topic Re: Utilization in Understanding FICO® Scoring

Utilization

Anonymous — Wed, 09 May 2018 14:26:51 GMT

Really feel they need to tweek the algorithms in the scoring system. Wife has had a credit score of 850 with 1% utilization. Just recently she paid off her balance on last credit card making her utilization 0%. Result? 14 point drop in FICO score! Based on these results I'm assuming in order to obtain a perfect FICO score you must have a balance left on at least one of your credit cards to stick at 1%. Wow.

Re: Utilization

HeavenOhio — Wed, 09 May 2018 14:31:12 GMT

Yeah, you need to report at least a tiny balance on at least one card. $5 will do, as 0.00000001 percent will round up to 1%. Several credit monitoring services get it wrong and round percentages down. Ignore that and rest assured that FICO rounds up.

You don't have to pay interest to report your small balance. The balance should come from new charges. Of course, with your wife's high scores, all cards at zero isn't a big deal.

Re: Utilization

Anonymous — Wed, 09 May 2018 15:00:34 GMT

And here is something even more curious. Your wife's score drop may have actually been more than 14 points. Her score is capped at 850, but it is possible on FICO's back end for it to be even higher. So perhaps her score just before it dropped was 856. In that case she had a 20 point drop.

Again, from a practical point of view, it's very easy for anyone to accomodate this. You just have one card that has a comparatively small recuring transaction and you set the card on autopay. Boom -- you're done. For me, mine is Netflix, but her's could be a cell phone bill or whatever. Then she is always reporting a small balance on one card.

Re: Utilization

SouthJamaica — Wed, 09 May 2018 18:19:58 GMT

@Anonymous wrote:
Really feel they need to tweek the algorithms in the scoring system. Wife has had a credit score of 850 with 1% utilization. Just recently she paid off her balance on last credit card making her utilization 0%. Result? 14 point drop in FICO score! Based on these results I'm assuming in order to obtain a perfect FICO score you must have a balance left on at least one of your credit cards to stick at 1%. Wow.

I agree with you about the algorithms. I think it's ridiculous that a person who's paid off all of their revolving accounts gets penalized for that. And that a person who has paid off all their installment loans gets penalized for that.

Re: Utilization

Anonymous — Wed, 09 May 2018 19:13:55 GMT

SJ, I know we've agreed to disagree on the installment loan payoff penalty in the past, but I'm curious about your statement above regarding revolvers. How would you suggest the FICO algorithm verify revolving credit use if not a single balance is present?

Re: Utilization

HeavenOhio — Wed, 09 May 2018 19:39:01 GMT

@Anonymous wrote:
SJ, I know we've agreed to disagree on the installment loan payoff penalty in the past, but I'm curious about your statement above regarding revolvers. How would you suggest the FICO algorithm verify revolving credit use if not a single balance is present?

As we talked about in another thread, some cards don't even report the date of last payment. If cards consistently reported past (trended) payment data, there might not be a need for the all cards at zero ding in future scoring models.

Re: Utilization

Anonymous — Wed, 09 May 2018 20:06:22 GMT

I think FICO should stop using number of cards reporting and stick to UTIs until they are able to see payment information through out the cycle, a person with multiple cards reporting 5% UTI is no riskier than another with AZEO reporting the same 5% UTI, and a person who paid down their last CC balance is most certainly not riskier than the first 2, at least not based on this information alone.

Re: Utilization

Anonymous — Wed, 09 May 2018 20:15:43 GMT

I agree that if trended data were readily available and could be used by the FICO algorithm to see revolving credit use that there would be no need to allow at least one balance to report to maximize scoring.

Re: Utilization

Thomas_Thumb — Thu, 10 May 2018 15:48:03 GMT

@Anonymous wrote:
Really feel they need to tweek the algorithms in the scoring system. Wife has had a credit score of 850 with 1% utilization. Just recently she paid off her balance on last credit card making her utilization 0%. Result? 14 point drop in FICO score! Based on these results I'm assuming in order to obtain a perfect FICO score you must have a balance left on at least one of your credit cards to stick at 1%. Wow.

If your wife uses one or more credit cards each month she can just let charges report naturally on monthly statements and just pay the reported statement balance(s) in full each month. That's what I do and it keeps things simple.

Of course utilization has a point in time impact on score as does # of accounts reporting balances. If the score drop causes heart burn, it's an easy fix. Allow a statement balance to report or change # cards reporting balances.

Re: Utilization

sarge12 — Thu, 10 May 2018 16:02:00 GMT

@Anonymous wrote:
Really feel they need to tweek the algorithms in the scoring system. Wife has had a credit score of 850 with 1% utilization. Just recently she paid off her balance on last credit card making her utilization 0%. Result? 14 point drop in FICO score! Based on these results I'm assuming in order to obtain a perfect FICO score you must have a balance left on at least one of your credit cards to stick at 1%. Wow.

Having all zero hurts the score because it looks like you are not using credit period...remember the credit score is a representation of the responsible use of various types of credit...that requires the use of credit cards, and from a utilization standpoint all zero balances is non-use.

Re: Utilization

SouthJamaica — Thu, 10 May 2018 18:47:56 GMT

@Anonymous wrote:
SJ, I know we've agreed to disagree on the installment loan payoff penalty in the past, but I'm curious about your statement above regarding revolvers. How would you suggest the FICO algorithm verify revolving credit use if not a single balance is present?

They can tell from the report that an account was active even though its reported balance is zero. If they wanted to use recent activity as a factor they could easily include that in their algorithm.

Even the abbreviated report we get from MyFICO has "last activity" as a separate item.

So please don't tell me the reason for requiring an open balance has to do with knowing that the account was active.

Re: Utilization

SouthJamaica — Thu, 10 May 2018 18:49:52 GMT

@Thomas_Thumb wrote:
@Anonymous wrote:
Really feel they need to tweek the algorithms in the scoring system. Wife has had a credit score of 850 with 1% utilization. Just recently she paid off her balance on last credit card making her utilization 0%. Result? 14 point drop in FICO score! Based on these results I'm assuming in order to obtain a perfect FICO score you must have a balance left on at least one of your credit cards to stick at 1%. Wow.
If your wife uses one or more credit cards each month she can just let charges report naturally on monthly statements and just pay the reported statement balance(s) in full each month. That's what I do and it keeps things simple.

Of course utilization has a point in time impact on score as does # of accounts reporting balances. If the score drop causes heart burn, it's an easy fix. Allow a statement balance to report or change # cards reporting balances.

T_T there's nothing in OP's original post to suggest that he does not already know that the penalty was for having no balance, and that it could be avoided by having a balance. He's saying that the algorithms should be changed.

Re: Utilization

HeavenOhio — Fri, 11 May 2018 02:21:09 GMT

@SouthJamaica wrote:
Even the abbreviated report we get from MyFICO has "last activity" as a separate item.

AMEX doesn't report that little tidbit.

Re: Utilization

Anonymous — Fri, 11 May 2018 07:16:10 GMT

@SouthJamaica
Even the abbreviated report we get from MyFICO has "last activity" as a separate item.

I've never looked at a report from MF, but am looking at my hard copy TU report right now and don't see anything that says "last activity" or something similar anywhere on it.

Re: Utilization

Thomas_Thumb — Fri, 11 May 2018 12:08:06 GMT

@Anonymous wrote:
Really feel they need to tweek the algorithms in the scoring system. Wife has had a credit score of 850 with 1% utilization. Just recently she paid off her balance on last credit card making her utilization 0%. Result? 14 point drop in FICO score! Based on these results I'm assuming in order to obtain a perfect FICO score you must have a balance left on at least one of your credit cards to stick at 1%. Wow.

It appears you don't necessarily have to report a balance on Classic Fico 8 or Classic Fico 9 (see below) to have an 850 score. It is interesting to note that the reason statement mentions "no balance" not "no activity". Fico reports do have a section for DOLA but, the reason statement mentions balances.

Re: Utilization

HeavenOhio — Sat, 12 May 2018 16:54:36 GMT

@Anonymous wrote:
@SouthJamaica
Even the abbreviated report we get from MyFICO has "last activity" as a separate item.

I've never looked at a report from MF, but am looking at my hard copy TU report right now and don't see anything that says "last activity" or something similar anywhere on it.

On TransUnion, the date of the "last payment made" is noted. Equifax calls this "date of last payment." Experian lists the dates monthly payments have been made, going back two years.

This info is included for all my cards except AMEX.

Screen cap from TU report, obtained from annualcreditreport.com:

Re: Utilization

Anonymous — Mon, 21 May 2018 09:44:47 GMT

I completely agree that the algorithms are completely screwed. I have credit limits totaling 68K on 3 credit cards with a zero balance. I charged $11 on one card and my scores dropped by 5 points and FICO calls that 100% utilization.

Re: Utilization

Anonymous — Mon, 21 May 2018 16:37:23 GMT

Thanks Heaven. We should bear in mind that the data Heaven is describing are trended data, which were not available until years after FICO 8 was released. Even when FICO 9 was being developed, the actual submission of TD was spotty (many creditors not doing it) and therefore could not be relied on by developers. (And as Heaven observes some are still not.)

I still think the most reasonable assumption is that the All Zero Penalty is just a legacy from a time when there wasn't a good way to assess whether a person was using his credit cards at all. Nobody has been a bigger cheerleader for the golden age of TD than me, where all kinds of things would get changed (including FICO's emphasis on ultralow utilization and its failure to distinguish revolvers from transactors). But until TD submission becomes nearly universal and the developers have time to build it in to the next models, and then those models actually get used, I expect we will still need to show a small balance on one card.

PS. One reason to believe the Legacy theory is that I haven't heard a good alternative. Cause FICO is stupid or cause FICO sucks or cause FICO hates me strike me as unlikely.

A more sophisticated theory (though it has an Illuminati consiracy feel to it) is that FICO is in bed with all the big banks, and has agreed to structure its models so that it will punish customers who aren't paying the banks a lot of interest. The problem with that is that all you need to do to avoid the All Zero penalty is report a $5 balance on one card -- and you don't have to pay a penny of interest even on that. So the Illumanati theory seems to fail there, whereas the Legacy theory explains that fine.

Re: Utilization

sarge12 — Mon, 21 May 2018 22:32:05 GMT

@CGID....Once trended data is actually commonly used, I think it would be naive to not think CC issuers will use the trended data to identify who the strict transactors are. The CC industry commonly refers to us transactors as deadbeats, and would be happy to lose our business. Truth is transactors are just not as profitable for them, if profitable at all. They might never admit it publicly, but their preference for reasonably responsible revolvers is real, and I kind of dread trended utilization data ever being commonly used. I have not payed a cent in credit card interest in 20 years, and recieve a couple hundred in rewards almost every year. No way the CC issuers recoup that from swipe fees alone. If too many customers do as I do, annual fees will make a come back in a big way. The issuers count on human nature leading their customers to become revolvers, at least in part.

Re: Utilization

Anonymous — Tue, 22 May 2018 04:06:56 GMT

@AnonymousI completely agree that the algorithms are completely screwed. I have credit limits totaling 68K on 3 credit cards with a zero balance. I charged $11 on one card and my scores dropped by 5 points and FICO calls that 100% utilization.

If you went from all $0 balances to reporting an $11 balance, your scores would not drop 5 points. In fact, they'd likely increase 15-20 points since you now are showing revolving credit use. Taking a $0 balance card to $11 also isn't 100% utilization, so I'm not quite sure what gave you that idea?