topic How Debit to Credit ratios affect my credit score in Understanding FICO® Scoring

How Debit to Credit ratios affect my credit score

Anonymous — Sun, 12 Aug 2018 19:55:36 GMT

Hi,

My debit to credit ratio on my revolving accounts is 1% and 86% on installment accounts (3 student loans and a car loan). Overall debit to credit ratio is 53% on all types of accounts. I know with revolving accounts, you are advised to keep the ratio to <10%. What is the magic % for installment accounts? What % should I shot for to have a significant increase to my credit score? Does it matter that what the individual debit to credit ratio on individual instalment loans are? Or does the calculation only looks at the average?

Car Loan: debit to credit ratio = 59%

Student Loan 1: debit to credit ratio = 92%

Student Loan 2: debit to credit ratio = 59%

Student Loan 3: debit to credit ratio = 95%

Note: The average for all my installment accounts is 86%.

My Various credit scores:

FICO Score 8 based on TransUnion data (835) - Source: Bank of America

FICO Score 8 based on Experian data (850) - Source: American Express

Vantage Score 3.0 based on Transunion data (820) - Source: Credit Karma

Vantage Score 3.0 based on Equifax data (820) - Source Credit Karma

I think the differences above can be attributed to number of hard inquiries. TransUnion (2), Experian (0), Equifax (6). All inquires expire by 7/2019, thus, they are all over 12 months old.

My immediate goal is to refinance my existing private student loan with my Credit Union. I found out that I need a credit score of at least 825 to qualify for their best rate and that they use Vantage Score with Equifax. How do I increase my score to >825 quickly? I have $10,000 I can throw at some loans. Which loans should I target?

Thanks!

Re: How Debit to Credit ratios affect my credit score

Anonymous — Sun, 12 Aug 2018 19:56:50 GMT

You are using the word "revolving" each time, but I think about half the time you mean "installment." For example...

My debit to credit ratio on my revolving accounts is 1% and 86% on revolving accounts (3 student loans and a car loan). Overall debit to credit ratio is 53% on all types of accounts. I know with revolving accounts, you are advised to keep the ratio to <10%. What is the magic % for revolving accounts?

I am guessing that where I use blue ink above you actually do mean "revolving," but where I use red ink you mean "installment." Is that right?

I'll assume I am right, but give me a quick confirmation if you would.

First thing to observe is that the 10% number for revolving accounts is not right. The actual recommendation for total utilization (all credit limits added together) is to be at under 8.99%. For each card considered by itself (aka individual utilization) it needs to be under 28.99%. FICO considers both kinds of revolving utilization. Vantage likely behaves in a similar fashion, though some people here (such as Thomas Thumb) believe that Vantage likes it best when you are at around 4%. In TT's opinion 1% is a bit worse for your score than 4%. (With FICO 1% is never worse than a higher CC utilization.)

As far as installment utilization, FICO 8 gives you a maximum scoring boost when one's total installment utilization is under 8.99%. I don't think anyone knows for sure how Vantage works in that respect. And with FICO 8 you can get all your available scoring boost at a higher installment U if the loans are all ones on which you have been making payments for a number of years (e.g. 25+ months).

I am surprised to hear of a lender that is using Vantage, but really stunned to hear of one that requires an 825 for best rates. They are the only lender in the world that has such a high bar. By comparison, one gets best rates on mortgages at 740, most auto and personal loan lenders give you best rates at 740 (or possibly as high as 760).

What is the name of the credit union? I suggest that you give them a call next week during 9 am - 3 pm and ask to speak with a loan officer. (Make sure that it is an LO and not a run of the mill customer service rep.) Then double check the piece about Vantage and the 825 benchmark.

Re: How Debit to Credit ratios affect my credit score

Thomas_Thumb — Sun, 12 Aug 2018 21:13:57 GMT

@Anonymous wrote:
Hi,
My debit to credit ratio on my revolving accounts is 1% and 86% on installment accounts (3 student loans and a car loan). Overall debit to credit ratio is 53% on all types of accounts. I know with revolving accounts, you are advised to keep the ratio to <10%. What is the magic % for installment accounts? What % should I shot for to have a significant increase to my credit score? Does it matter that what the individual debit to credit ratio on individual instalment loans are? Or does the calculation only looks at the average?

Car Loan: debit to credit ratio = 59%
Student Loan 1: debit to credit ratio = 92%
Student Loan 2: debit to credit ratio = 59%
Student Loan 3: debit to credit ratio = 95%
Note: The average for all my installment accounts is 86%.

My Various credit scores:
FICO Score 8 based on TransUnion data (835) - Source: Bank of America
FICO Score 8 based on Experian data (850) - Source: American Express
Vantage Score 3.0 based on Transunion data (820) - Source: Credit Karma
Vantage Score 3.0 based on Equifax data (820) - Source Credit Karma

I think the differences above can be attributed to number of hard inquiries. TransUnion (2), Experian (0), Equifax (6). All inquires expire by 7/2019, thus, they are all over 12 months old.

My immediate goal is to refinance my existing private student loan with my Credit Union. I found out that I need a credit score of at least 825 to qualify for their best rate and that they use Vantage Score with Equifax. How do I increase my score to >825 quickly? I have $10,000 I can throw at some loans. Which loans should I target?

Thanks!

A VantageScore 3.0 of 820 is extremely good. That places you in the top 5% of those with VS3 credit scores. A required score of 825 would mean that you need to be in the top 3%. The bad news is you probably can't get there given your loans regardless of optimization. The good news is the lender is unlikely to be talking about VS3.

The older VantageScore 2.0 has a scale from 501 to 990. With this model an 820 represents the 71st percentile and an 825 the 72nd percentile. If the lender were using this model, a cutoff at 825 for best terms would be reasonable. The good news is your VS2 score is probably in the 900 to 910 range.

Side note: Your credit score will drop after consolidating the student loans due to the new account and the fact that the consolidated loan will re-start at 100% B/L. I would not be concerned about that unless you plan to buy a home in the next couple years.

Below is a table for Classic Fico 8 as a comparison.

Re: How Debit to Credit ratios affect my credit score

Anonymous — Sun, 12 Aug 2018 20:34:49 GMT

Thanks Creditguyindixie,

You are correct, I actually meant "installment" when i was typing revolving. Good catch. Unfortunately, I'm well above the 8.99% for total utilization. I keep refinancing my student loans every year, which is why my debit to credit ratio is quite high.

I actually applied to refinance with this same credit union (Thrivent FCU) last year, when my FICO was 817 and did not qualify for the best rate. That was when I found out it has to be over 825. They do have a very strict criteria as well. Same job for over 2 years, etc. I did call to speak to a customer service rep. Not a loan officer. When I applied last year, I was approved for their second best rate (4.99 fixed) instead of 3.99 fixed for a 15 year repayment term, which I declined.

I'm not too sure about "Vantage likes it best when you are at around 4%." My credit car utilization recently dropped from last billing period to 1% and my credit score went up 3 points with Equifax Vantage score with Credit Karma. My plan was to have a 0% utilization before applying for my loan ( I assume this isnt the best strategy for a optimal FICO score?).

If FICO considers number of payments (i.e. +25 payments), then it wouldnt do me much good if I paid say $10,000 towards one of the loans to bring my total utilization ratio down.

According to my FICO report from transunion, the #1 reason my score isnt higher is

Proportion of loan balances to loan amounts is too high

FICO® Scores weigh the balances of mortgage and non-mortgage installment loans (such as auto or student loans) against the original loan amounts shown on a person's credit report. Your score was impacted because your proportion of installment loan balances to the original loan amounts is too high.

Re: How Debit to Credit ratios affect my credit score

Anonymous — Sun, 12 Aug 2018 21:56:40 GMT

@Anonymous wrote:

I'm not too sure about "Vantage likes it best when you are at around 4%." My credit car utilization recently dropped from last billing period to 1% and my credit score went up 3 points with Equifax Vantage score with Credit Karma. My plan was to have a 0% utilization before applying for my loan ( I assume this isnt the best strategy for a optimal FICO score?).

That is my experience as well, I find VS3.0 extremely sensitive to the actual balance even when aggregate UTI is under 1%, I often experienced scoring fluctuations with the total balance reporting and saw the biggest gain when I accidentally went into All Zero while losing 18 points on FICO, I think it's worth a shot but I would test it few months before the application.

edit: Just went back and checked CK, both TU and EQ dropped from 804 to 797 after UTI increased from 2% to 4% on August 3rd.

Re: How Debit to Credit ratios affect my credit score

Anonymous — Sun, 12 Aug 2018 21:49:47 GMT

@Thomas_Thumb, I appreciate your detailed response. You are likely correct that the creditor is using Vantage Score 2.0. I previously qualified for the same loan with this same lender in 2016 with a variable rate but later decided I wanted a fixed rate, and then refinanced with another lender. I later tried to go back to the Credit Union in 2017 and did not qualify. So, my score must haved dropped due to opening several new accounts and all the inquiries. I felt I could get away with it since my FICO score was pretty high.

I do not plan on applying for a mortgage any time soon. So I am not that worried about the multiple inquires. What I am still upset about is the car dealership doing 3 hard pulls on me on the same day.

Which of the credit score offerings through myfico shows you credit scores from Vantage Score 2.0? Or is there a place I can get it for free?

Re: How Debit to Credit ratios affect my credit score

Thomas_Thumb — Mon, 13 Aug 2018 01:25:08 GMT

VantageScores are not available through MyFico. Many free sites offer VantageScore but, all the ones I know of have transitioned to VantageScore 3.0. When I got VS2 it was as a 3B rport direct from TransUnion but, they changed to providing VS3 as well. Lenders that elect to use VantageScore can likely still get 2.0 as a legacy.

BTW - I believe VantageScore might also be more sensitive to recent HPs than Fico. I took one HP on EQ and TU late last year. My score was negatively impacted by 4 to 5 points and has been unable to recover. I know it is HP related because my EX VS3 (no HP) did not drop and tracks 4 to 5 points higher than EQ/TU

Do you have any authorized user revolving accounts? VantageScore always includes AU accounts but, Fico 8 may be ignoring them. Another difference between Fico and VS relates to revolving credit. VS looks at $$ amount in addition to UT% whereas Fico only looks at UT%.

If you put $10k toward loan paydown, it is best not to pay off loans completely - from a score optimization point of view. By keeping a loan open the original loan amount still counts in the denominator as part of the aggregate B/L ratio.

(aggregate B/L = sum of loan balances divided sum of original loan amounts for open loans)

Other comments:

1) All revolvers reporting zero is not good for Fico. Score typically drops 15 to 20 points from AZEO.

2) VantageScore is wierd. FWIW - I saw best results with two or three cards reporting and AG UT somewhere between 4.0% and 4.5% on my profile. That was based on actual data.

* I have never reported 0% UT on VS3 so I don't have a data point on this. AU card always reports a balance + at least one personal card.

* I lose points on VS when my AU card reports utilizations above 9.x % (currently reporting 9.8% & score dropped)

3) VS3 score drops a few points when additional cards report balances - For example, EX VS3 score dropped recently from 835 to 829 when 6 of 6 cards reported balances (up from 3 of 6 reporting).

4) VantageScore segments profiles to various scorecards as does Fico. However, different criteria are used for segmentation. Results likely differ some depending on scorecard.

I ran a series of "what if" scenerios on my profile a couple years ago using the CK simulator. Pasted below is the result. My actual peak score happened at a utilization somewhere between 4.0% and 4.5%:

[Ran some additional simulations today to zero in on the 4% to 5% UT range - Not sure if this matters - today's narrow range simulations done while profile reporting a balance on all cards]. The simulation score peak (832) was a narrow band between 4.7% and 4.9%. The simulation local minimum (826) occurred in the band from 4.35% to 4.65%. Peak score less than before due to a recent inquiry on my report. The peak is a strange but, apparently real, anomaly.

Re: How Debit to Credit ratios affect my credit score

SouthJamaica — Mon, 13 Aug 2018 01:21:02 GMT

@Anonymous wrote:
Hi,
My debit to credit ratio on my revolving accounts is 1% and 86% on installment accounts (3 student loans and a car loan). Overall debit to credit ratio is 53% on all types of accounts. I know with revolving accounts, you are advised to keep the ratio to <10%. What is the magic % for installment accounts? What % should I shot for to have a significant increase to my credit score? Does it matter that what the individual debit to credit ratio on individual instalment loans are? Or does the calculation only looks at the average?

Car Loan: debit to credit ratio = 59%
Student Loan 1: debit to credit ratio = 92%
Student Loan 2: debit to credit ratio = 59%
Student Loan 3: debit to credit ratio = 95%
Note: The average for all my installment accounts is 86%.

My Various credit scores:
FICO Score 8 based on TransUnion data (835) - Source: Bank of America
FICO Score 8 based on Experian data (850) - Source: American Express
Vantage Score 3.0 based on Transunion data (820) - Source: Credit Karma
Vantage Score 3.0 based on Equifax data (820) - Source Credit Karma

I think the differences above can be attributed to number of hard inquiries. TransUnion (2), Experian (0), Equifax (6). All inquires expire by 7/2019, thus, they are all over 12 months old.

My immediate goal is to refinance my existing private student loan with my Credit Union. I found out that I need a credit score of at least 825 to qualify for their best rate and that they use Vantage Score with Equifax. How do I increase my score to >825 quickly? I have $10,000 I can throw at some loans. Which loans should I target?

Thanks!

1. I'm skeptical that they use Vantage score.

2. For FICO scores the magic number on both credit card and installment utilization is < 9%, but in reality a lower percentage in revolving utilization gets you an even better score.

Re: How Debit to Credit ratios affect my credit score

Anonymous — Mon, 13 Aug 2018 02:43:44 GMT

OP, are you sure that your CU uses EQ VS 3.0 for lending decisions and that it's not just a score provided with your account? As others have already stated above, that would be quite abnormal if it really is the case.

Also somewhere in one of your posts you mentioned "number" of payments and implied that a $10k payment toward loan(s) may not be as beneficial since it's just 1 payment. I think that perhaps you're being influenced by Credit Karma's pretty fluff front-end software that shows you percentages of on-time payments, suggesting that the more you have may increase your score. This is bogus and doesn't matter. Your scores are indicative of 100% payment history, so it doesn't matter if you have 100 on-time payments over the last 2 years or 1000 on-time payments. Don't let CK fool you into thinking that matters, as they're just trying to manipulate people into appling for more products through them in order to be able to make more on-time payments (due to more accounts reporting monthly).

Re: How Debit to Credit ratios affect my credit score

iv — Mon, 13 Aug 2018 04:12:02 GMT

@Anonymous wrote:

My immediate goal is to refinance my existing private student loan with my Credit Union. I found out that I need a credit score of at least 825 to qualify for their best rate and that they use Vantage Score with Equifax.

You mentioned later in this thread that your CU was Thrivent - they are very clear in their online FAQ that they use "FICO, Income, and Debt" to set Student Loan rates: https://www.thriventcu.com/get-answers/faqs/#student-loan-pricing

FICO isn't (yet?) a genericized noun for credit scores, so if they say they use FICO, they mean an actual FICO model, not VantageScore.

I do find it extremely unlikely that they would require a 825 in any of the score models that have an 850 max. It's possible, but it would be far, far from the norm. I suppose they could be using a FICO Bankcard or Auto model (with a 900 max), but that would also be a bit odd.

Re: How Debit to Credit ratios affect my credit score

Anonymous — Mon, 13 Aug 2018 14:53:52 GMT

A lot of words have been written so far without us actually having solid evidence that the lender in question is using Vantage for this decision. Indeed, we have evidence to the contrary.

I'd just like to repeat my advice in post #2 of this thread: