That said, say 2 years from now trended data IS being used commonly. Going back to the illustration above, if the person with 90% utilization kept it at that level for 1 year as opposed to someone that just spiked their utilization to 90% for 1 month and then brought it back to 1%, the person with a full year of 90% utilization would be much more adversely looked upon upon a manual review [of trended data] since it would suggest they were a far greater risk for a far longer period of time. Both of their scores could still be 750 still, assuming both were back at 1% utilization, but a quick look at trended data would paint quite a different picture of these two individuals.

Re: Score Increase Over Time

HeavenOhio — Wed, 27 Sep 2017 13:08:57 GMT

@Anonymous wrote:
One thing that's important to consider, though, is that "trended data" may be a consideration. It's believed that creditors in the near future (next couple of years) could start having the ability to look back as much as 2 years at your utilization. For all we know, this data could be being collected now even if it isn't used yet. That said, say 2 years from now trended data IS being used commonly.

Credit reports are currently structured to collect that data, EQ and EX for 24 months and TU for 30. But as of now, not all cards report it. In the trended data slots, if a card doesn't report a number, you'll see a blank space or a notation that says "no data."

For the cards that report the data, it's easy to tell what you've been doing over a period of time, e.g. paying in full, carrying balances and paying minimums, carrying balances and paying substantial amounts toward them, carrying balances and piling on new charges, etc.

In theory, lenders could look at trended data right now. But with the spotty reporting, it'd be hit and miss. For a scoring model to consider these numbers, they'd have to be reported consistently.

Re: Score Increase Over Time

Anonymous — Wed, 27 Sep 2017 14:31:24 GMT

Perceptive questions by the OP. And good answers by the contributors.

Here's a summary.

Use AZEO in the immediate run-up to a new application for credit. Also use AZEO if you are rebuilding and your credit scores are really low. The logic behind the decision is the same for both cases, namely a need to squeeze out every additional point possible. (For rebuilders, they are under monthly scrutiny by their creditors; rebuilders therefore want close to the best score they can have every month.)

When not using AZEO...

Always strive to keep your total reported utilization under 29% and individual utilization under 49%. Again this is to avoid spooking an existing creditor. Although the current FICO models may not have any memory for utilization, your existing creditors may very well be pulling your reports and scores every month, and if they see a particular card go way up in utilization (even if it is not issued by them) they might freak out. People with higher scores and long histories of perfect payments have greater freedom in this regard.

So, the simple approach as a long game strategy:

Use your cards as needed. Let them report positive balances (if you happen to use the card). Always pay the statement balance in full. But keep your utilization under reasonable control.

Re: Score Increase Over Time

jamie123 — Thu, 28 Sep 2017 02:29:12 GMT

You will need to make a decision about building a thick file or just maintaning a thin file. You need high scores to get more credit at good terms and to qualify for better cards, but everytime you apply and get new credit, it will knock your scores down for about one year.

Think for the long term. You should end up with 5 to 8 high quality credit cards when you are done building your credit foundation that will grow with you for life. Yes, credit cards are the only true way to get and keep high credit scores that will be stable when you actually use your credit for things that you need like mortgages and auto loans. Having 5 to 8 well aged credit cards will give you rock solid high credit scores for the long term. A credit card account is really the only account that you have a chance at keeping open for the rest of your life. Sure you can get a 30 year mortgage but most people sell their house and move every 5 to 6 years which restarts the mortgage clock.

It is a tough choice starting out because you need more cards but you also know that you will have to sacrafice your scores for a while to get it.

Re: Score Increase Over Time

Anonymous — Thu, 28 Sep 2017 02:56:51 GMT

@jamie123 wrote:
... but everytime you apply and get new credit, it will knock your scores down for about one year.

I disagree with the above statement. Maybe this is true with some profiles, but not all profiles. And, I'm not sure a single new account could knock down any score for a year. I've done 2 "sprees" in the last 2 years, each one consisting of 3-4 new accounts and within 4-5 months my scores were back where they were pre-spree and within 6 months both times they were higher than they were pre-spree. And, that's with 3-4 accounts, not just 1.

Re: Score Increase Over Time

Anonymous — Thu, 28 Sep 2017 03:04:58 GMT

I agree with BBS and I have a dirty profile!

My first 3 credit cards were of course free FICO boosts just for having 1, 2 or 3 revolvers. #4 hurt me for 2 months, maybe 3. #5 and 6 hurt me for 3 months or so, maybe 2.

My history was:

1 card August 2012 -- helped FICO but then went derogatory (120D late ouch) -- goodwilled this one and they removed all the lates after a lot of letters, emails, faxes and singing clowns
2nd card Discover secured March 2017 -- helped FICO immediately when posted (inquiry hurt a few points initially)
3rd card Williams Sonoma store card April 2017 -- didn't report for more than 2 statements but no inquiry (SCT)
4th card Capital One secured May 2017 -- showed up on credit reports very fast, major FICO boost, small inquiry hit
5th card Chase Freedom Unlimited May 2017 -- showed up prequal on Credit Journey, took a month to show up, FICO dropped a little bit
6th card Amazon store card May 2017 -- inquiry hurt a little, didn't post to CRs for 2 months
7th card Capital One QS1 August 2017 -- inquiry hurt a little, FICO can't tell because my Alliant SSL also posted and my score skyrocketed up.

I started in February 2017 with FICO08s all in the 560-580 range. By September I have a TU FICO08 of 674 or so and the rest are close. TU still shows an unpaid tax lien (2010) and unpaid collection (2017) and it's my high score. All thanks to new accounts, SSL, very low utilization

AAoA is pretty low now but honestly I expect all scores in the 700s next year even if that paid collection doesn't delete or that tax lien doesn't go away.

Most people screw up FICO by getting new cards and maximing them out instantly. Don't do that.

Re: Score Increase Over Time

Anonymous — Thu, 28 Sep 2017 05:13:29 GMT

@Anonymous wrote:
I agree with BBS and I have a dirty profile!

My first 3 credit cards were of course free FICO boosts just for having 1, 2 or 3 revolvers. #4 hurt me for 2 months, maybe 3. #5 and 6 hurt me for 3 months or so, maybe 2.

Slightly related, but I’m an AU on three Chase FUs as well as a secured card in my own name. Since having less than half your cards show a balance with at least three cards is best, does being an AU and having secured cards count the same towards scoring as unsecured cards? Including the score boost you mentioned?

Edit: is it true that AUs do not hold as much weight as your own cards? And do the AUs count the same as normal cards in number of cards with a balance for things like AZEO in that section of scoring?

Re: Score Increase Over Time

Anonymous — Thu, 28 Sep 2017 04:30:39 GMT

To the best of my knowledge, there is absolutely no difference between a secured card verses an unsecured card with respect to FICO scoring.

Re: Score Increase Over Time

jamie123 — Thu, 28 Sep 2017 21:22:37 GMT

@Anonymous wrote:
@Anonymous wrote:
I agree with BBS and I have a dirty profile!

My first 3 credit cards were of course free FICO boosts just for having 1, 2 or 3 revolvers. #4 hurt me for 2 months, maybe 3. #5 and 6 hurt me for 3 months or so, maybe 2.
Slightly related, but I’m an AU on three Chase FUs as well as a secured card in my own name. Since having less than half your cards show a balance with at least three cards is best, does being an AU and having secured cards count the same towards scoring as unsecured cards? Yes. Including the score boost you mentioned? Yes.

Edit: is it true that AUs do not hold as much weight as your own cards? Only in a manual credit review like you would have appliying for a mortgage. Having AUs when applying for a mortgage can (Unless you are married to the AU card holder.) put questions into the lender's mind and they might discount your score. And do the AUs count the same as normal cards in number of cards with a balance for things like AZEO in that section of scoring? Yes, AU cards count exactly the same as your cards in all FICO calculations.

There was a time a few years ago that saw the MAJOR abuse of AU cards. People that had high scores and really old credit cards were selling the right to become an AU on their card. They wouldn't actually give you a card but would add you to their account and keep the card in their possesion. Just think how much you could juice your scores by adding a couple of 30 year old cards with perfect payment history to your reports! Yeah...They cracked down on that and now AUs must live at the same address and should actually be related to each other or else they can put a fraud warning on the account.

Re: Score Increase Over Time

Thomas_Thumb — Thu, 28 Sep 2017 22:55:43 GMT

I am AU on one of my wife's credit cards but the card is NOT included in my Fico 8 card count. Also, the CL is not included in my aggregate revolving CL and the balance is not included in my aggregate balance.

It is worth noting, the card IS included in utilization and card count by the older Fico 4 and Fico 98 models. Other posters with primary account holders using the same address have reported AU cards not counting on Fico 8 as well. So even household members may be subject to anti-abuse scrutiny. In my case, it might relate to AU inactivity.

My AU account is over 20 years old. Initially I had an AU card which I used periodically for household purchases. However, when the card was re-issued, about 15 years ago, I never activated it (misplaced card). A few years back DW was sent a replacement card with a different # to safeguard against fraud from a data breach. This time I did not receive a replacement AU card - probably because my prior AU card had never been activated.

As mentioned above, my guess is Fico 8 may be ignoring some AU accounts that have inactive status even when the AU account shows as open on credit reports. For whatever the reason, some of us do have AU cards not recognized in Fico 8.

Re: Score Increase Over Time

NRB525 — Fri, 29 Sep 2017 05:22:04 GMT

@Anonymous wrote:

One thing that's important to consider, though, is that "trended data" may be a consideration. It's believed that creditors in the near future (next couple of years) could start having the ability to look back as much as 2 years at your utilization. For all we know, this data could be being collected now even if it isn't used yet. That said, say 2 years from now trended data IS being used commonly. Going back to the illustration above, if the person with 90% utilization kept it at that level for 1 year as opposed to someone that just spiked their utilization to 90% for 1 month and then brought it back to 1%, the person with a full year of 90% utilization would be much more adversely looked upon upon a manual review [of trended data] since it would suggest they were a far greater risk for a far longer period of time. Both of their scores could still be 750 still, assuming both were back at 1% utilization, but a quick look at trended data would paint quite a different picture of these two individuals.

It is important to understand the amount of debt in that 90% figure. 90% of $500 is merely showing solid use of an available small card. As long as that is paid off, and income is solid, the next lender is likely to be very happy to extend credit. Current actual FICO score will be lower that it otherwise could be, with 90% utilization, but that can be fixed with a $300 payment.

90% of a $50,000 line (or in my case 80$ of over $100k) is a different story, from a risk perspective. It takes longer to pay down from that level and one is not likely to be extended much more credit. So even in this case, score really doesn't matter much, it's the debt level that really matters.

Trended Data by itself is no reason to avoid showing balances on card statements. If a borrower shows usage over time, and the ability to pay those balances down, that is looked upon as a good customer for the bank. There is a risk, of course, but lending is where the bank takes on a certain amount of risk, looking for interest or swipe fees as a revenue source. A long history of a borrower dealing with large balances, is very attractive to a lender.

Re: Score Increase Over Time

Anonymous — Fri, 29 Sep 2017 07:05:22 GMT

While I agree with what you're saying above NRB525, I still think it's all relative. While a larger credit line at equal utilization [relative to a small credit line] definitely presents a greater risk to the lender in terms of dollars, the percentage here still plays a role and says something about the borrower.

In the language discussed so far, not enough information was given really. 90% utilization on a small limit (say, $500) card every month for 1 year could be a good thing or a bad thing. If the card holder is making a $400-$450 payment each month, I'd say it's not a bad thing and as you suggested it just shows they're using their card heavily. Chances are though IMO that this example wouldn't really work, as the above behavior would almost certainly stimulate an auto-CLI from the lender. Conversely, if they are just letting a $450 balance sit on the card though and are just paying the minimum payment every month, perhaps throwing a $10-$20 swipe on it each month as well, even though the limit (and debt) is low, it says something pretty profound about the financial behavior and nature of this individual. Trended data would showcase this and IMO regardless of the small level of debt (in dollars) it is a pretty poor look upon a MR.

Re: Score Increase Over Time

Thomas_Thumb — Fri, 29 Sep 2017 14:43:16 GMT

@Anonymous wrote:
While I agree with what you're saying above NRB525, I still think it's all relative. While a larger credit line at equal utilization [relative to a small credit line] definitely presents a greater risk to the lender in terms of dollars, the percentage here still plays a role and says something about the borrower.

In the language discussed so far, not enough information was given really. 90% utilization on a small limit (say, $500) card every month for 1 year could be a good thing or a bad thing. If the card holder is making a $400-$450 payment each month, I'd say it's not a bad thing and as you suggested it just shows they're using their card heavily. Chances are though IMO that this example wouldn't really work, as the above behavior would almost certainly stimulate an auto-CLI from the lender. Conversely, if they are just letting a $450 balance sit on the card though and are just paying the minimum payment every month, perhaps throwing a $10-$20 swipe on it each month as well, even though the limit (and debt) is low, it says something pretty profound about the financial behavior and nature of this individual. Trended data would showcase this and IMO regardless of the small level of debt (in dollars) it is a pretty poor look upon a MR.

IMO - useful trended data analysis needs to segment according to transactor/revolver behavior as a 1st step. If one is a transactor reported balance/utilization is a non factor and should be ignored - like is done on a true charge card. From a risk perspective, a PIF before statement cuts is no different than a PIF after statement cuts given the same monthly charges in either case. Reported utilization is more meaningful for as a risk factor for revolvers.

I do agree that total monthly charges (either in absolute terms or as a % of CL) can help detect increased risk levels if trended even for transactors. As an example, a month over month increase in total spend (or aggregate utilization %) over the past 6 months suggests someone may be approaching a spend level that cannot be maintained before a subsequent late payment or default occurs. This metric would be most useful if it were to be based on total charges during a month - not just what is allowed to report on a statement as a balance.

Re: Score Increase Over Time

Anonymous — Fri, 29 Sep 2017 14:54:08 GMT

Having cards report high individual utilizations can put many people at risk of adverse action by creditors. Note that this is not just the creditor for the card you are maxxing out but also other other creditors, since they can see your reports and scores each month as well.

I can't count the number of aggrieved people who write in to the forums demanding an explanation of why Citi closed their card when they "had never missed a payment" on the Citi card -- though by the second or third post it becomes clear that he had one or more cards from other issuers maxxed out.

Some factors sharply reduce this risk, such as having a low overall utilization, a clean profile (no derogs), and some significant payment history; and a FICO above 720. A person for whom all those things are true can likely allow individual cards report high utilizations (even for extend periods of time) without risk of AA.

As far as trended data, we simply can't say for sure today how it will play out. Some people have reported that many CC issuers stopped reporting their history of monthly payments in 2016. If that is true, and it remains true in 2018 and onwards, then it won't be possible for a creditor using TD to detect whether a person pays his CC statements in full each month. (Such people are called Transactors.) But if we do move into a world where detecting Transactors is possible, there's no question that loan issuers will care about that a lot. It's been proven that people who do not PIF are statistically (as a group) far riskier to the lender than those who do not. That's why Fannie Mae added a module to its Desktop Underwriter tool that attempts to detect whether a prospective borrower is a transactor.

I plan to pull all three of my credit reports at ACR early next year to see which of them are reporting the month-by-month history of all my payments.

Re: Score Increase Over Time

Anonymous — Fri, 29 Sep 2017 14:57:11 GMT

It's a huge frustration because (most) accounts only report monthly.

I just got jammed into a major FICO drop this month when my brand new QS1 reported way earlier than I had expected. I put 95% utilization on, planning to just PIF before the first statement in October. Instead, the first statement was September and it shows 95% utilization on a $500 toy limit and my scores immediately plunged over that one account. PIF'd immediately but of course now I have to wait until October for the next statement to reflect.

I'm not seeking credit at all, but the FICO decrease really hurt my rebuilding scores significantly, and I am hoping for Discover to graduate in November so I definitely want to get it reporting correctly and truthfully.

Re: Score Increase Over Time

Anonymous — Fri, 29 Sep 2017 15:52:24 GMT

ABCD, can you quantify "plunged" when discussing your score drop relatated to maxing out one card? I recently brought one card for the first time ever above 50% utilization on my profile and my two clean scores dropped by probably 5-8 points each and my dirty score stayed put.

Re: Score Increase Over Time

Anonymous — Fri, 29 Sep 2017 15:55:15 GMT

@Thomas_Thumb wrote:
IMO - useful trended data analysis needs to segment according to transactor/revolver behavior as a 1st step. If one is a transactor reported balance/utilization is a non factor and should be ignored - like is done on a true charge card. From a risk perspective, a PIF before statement cuts is no different than a PIF after statement cuts given the same monthly charges in either case. Reported utilization is more meaningful for as a risk factor for revolvers.

I do agree that total monthly charges (either in absolute terms or as a % of CL) can help detect increased risk levels if trended even for transactors. As an example, a month over month increase in total spend (or aggregate utilization %) over the past 6 months suggests someone may be approaching a spend level that cannot be maintained before a subsequent late payment or default occurs. This metric would be most useful if it were to be based on total charges during a month - not just what is allowed to report on a statement as a balance.

So TT, in my above example of the person reporting 90% utilization on a $500 limit card month after month where the first person is making a $450/mo payment (and running the limit back up over the next cycle) and the second person is simply leaving that balance on there, just making the minimum payment, wouldn't trended data result in these behaviors being viewed very differently? I mean, under a MR wouldn't the person making the large monthly payments be seen as far less of a risk than the person carrying the balance, even though it's a toy limit card? This is a situation where I feel the utilization percentage, not the dollar amount, plays a significant role.