topic Re: Credit cards vs student loans in Understanding FICO® Scoring

Credit cards vs student loans

Anonymous — Tue, 04 Sep 2018 01:47:43 GMT

I have 3 credit cards. But I also have 5 open account for student loans that are due monthly sept 22nd. Will my credit score dropped once I being repaying them monthly? Also when FICO looks for the Utilization ratio is it only included for the 3 credit cards or is the 5 student loans included too? If they are included how does leaving a balance on one card matter if I have 5 other balances in loans?

Re: Credit cards vs student loans

Anonymous — Tue, 04 Sep 2018 02:44:34 GMT

My comments below in blue.

@Anonymous wrote:
I have 3 credit cards. But I also have 5 open account for student loans that are due monthly sept 22nd. Will my credit score dropped once I being repaying them monthly?

No.

Also when FICO looks for the Utilization ratio is it only included for the 3 credit cards or is the 5 student loans included too?

There are two utilization percentages, one for revolving accounts and another for installment accounts. There is no factor that considered both CCs and loans together.

If they are included how does leaving a balance on one card matter if I have 5 other balances in loans?

You will experience a scoring penalty if all cards report $0.

Re: Credit cards vs student loans

Anonymous — Tue, 04 Sep 2018 13:36:40 GMT

@CreditGuyInDexie
But why is there also a penalty for having 2 balances on one card and $0 on the other?

Re: Credit cards vs student loans

Anonymous — Tue, 04 Sep 2018 16:21:45 GMT

@Anonymous wrote:
@CreditGuyInDexie
But why is there also a penalty for having 2 balances on one card and $0 on the other?

I don't know what it means to have two balances on one card.

When people here say that an account "has a balance" it means that they owe more than zero dollars on it. I have never heard someone describe a card having two balances.

Re: Credit cards vs student loans

Anonymous — Tue, 04 Sep 2018 17:31:06 GMT

@CreditHuyInDixid
Sorry I meant to say to have two cards with balances on them and the third card with a $0 balance. They say that’s not good either.

Re: Credit cards vs student loans

Brian_Earl_Spilner — Tue, 04 Sep 2018 17:44:50 GMT

Utilization factors for overall and individual cards and percentage of cards carrying a balance. In this case, 66.6% of your cards are carrying a balance.

Re: Credit cards vs student loans

Brian_Earl_Spilner — Tue, 04 Sep 2018 17:46:19 GMT

Also, your score will go up when your installment loans get to about 70% paid off.

Re: Credit cards vs student loans

Thomas_Thumb — Tue, 04 Sep 2018 18:49:34 GMT

@Anonymous wrote:
@CreditHuyInDixid
Sorry I meant to say to have two cards with balances on them and the third card with a $0 balance. They say that’s not good either.

Two cards out of three with small balances might be costing you 5 points on Fico 8. That may not be optimal but, I would hesitate to say it's bad. Drop might be bigger on the older Fico mortgage models but, not more than 10 points. Key point is to maintain revolving utilization at a low level - under 9%.

You do want to allow at least one card to report a balance to avoid the typical 15 to 20 point penalty associated with "no recent revolving activity". Installment loans are not revolving accounts. Profiles with three or more cards, should avoid having 100% of cards report a balance.

Given the OP has 5 student loans, going from 1 to 2 cards reporting might have no impact. As others have mentioned, Fico looks at # of open accounts with balances - open loans are accounts and thus they do get included in the count.

Re: Credit cards vs student loans

Anonymous — Tue, 04 Sep 2018 19:42:56 GMT

@Thomas_Thumb
So when they calculate the utilization ratio do they only included the two cards used or do they use all 3? For example if I used two cards one discover it card with a balance of $80 but a limit of 2,700 and my capital one card with a balance of $51 and a limit of 900 will they only add the total $131 divided by 3,600 or will they include the card I didn’t use also with the $0 and a limit of $1000? Will it be $131/3600 or $131/4600?

Re: Credit cards vs student loans

Anonymous — Tue, 04 Sep 2018 20:49:14 GMT

Hi Ciera. Sounds like you are a little confused about what we are saying. There are three factors that FICO looks at connected with credit cards:

(1) Total Utilization. This is your total CC debt (across all cards) divided by your total credit limit (all open cards added together, including those with a zero balance).

(2) Individual Utilization. This is your CC debt divided by your credit limit for each card considered by itself.

(3) Number of Open Accounts reporting a positive balance. This is an integer number like 0, 1, 2, etc. For example, if you had four open loans and three open cards, then you'd have 5, 6, or 7 accounts reporting a balance (since the open loans all have a positive balance). It's also possible that FICO looks at ratios here: in that case you'd have 5/7, 6/7, or 7/7 reporting a balance. Note that a card is reporting a balance even if that balance is a tiny number: e.g. if a card has a balance of $1 then it is reporting a balance.

#1 and #2 are the two kinds of revolving utilization. #3 is something else entirely, and it has nothing to do with credit limits. #1 has the hugest affect on your score, #2 the next biggest effect (assuming none of your cards are maxxed out), and #3 typically has the smallest effect by far.

Does that help?

PS. There is one more kind of "utilization" which people here often call Installment Utilization. It is confined to loans and other similar installment accounts. When your loans are mostly but not entirely paid off, your IU is low which is good. When you still owe most of the original loan amount, your IU is high. This can cost you about 35 points in the FICO 8 model.

Re: Credit cards vs student loans

Anonymous — Tue, 04 Sep 2018 21:08:26 GMT

@CreditGuyInDixie
I was just looking at my credit history and statements my score was a 737 and dropped to a 720 when I used 9% of total utilization, using 1 card and the other two $0 balances. That drop was 17 points why did it drop so much if that was the only impact? Someone mentioned it would only drop 5-10 points but mine took a hit and also mentioned that if you use one card you score stays the same or increases but I do not think that is true. I used 2 cards this cycle and left one at a $0 balance so I’m nervous my score will drop more than 10 points.

Re: Credit cards vs student loans

Anonymous — Tue, 04 Sep 2018 22:56:55 GMT

Here's the before and after descriptions of your score drop. There are areas where some important information was left out:

BEFORE:

Score = 737

Where did you get the score from? ________

Total Utilization = ______

Exact total amount of CC debt = ________ (as it was listed on the report)

Exact total credit limit = ______

Number of cards reporting a balance = ______

AFTER

Score = 720

Where did you get the score from? ________

Total Utilization = 9%

Exact total amount of CC debt = ________ (as it was listed on the report)

Exact total credit limit = ______

Number of cards reporting a balance = 1

Can you fill in the blanks?

Re: Credit cards vs student loans

Anonymous — Wed, 05 Sep 2018 00:39:51 GMT

4/19 my score was reported as a 730 utilization 1%. My statement in April was a total of $26 on one card only with a limit of 2700 but my total limit on both cards together was $3500.

5/19 score reported was a 737. 2% and a $0 balance on all cards. (Opened another card may 30th with a limit of $1000)

6/26 score 720 9% only a $48.15 balance on one card. Total limit 4,500 (increase credit limit to $100 this month) so now my limit is $4,600

7/27 score 748 7% $328.37 only one on card.

None of this makes sense I’ve been siting here for hours trying to figure out unless I’m looking at my statements wrong. @CreditGuyInDixie

Re: Credit cards vs student loans

Anonymous — Thu, 06 Sep 2018 04:40:13 GMT

@Anonymous wrote:
4/19 my score was reported as a 730 utilization 1%. My statement in April was a total of $26 on one card only with a limit of 2700 but my total limit on both cards together was $3500.

5/19 score reported was a 737. 2% and a $0 balance on all cards. (Opened another card may 30th with a limit of $1000)

6/26 score 720 9% only a $48.15 balance on one card. Total limit 4,500 (increase credit limit to $100 this month) so now my limit is $4,600

7/27 score 748 7% $328.37 only one on card.

@Anonymous of this makes sense I’ve been siting here for hours trying to figure out unless I’m looking at my statements wrong. @Anonymous

Are sure sure that you are matching the balances and fico score correctly?

As I remember from a different thread, you are getting your TU fico scores from Discover card. But Discover card does not provide a credit report and the score is pulled a few days before the statement date. This means that the balance on your discover card statement is not the balance used for the fico score on the same statement.

So how did you determine the balances on your credit report for the dates Discover card pulled your Fico scores? Do you know when your credit cards report to TU?

Re: Credit cards vs student loans

Anonymous — Wed, 05 Sep 2018 02:18:04 GMT

@Llewelyn
Discover it provides my Fico 8 score including how much of the utilization ratio I’m using it just doesn’t give me the balances on each card I have. I tried to see on credit karma but it only shows the most recent one. Just nervous my score will drop more than 10 points since I used two cards out of three instead of one. And increased my ratio from 1% to 2.8%

Re: Credit cards vs student loans

Anonymous — Wed, 05 Sep 2018 02:57:52 GMT

Here are the two months you mentioned with some comments of mine in blue.

5/19 score reported was a 737. 2% and a $0 balance on all cards. (Opened another card may 30th with a limit of $1000)

Looks like you are saying that you had a 2% utilization while reporting $0 on all cards. Think about that a bit and tell us if you can see why that is impossible.

6/26 score 720 9% only a $48.15 balance on one card. Total limit 4,500 (increase credit limit to $100 this month) so now my limit is $4,600

Looks like you are saying that you had a 9% utilization while reporting $48 of CC debt and a total credit limit of $4500. Think about that a bit and tell us if you can see why that is impossible.

Re: Credit cards vs student loans

Anonymous — Wed, 05 Sep 2018 04:05:56 GMT

@CreditGuyInDixie
know it doesn’t add up I must not be reading my statements right because the percentages do not add to the numbers I listed. I will just see how my credit score turns out at the end of the month just nervous that it will drop more than 10 points.

Re: Credit cards vs student loans

Anonymous — Wed, 05 Sep 2018 22:02:47 GMT

@Anonymous wrote:
I tried to see on credit karma but it only shows the most recent one.

When did you sign up for Credit Karma? Credit Karma keeps a record of all the credit reports you got from them:

Select Score Details under Overview.

Then switch from Credit Factors to Credit Report.

Scroll all the way down and click on "View Past Reports"

In the top right you can choose any report they have on file for you.