topic Re: Question about AZEO Strategy in Understanding FICO® Scoring

Question about AZEO Strategy

RicHowe — Sat, 11 Nov 2017 15:55:47 GMT

Does utiluzing the AZEO strategy really result in SIGNIFICANT boost in score as opposed to a Pay Everything In Full strategy? To me it seems that leaving a small balance would take points off the table. Zero util should result in maximum 30% of score awarded.

I hear the algorithm is wonky in this way, but if we are talking a pioint or two difference. Is it worth the effort?

Educate me.

Re: Question about AZEO Strategy

Anonymous — Sat, 11 Nov 2017 16:01:55 GMT

AZEO versus PIF-to-zero affects my profile by anywhere from 8-14 points consistently. I've tested this at many score levels (550s, 600s, 650s, 700s).

It's significant enough, 2-3% of overall FICO score points available.

AZEO does not affect FICO points for "amounts owed". AZEO affects FICO points for "credit mix". If you aren't using your credit cards, you lose points in "credit mix". If you report a very small balance on one card (or on fewer than 1/3 of cards actually), you get maximum points for "amounts owed" and you can get points lost for "credit mix".

Amounts owed = 30% of FICO or 165 possible points. No obvious penalty for using $0 to 8.9% of credit limit.

Credit mix = 10% of FICO or 55 possible points. No obvious penalty unless you don't show usage on the credit mix. It's no different than the SSL technique when someone has no open installment loan reporting (ding on credit mix, can be as much as 40 points out of 55!). I almost want to say that this section is 15 points for credit card usage and 40 points for installment loan usage but I don't have enough data points to prove that.

Re: Question about AZEO Strategy

RicHowe — Sat, 11 Nov 2017 16:07:16 GMT

Okay. So if someone does have other types of credit usage, than AZEO would have little impact?

Re: Question about AZEO Strategy

Anonymous — Sat, 11 Nov 2017 16:10:27 GMT

@RicHowe wrote:
Okay. So if someone does have other types of credit usage, than AZEO would have little impact?

No because "credit usage" is split up into at least two different categories, namely "usage on credit cards" and "usage on installment loans". So having a balance on an installment loan helps with a small part of "credit usage" but doesn't affect it for all of it.

My napkin math calculations lately tell me that installment loans seem to be about 20% of "credit usage" and credit cards seem to be about 80% of "credit usage" -- out of 165 points, I guesstimate that credit card usage is somewhere around 130 total points and installment usage seems to be around 35 total points or so. This is separate from "credit mix" which is how nice of a mix of credit you have (open credit cards 5+, open installment loans 1+, with at least one account in each tier showing some activity right now).

Re: Question about AZEO Strategy

RicHowe — Sat, 11 Nov 2017 16:12:27 GMT

Ahh now it makes sense. Brilliant!

Re: Question about AZEO Strategy

Anonymous — Sat, 11 Nov 2017 16:20:33 GMT

I should also mention two things

This data is my best guess but I've written a credit score analyzer and I input a lot of shared data form folks I know who send me their 3Bs to massage into my analyzer -- and I know my analyzer is WRONG because I keep finding outliers.
There is also something called a "scorecard" or "bucket" which FICO puts people in. There are 10-12 of these depending on which flavor of FICO score you're looking at. The most common scorecard involves the age of your oldest account of any kind, so having old accounts reporting gives you the maximum number of FICO points within each category. Having any derogatory data may put you into a negative scorecard (there are 2 or 4 I believe) which means you may not get 100% of points within any category even if you're perfect there.

So your mileage, as always, may vary, but so far my "FICO predicator" has been working exceptionally well for me and a few others who I'm friends with in real life.

Just remember that AZEO is not actually about "credit usage" per se, it's about showing activity on a part of "credit mix", a category which appears to prefer installment loans versus "credit usage" which appears to prefer credit cards... Confusing, yes, but the analyses seems to agree with this statement.

Re: Question about AZEO Strategy

Anonymous — Sat, 11 Nov 2017 19:18:02 GMT

@Anonymous wrote:

AZEO does not affect FICO points for "amounts owed". AZEO affects FICO points for "credit mix". If you aren't using your credit cards, you lose points in "credit mix". If you report a very small balance on one card (or on fewer than 1/3 of cards actually), you get maximum points for "amounts owed" and you can get points lost for "credit mix".

Hey ABCD! Hope you are having a good weekend.

AZEO (as a strategy) affects number of accounts showing a positive balance.

FICO has always described how many accounts have positive balances as part of its Amounts Owed category:

* Payment History (35%)

* Amounts Owed (30%)

* Length of Credit History (15%)

* Credit Mix (10%)

* New Credit (10%)

Here is a link to the breakdown of the various factors included in the Amounts Owed category:

https://www.myfico.com/credit-education/amounts-owed/

You'll see that "How many accounts have balances" is one of the listed factors.

That said, I don't see "which category" as being a terribly important question. What's important is that it is part of every FICO scoring model, with more or less emphasis placed on it depending on the model. Contributor Thomas Thumb has shown (if I remember right) that the older models (e.g. FICO 04 and FICO 98, used now for mortgage lending) place a greater emphasis on this than does FICO 8.

So I think you are basically right -- which is to answer the OP that AZEO is a useful strategy that does affect one's score.

I'll add one closing thought to our OP... and that is that the scoring benefit one gets from AZEO can be obtained in full by implementing in the 40 days before an important credit application. Our OP is asking a practical question about whether it is "worth the effort" and he contrasts it with just letting cards report and then paying in full. From a practical perspective, he can certainly use his PIF strategy and then pull out AZEO only as part of a pre-app strategy. If he only applies a couple times a year, that's very little effort.

Re: Question about AZEO Strategy

RicHowe — Sat, 11 Nov 2017 19:38:46 GMT

Thanks for the replies.

To be clear, I PIF before the statement closes so that zero balance shows to the CRAs. Would I get the AZEO benefit if I paid off all revolvers as I do now, and maybe left a small balance on my charge card (not paying by statement close but PIF immediately after statement close)? I hear charge cards don't factor into Util anymore/as much. So I could get the benefit of 0% Util AND have a balance from my charge card statement to gain the benefit of usage for the credit mix points?

I only have the AMEX Delta Platinum and the AMEX Platinum cards? My scores are in the 700's.

Re: Question about AZEO Strategy

Anonymous — Sat, 11 Nov 2017 19:43:34 GMT

PS. Final note to our OP. Rereading your initial post, it's possible that your current strategy may actually not be PIF (which means to allow cards to report their balances to the bureaus, but then pay the amount on the statement in full).

Rather, you may be adopting a PTZ approach (pay to zero) where you have all cards reporting zero at all times (because you pay each one to zero before the statement). I am wondering if that is perhaps what you do, since you describe your approach as involving "zero utilization" and conjecture that leaving a small balance on one card would involve a small penalty.

If so, then there is no question that you are being penalized by FICO. No FICO model likes it when you have all cards at zero. The penalty varies but many folks experience it as 15-20 points. Allowing one card to report a balance would eliminate this penalty.

AZEO vs. PIF, in contrast, is a question about whether a person can just allow his cards to report balances naturally without making sure that they are all zero except one every month. Many people just allow their cards to report and then PIF, pulling out AZEO in the rare cases when they are applying for credit.

Re: Question about AZEO Strategy

Anonymous — Sat, 11 Nov 2017 19:50:13 GMT

Just saw your last post. Yup, looks like I was right. You are currently using a PTZ approach, rather than PIF. And you are being penalized by FICO for doing that.

To avoid the "all cards at zero" penalty, you need at least one card to report a positive balance. That card should not be a charge card, since they are often excluded from FICO's calculations. The one card should be:

(1) A true credit card (not a charge card)

(2) A card in your name (not an AU card)

(3) A card showing a balance of at least $5 (tiny balances like $1-3 can sometimes be reported as $0)

(4) A card with a credit limit of < 34.9k (cards with obscenly huge credit limits are dropped from FICO's calculations in some models -- but less than 34.9k is safe)

Re: Question about AZEO Strategy

RicHowe — Sat, 11 Nov 2017 19:55:08 GMT

I have been properly schooled. Thanks everyone!

Re: Question about AZEO Strategy

ohjoy — Mon, 11 Dec 2017 06:29:30 GMT

@Anonymous wrote:
Just saw your last post. Yup, looks like I was right. You are currently using a PTZ approach, rather than PIF. And you are being penalized by FICO for doing that.

To avoid the "all cards at zero" penalty, you need at least one card to report a positive balance. That card should not be a charge card, since they are often excluded from FICO's calculations. The one card should be:

(1) A true credit card (not a charge card)
(2) A card in your name (not an AU card)
(3) A card showing a balance of at least $5 (tiny balances like $1-3 can sometimes be reported as $0)
(4) A card with a credit limit of < 34.9k (cards with obscenly huge credit limits are dropped from FICO's calculations in some models -- but less than 34.9k is safe)

Whoa! Back up.

So, I am an AU on one of my accounts and have been paying all of my accounts to zero, leaving the AU account as my one account with a balance, mainly because I can't require this account to be PIF. That account sits at 2-3% util. So should I allow one of my actual accounts to show a small balance in addition to the AU account for max points? I have 7 revolvers (8, if Navcheck is included). Thanks.

Re: Question about AZEO Strategy

HeavenOhio — Mon, 11 Dec 2017 08:12:06 GMT

Your scores are good enough that there isn't much to be concerned about. But you could test it out both ways if you'd like to see if there's a difference.

Re: Question about AZEO Strategy

Anonymous — Mon, 11 Dec 2017 11:05:06 GMT

Remember too that AZEO is a practical strategy rather than a theoretical claim about what will happen about all profiles on all scorecards on all models. We do know that in some cases FICO ignores the AU card, and therefore we do not recommend using the AU card if a person wants to be sure to get the AZEO benefit.

Likewise we know that in some cases a person can have multiple cards showing a balance with no score drop. That doesn't change the fact that if a person wants to be certain to get get every available extra point, then he should have exactly one card rather 2 or 3.

Similarly if a person is preparing to buy a house, it's possible that AZEO using a card with a 36k credit limit would work ok. But it is not a good practical choice since in some cases FICO will drop from consideration a credit card with a very large credit limit.

Re: Question about AZEO Strategy

SouthJamaica — Mon, 11 Dec 2017 17:35:26 GMT

@RicHowe wrote:
Does utiluzing the AZEO strategy really result in SIGNIFICANT boost in score as opposed to a Pay Everything In Full strategy? To me it seems that leaving a small balance would take points off the table. Zero util should result in maximum 30% of score awarded.

I hear the algorithm is wonky in this way, but if we are talking a pioint or two difference. Is it worth the effort?

Educate me.

It is a Pay Everything in Full strategy.

All of the cards are paid in full every month.

Just that one of them is paid just after the balance reports, while the others are paid before the balance reports.

Re: Question about AZEO Strategy

SouthJamaica — Mon, 11 Dec 2017 17:36:55 GMT

@RicHowe wrote:
Thanks for the replies.

To be clear, I PIF before the statement closes so that zero balance shows to the CRAs. Would I get the AZEO benefit if I paid off all revolvers as I do now, and maybe left a small balance on my charge card (not paying by statement close but PIF immediately after statement close)?

No. No. No. If all your revolvers report zero, you will get dinged.

I hear charge cards don't factor into Util anymore/as much. So I could get the benefit of 0% Util AND have a balance from my charge card statement to gain the benefit of usage for the credit mix points?

I only have the AMEX Delta Platinum and the AMEX Platinum cards? My scores are in the 700's.

Re: Question about AZEO Strategy

Thomas_Thumb — Tue, 12 Dec 2017 01:43:18 GMT

@ohjoy wrote:
@Anonymous wrote:
To avoid the "all cards at zero" penalty, you need at least one card to report a positive balance. That card should not be a charge card, since they are often excluded from FICO's calculations. The one card should be:

(1) A true credit card (not a charge card)
(2) A card in your name (not an AU card)
(3) A card showing a balance of at least $5 (tiny balances like $1-3 can sometimes be reported as $0)
(4) A card with a credit limit of < 34.9k (cards with obscenly huge credit limits are dropped from FICO's calculations in some models -- but less than 34.9k is safe)

Whoa! Back up.
So, I am an AU on one of my accounts and have been paying all of my accounts to zero, leaving the AU account as my one account with a balance, mainly because I can't require this account to be PIF. That account sits at 2-3% util. So should I allow one of my actual accounts to show a small balance in addition to the AU account for max points? I have 7 revolvers (8, if Navcheck is included). Thanks.

Yes - absolutely report a balance on one of YOUR revolving credit cards. The older Fico 98 and Fico 04 scoring models always include AU cards. However, many AU cards are "ignored" in Fico 8 . I am AU on a household expense card where DW is primary. Although it is listed on credit reports, it doesnot count as an active revolver for me in Fico 8. AMEX charge cards don't count either.

The AU card always reports a balance (typically 2% to 6%). When the only balances reporting were my AMEX and the AU card, I lost points on Industry Enhanced Fico 8 scores across all CRAs. No drop in the older Fico 04 model which always includes AU cards. Also received the reason statement: "no recent balances on your revolving accounts"

Re: Question about AZEO Strategy

ohjoy — Tue, 12 Dec 2017 01:46:15 GMT

@Thomas_Thumb wrote:
@ohjoy wrote:
@Anonymous wrote:
To avoid the "all cards at zero" penalty, you need at least one card to report a positive balance. That card should not be a charge card, since they are often excluded from FICO's calculations. The one card should be:

(1) A true credit card (not a charge card)
(2) A card in your name (not an AU card)
(3) A card showing a balance of at least $5 (tiny balances like $1-3 can sometimes be reported as $0)
(4) A card with a credit limit of < 34.9k (cards with obscenly huge credit limits are dropped from FICO's calculations in some models -- but less than 34.9k is safe)

Whoa! Back up.
So, I am an AU on one of my accounts and have been paying all of my accounts to zero, leaving the AU account as my one account with a balance, mainly because I can't require this account to be PIF. That account sits at 2-3% util. So should I allow one of my actual accounts to show a small balance in addition to the AU account for max points? I have 7 revolvers (8, if Navcheck is included). Thanks.
Yes - absolutely report a balance on one of YOUR revolving credit cards. The older Fico 98 and Fico 04 scoring models always include AU cards. However, many AU cards are "ignored" in Fico 8 . I am AU on a household expense card where DW is primary. Although it is listed on credit reports, it doesnot count as an active revolver for me in Fico 8. AMEX charge cards don't count either.

The AU card always reports a balance (typically 2% to 6%). When the only balances reporting were my AMEX and the AU card, I lost points on Industry Enhanced Fico 8 scores across all CRAs. No drop in the older Fico 04 model which always includes AU cards. Also received the reason statement: "no recent balances on your revolving accounts"

Thank you so much for your response.

Re: Question about AZEO Strategy

ohjoy — Wed, 03 Jan 2018 05:45:31 GMT

Ahem! Me again.

What about CLOC like Navcheck? Is that included or excluded in the AZEO strategy?

Re: Question about AZEO Strategy

Gratitude — Tue, 09 Jan 2018 07:13:18 GMT

@Anonymous wrote:
@RicHowe wrote:
Okay. So if someone does have other types of credit usage, than AZEO would have little impact?
No because "credit usage" is split up into at least two different categories, namely "usage on credit cards" and "usage on installment loans". So having a balance on an installment loan helps with a small part of "credit usage" but doesn't affect it for all of it.

My napkin math calculations lately tell me that installment loans seem to be about 20% of "credit usage" and credit cards seem to be about 80% of "credit usage" -- out of 165 points, I guesstimate that credit card usage is somewhere around 130 total points and installment usage seems to be around 35 total points or so. This is separate from "credit mix" which is how nice of a mix of credit you have (open credit cards 5+, open installment loans 1+, with at least one account in each tier showing some activity right now).

@Anonymous..

So "credit usage" tallies overall credit used and ranking percentage are allocated to type; "credit mix" splits type of credit. There is clearly a difference in weighing type.
So, if 3 CC's + AZEO provides you with a best CC score and it gets better if you add Installment Loan (paid down to 8.9% asap) then would multiple Installment loans, aggregate at 8.9% or below, boost your score faster than just one Installment loan + the 3 CC / AZEO?