topic Re: FICO Simulator--When using under 30%, does paying off more really matter? in Understanding FICO® Scoring

FICO Simulator--When using under 30%, does paying off more really matter?

Anonymous — Mon, 04 Mar 2019 07:39:14 GMT

I'm looking for a seasoned credit analyst, who's spent lots of time with the subtleties.

So I've been trying to get myself out of a little jam...I went out of the frying pan and into the fire.

For many months in 2018, I worked to get my credit card use below 30%. It was in the mid-600s, and 700 was the goal. I did everything I could...worked extra hours, did a consolidation loan, etc. Sure enough, it went up to 717 (Transunion).

But this victory was short-lived. I hadn't properly researched account age, and really underestimated it. Being over 700, I applied for and received a few credit cards with 0% Intro APR (for balance transfers), then transferred the remaining 25% or so. I was also able to get all my other limits to skyrocket (total combined went from around 10K to 30k), thinking it would help with the 30% cushion.

Suddenly, my score plummetted back to the mid-600's (644 Experian, 646 Equifax, 667 Transunion), even with the greater limit and only 25% use. Since then, I've done obsessive research (which I tend to do) on the actual FICO. I'm well-aware of the basic percentage breakdowns (for what goes into the score), but have gone far beyond that. I've gathered a few charts from previous forums, which have been periodically disclosed by FICO, and even have an Excel document with all of these specific criteria, as well as the "excellent/good/fair/poor" ranges of criteria, used by several different credit score sites.

I'm also subscribed to www.freecreditscore.com (by Experian), and the monthly fee is well worth it to me. By comparing my scores by date, I've found some specific patterns. They seem to be in line with those charts, but not exactly the same. For example:

-The "number of credit lines with a balance above 0": when it moves from 5 to 6, it seems to go up exactly 13 points (and vice versa), but from 4 to 5 is only a few points. The chart says "5-6" is one category and "3-4" is another (15 points lower)

- The "average age of all accounts (including closed): The chart gives a clear-cut formula: once it's over 2 years, it's a total of 60 points on that subfactor. Anything below (13-23 months) is 35 points (so a 25-point difference).

I believe this is the main mistake I made when getting all these new cards: the average age went from about 27 to 22 months, so it went down. However, from what I gather, there's only a 10-point difference between 24.5 and 22.9...so it can't be that cut-and-dry. It may also be that the chart's numbers are divided in the final formula, so they don't actually make a difference of that many points.

So to my main question/point: I've been confused by the Experian simulator. It's been telling me that, to get back over 700, I need to pay down a significant portion of my balance...even though I'm using less than 30%. If my score went down because of the age, I understand only time will cure it. But if that's the case, then why is it saying that payoffs make a big difference...when the percentage used is under 30% to begin with? It's acting as if I have over 50% use all over again. I'd like to fix this...but on the flip side, I don't want to pay off a few grand for no reason, then have the score remain the same, when I could have used it for investing elsewhere.

I know that nobody knows the exact algorithms, but can anyone make sense of this?

Re: FICO Simulator--When using under 30%, does paying off more really matter?

Anonymous — Mon, 04 Mar 2019 09:06:13 GMT

Don’t rely on simulators, they don’t ever actually factor in everything in your profile.

From what I can see, you got dinged for AAoA < 2 years, inquiries, and new accounts dropping your AoYA. How long had it been since your last account was added? Anything over 12 months has a significant scoring penalty when a new account is added.

There is also a scoring penalty for multiple new accounts as far as I can tell from my own credit monitoring.

Then there are the number of accounts with balances - anything greater than 1 is a penalty and anything 50% or greater is a penalty. There is likely a penalty for all cards having a balance, I haven’t specifically researched that scenario.

Utilization - greater than 8.9%, 28.9%, 48.9%, 68.9%, 88.9% are all thresholds for a single card and aggregate has 28.9%, 48.9%, 68.9%, and 88.9% thresholds as well.

If you’re not seeking new credit, this is all temporary. AAoA recovers with time, utilization recovers with payments, AoYA recovers with time.

Re: FICO Simulator--When using under 30%, does paying off more really matter?

Anonymous — Mon, 04 Mar 2019 09:02:56 GMT

Ok thanks. I guess the 28.9% explains why Experian still has 30% highlighted in red for a single card.

The three young accounts were opened at the end of 2018; two in November and one in December.

Also, the credit reports list the AAoA as 2 years, but when calculated, it's 23.9 months. So I wonder if the formula actually counts that as "under two years" or not. I'll find out in a month.

Do you know how long it usually takes for the AoYA to fade? Also, do you know of any sources on the utilization thresholds, or other specific ones like that?

Re: FICO Simulator--When using under 30%, does paying off more really matter?

Anonymous — Mon, 04 Mar 2019 13:49:50 GMT

There are indications that AoYA crosses a score threshold at 3 months and definitely at 12 months, a few points on the former and as much as 15 for the latter.

I currently have a balance on each of my cards but will see PIF on at least a couple this month. I’ll see if I can pay one off and wait for a score to update, to see if I can shed light on the above idea of having a score threshold with one card reporting zero vs no cards.

For anything else, I’m sure BBS will be along to handle it. He is the resident expert/theorist on FICO scoring subtleties.

Re: FICO Simulator--When using under 30%, does paying off more really matter?

Anonymous — Mon, 04 Mar 2019 15:11:14 GMT

AoYA is a significant scoring factor because, along with two others (total number of accounts and Age of Oldest Account) it is used by FICO 8 to assign clean profiles to one of 8 different "scorecards." If you get interested in doing more research about the theory of FICO scoring, you may find that an interesting thing to learn about.

But bear in mind that to the extent that a person has practical concerns, there's really no need to bother about the theory of FICO scoring. It's pretty straightforward:

* Never be late on a payment, ever. If you have lates or derogs, head over to the rebuilding forum to explore possible strategies for getting them removed.

* Pay off all your CC debt. Implement AZEO and an ultralow utilization during the month before an important credit application, otherwise keep utilization under 28.9% and never carry balances.

Those are the biggest things you need to remember.

The only two wonky things that people can benefit from knowing are (a) the importance of never opening a CFA and (b) that some FICO models can seemingly penalize you for paying off loans. (B) is easy to protect yourself from, but you just have to work with the people here before you pay off loans.

So I encourage you to keep in separate mental compartments the theory pursuit (which is a hobby, like collecting stamps, and which typically has no practical benefit to a person) vs. the practical problem of raising your scores long term or short term.

Re: FICO Simulator--When using under 30%, does paying off more really matter?

Anonymous — Mon, 04 Mar 2019 16:15:49 GMT

@Anonymous wrote:

I'm also subscribed to www.freecreditscore.com (by Experian), and the monthly fee is well worth it to me.

Paying monthly fees for something that is supposed to be free (freeCreditScore.com) sounds strange. Can you tell us more about what you are doing?

Re: FICO Simulator--When using under 30%, does paying off more really matter?

Anonymous — Mon, 04 Mar 2019 15:27:32 GMT

@Anonymous wrote:
Utilization - greater than 8.9%, 28.9%, 48.9%, 68.9%, 88.9% are all thresholds for a single card and aggregate has 28.9%, 48.9%, 68.9%, and 88.9% thresholds as well.

Did you mean that the other way around? I.e. something like this?

Utilization has thresholds of 28.9%, 48.9%, 68.9%, 88.9% for a single card.

Aggregate utilization has an additional threshold of 8.9%.

Re: FICO Simulator--When using under 30%, does paying off more really matter?

Anonymous — Mon, 04 Mar 2019 16:10:40 GMT

@Anonymous wrote:
@Anonymous wrote:
Utilization - greater than 8.9%, 28.9%, 48.9%, 68.9%, 88.9% are all thresholds for a single card and aggregate has 28.9%, 48.9%, 68.9%, and 88.9% thresholds as well.
Did you mean that the other way around? I.e. something like this?

Utilization has thresholds of 28.9%, 48.9%, 68.9%, 88.9% for a single card.
Aggregate utilization has an additional threshold of 8.9%.

Yes I did. I couldn’t sleep last night, my bad. Lol

Re: FICO Simulator--When using under 30%, does paying off more really matter?

Anonymous — Mon, 04 Mar 2019 19:22:09 GMT

Re: FICO Simulator--When using under 30%, does paying off more really matter?

Anonymous — Mon, 04 Mar 2019 19:25:08 GMT

@Anonymous wrote:
AoYA is a significant scoring factor because, along with two others (total number of accounts and Age of Oldest Account) it is used by FICO 8 to assign clean profiles to one of 8 different "scorecards." If you get interested in doing more research about the theory of FICO scoring, you may find that an interesting thing to learn about.

But bear in mind that to the extent that a person has practical concerns, there's really no need to bother about the theory of FICO scoring. It's pretty straightforward:

* Never be late on a payment, ever. If you have lates or derogs, head over to the rebuilding forum to explore possible strategies for getting them removed.

* Pay off all your CC debt. Implement AZEO and an ultralow utilization during the month before an important credit application, otherwise keep utilization under 28.9% and never carry balances.

Those are the biggest things you need to remember.

The only two wonky things that people can benefit from knowing are (a) the importance of never opening a CFA and (b) that some FICO models can seemingly penalize you for paying off loans. (B) is easy to protect yourself from, but you just have to work with the people here before you pay off loans.

So I encourage you to keep in separate mental compartments the theory pursuit (which is a hobby, like collecting stamps, and which typically has no practical benefit to a person) vs. the practical problem of raising your scores long term or short term.

For me, the details and subtleties are inseparable from my practical plans and pursuits. That goes for everything. Understanding these individual scorecards has already helped me make better decisions to raise the score faster, even if it's only by a few points. It took a long time before I found anything besides the generic advice that twelfth graders (should) learn in school.

So far, I have all the technical aspects of scorecards that I can find. If you know of any additional resources, please let me know.

Re: FICO Simulator--When using under 30%, does paying off more really matter?

Anonymous — Tue, 05 Mar 2019 03:01:11 GMT

@Anonymous wrote:
@Anonymous wrote:

I'm also subscribed to www.freecreditscore.com (by Experian), and the monthly fee is well worth it to me.
Paying monthly fees for something that is supposed to be free (freeCreditScore.com) sounds strange. Can you tell us more about what you are doing?

I found irony in that as well and would like to hear more about it.

Re: FICO Simulator--When using under 30%, does paying off more really matter?

Anonymous — Tue, 05 Mar 2019 03:11:54 GMT

It sounds like you're a bit of a numbers guy. There's nothing wrong with that, but keep in mind that a lot of the things you're referencing are simply fluff coming from front-end CMS software. All of those charts/graphs, simulators, "ratings" (excellent, good, poor, whatever), numbers turning "red" at a certain percentage etc. aren't really meaningful.

I think CGID kept things nice and simple above where he touched on never missing a payment and keeping utilization low. Keep in mind that "usage" is not the same thing as a "reported balance." You talked about keeing "usage" being 30% or "using" 50% of your limit, when usage is not a factor in FICO scoring. One can "use" 100% of their limit, even 200% or greater (if they make multiple payments throughout the month) and still report a balance that comes in at (say) 5% utilization.

If you're currently at ~25% aggregate utilization, taking it down to below 8.9% reported aggregate utilization could mean an increase of 15-20 points on your FICO 8 scores. Number of cards/accounts with balances can play a role here as well and also the individual reported utilization on your highest utilized card.

I don't think you go into it in your original post, but what do you have going on with your file in terms of adverse payment history? Your scores are suggestive of issues there, so I'm curious what types of negative items you have, how many and how old they are?

I agree with the others that your AoYA and AAoA drop caused temporary adverse impact to your scores. It sounds like your AAoA will be back to where it was in 5 months. What was yoru AoYA prior to your latest new account? Whatever the answer is to that question, you'll be back there in that many months. Only time will fix those factors, but it doesn't sound like it should take all that long.

Re: FICO Simulator--When using under 30%, does paying off more really matter?

Anonymous — Tue, 05 Mar 2019 07:13:21 GMT

The monthly Experian score is free, yes. The $24 a month is for all 3 Bureaus once a month, as well as unlimited Experian scores and reports. It also allows the trackers/planners/simulators, even though they're not the most accurate. There's also identity theft insurance (covering up to a million bucks) included in the membership. I've definitely gotten my money's worth out of the site, just by getting all these day-to-day details to compare and analyze when forming my own theory on the FICO algorithm. So I'm ok with the fee for now, at least until I get this under my belt.

Re: FICO Simulator--When using under 30%, does paying off more really matter?

Anonymous — Tue, 05 Mar 2019 07:21:20 GMT

@Anonymous wrote:
It sounds like you're a bit of a numbers guy. There's nothing wrong with that, but keep in mind that a lot of the things you're referencing are simply fluff coming from front-end CMS software. All of those charts/graphs, simulators, "ratings" (excellent, good, poor, whatever), numbers turning "red" at a certain percentage etc. aren't really meaningful.

I think CGID kept things nice and simple above where he touched on never missing a payment and keeping utilization low. Keep in mind that "usage" is not the same thing as a "reported balance." You talked about keeing "usage" being 30% or "using" 50% of your limit, when usage is not a factor in FICO scoring. One can "use" 100% of their limit, even 200% or greater (if they make multiple payments throughout the month) and still report a balance that comes in at (say) 5% utilization.

If you're currently at ~25% aggregate utilization, taking it down to below 8.9% reported aggregate utilization could mean an increase of 15-20 points on your FICO 8 scores. Number of cards/accounts with balances can play a role here as well and also the individual reported utilization on your highest utilized card.

I don't think you go into it in your original post, but what do you have going on with your file in terms of adverse payment history? Your scores are suggestive of issues there, so I'm curious what types of negative items you have, how many and how old they are?

I agree with the others that your AoYA and AAoA drop caused temporary adverse impact to your scores. It sounds like your AAoA will be back to where it was in 5 months. What was yoru AoYA prior to your latest new account? Whatever the answer is to that question, you'll be back there in that many months. Only time will fix those factors, but it doesn't sound like it should take all that long.

That statement I bolded is unsettling. I've never missed a payment on anything in my life...I have zero adverse/derogatory items on my credit report and always have.

So based on that guess, it sounds like you weren't quite sure why it would drop so drastically. Any other theories, now that I answered your questions on delinquency?

Before opening all these new ones, my AOyA was 4...if counting the debt consolidation loan. In terms of credit cards, it was 21...so that won't go back up for another year or so. I'm also still wondering if auto loans and/or consolidation loans count as the "youngest account." This would mean that if I trade/refinance my car, I'd run into the issue again.

If they're not factored as AOyA, it means I've lowered it from almost 2 years to just a few months, which could take a while to recover. Does that really impact the score as much as AAoA? Does it look like I'll have to wait another year to get above 700 again?

Re: FICO Simulator--When using under 30%, does paying off more really matter?

Anonymous — Tue, 05 Mar 2019 13:30:17 GMT

As a general rule, if one possesses a profile that's clean (no negative items present) and their utilization is low, it's almost impossible to not have scores in the low-mid 700's. Many people with 6-12 months of credit history that only have 1 account debut with a score in the low 700's and it only grows from there. Any time I see slightly sub-700 scores it means to me that either utilization is high or there are some sort of negatives present. Dramatically sub-700 usually means the problem is related to both issues. You stated early on that your utilization was low, so that said to me that some sort of negatives must have been present. You're now saying there isn't, so I'm not really sure where to go from here. If you wanted to you could take the time to list out more information on your credit report (all your accounts with their balances/limits, ages, etc.) or perhaps some of the other members here could offer suggestions as to why your scores are pretty low based on the mostly positive profile information you've provided thus far.

All accounts are factored into your age of accounts factors. It doesn't matter if it's a revolving account or loan. So yes, a new loan would drop your AoYA to 0 months. When you said it was previously "4" I'm assuming you meant months and not years, but can't be sure without clarification. Obviously, there'd be a huge difference depending on which it is.

How many inquiries do you have within the last 365 days on each bureau?

Re: FICO Simulator--When using under 30%, does paying off more really matter?

Anonymous — Tue, 05 Mar 2019 16:45:14 GMT

@Anonymous wrote:
As a general rule, if one possesses a profile that's clean (no negative items present) and their utilization is low, it's almost impossible to not have scores in the low-mid 700's. Many people with 6-12 months of credit history that only have 1 account debut with a score in the low 700's and it only grows from there. Any time I see slightly sub-700 scores it means to me that either utilization is high or there are some sort of negatives present. Dramatically sub-700 usually means the problem is related to both issues. You stated early on that your utilization was low, so that said to me that some sort of negatives must have been present. You're now saying there isn't, so I'm not really sure where to go from here. If you wanted to you could take the time to list out more information on your credit report (all your accounts with their balances/limits, ages, etc.) or perhaps some of the other members here could offer suggestions as to why your scores are pretty low based on the mostly positive profile information you've provided thus far.

All accounts are factored into your age of accounts factors. It doesn't matter if it's a revolving account or loan. So yes, a new loan would drop your AoYA to 0 months. When you said it was previously "4" I'm assuming you meant months and not years, but can't be sure without clarification. Obviously, there'd be a huge difference depending on which it is.

How many inquiries do you have within the last 365 days on each bureau?

Experian - 8
Equifax - 3
Transunion - 1

That's true, I meant four months. So the AoYA should be back to where it was already. After checking again, I now see it was only three months in December (when well over 700), so it's already back to that point. I guess that eliminates the theory that it's AoYA making the difference.

And yes, like you said, I've followed the regular advice: Keep utilization under 30% (really 28.9%) and never miss a payment. Still, it's staying in the mid-600s, negating all the work I did in 2018. It seems like I'm a negative "exception" to the rule with no acceptable reason why...this is why the basic fundamental approach hasn't worked, and I've been compelled to break down all the numbers.

Except for the inquiries, the only other possible factor is AAoA...since it's 23.9 months now, it could still be considered under 2 years (even though the 'fluff' reports round it up). In one month, then, it will be over 24 and I'll see how big a difference that makes. It doesn't seem like it should be a full 50.

Re: FICO Simulator--When using under 30%, does paying off more really matter?

Anonymous — Tue, 05 Mar 2019 17:20:35 GMT

There’s definitely something up with your profile. Your scores are around mine and mine are being held back by major things. TU is being held back by my 2010 Chapter 7 and EQ and EX are being held back by student loan lates and a repo in addition to my Chapter 7 and all three have a bunch of new accounts (every card in my sig except Capital One which is almost 5 is less than a year old and the last 6 were December to February additions and my EX already recovered to 670).

My AAoA is > 2y but my understanding is that’s 10 points at the most.

Re: FICO Simulator--When using under 30%, does paying off more really matter?

Anonymous — Tue, 05 Mar 2019 18:09:17 GMT

I'm sure an AAoA shift from 23 months --> 24 months will help some, but AAoA is not a scorecard assignment factor the way AoYA and AoOA are, so gains here won't be huge IMO. I think the 10 points estimated above if anything is on the high end.

I agree that there's definitely something odd regarding your file. Have you pull hard-copy credit reports from all 3B? If not, I'd suggest doing so. There could be something like a 30-day late [incorrectly] reported on one of your accounts that perhaps a CMS or non-hard-copy report isn't showing for whatever reason.

Have you played with having your aggregate utilization at different levels? For example, 5%, 15%, 35%? Each of those points puts you clearly between thresholds, which is why I asked. I would think in most cases you'd see around a 15 point shift give or take to your scores when you cross a threshold point, but if you've done any testing on your own you'd have a better idea of the exact amounts on your profile. That being said, a shift from > 30% utilization down to ideal (under 8.9% aggregate) could easily mean a 30+ point gain. Of course number of accounts with balances, highest individual utilization card etc. come into play here as well, although aggregate utilization is always King to those.

Re: FICO Simulator--When using under 30%, does paying off more really matter?

Anonymous — Tue, 05 Mar 2019 18:22:38 GMT

There are very certainly no delinquencies on any of the bureaus; I have access to all of them on other sites as well.

This is getting extremely frustrating...having worked to do all the "right things," have spent many hours trying to research this, and for no apparent reason, they're acting as if my profile is completely different and all my diligence was a huge waste of time and energy. I'm on the phone with Experian right now to see if I can get anything out of them.

Regarding aggregate utilization: I thought 8.9%-28.9% was all one range...and yes, it's always stayed in there. I've played obsessively with the utilization percentages, both aggregate and individual. But in my understanding, 5%, 15%, and 30% are not specifically thresholds.

The only other things that changed since the score was good (besides the new accounts & inquiries):

- The number of accounts with a balance above zero: Went from 2 to 5

- Number of individual accounts with above 28.5% went from 1 to 2

- The highest-balance account went from around 50% to the "over 88.9%" category (I maxed it out completely with a balance transfer)

Re: FICO Simulator--When using under 30%, does paying off more really matter?

Anonymous — Tue, 05 Mar 2019 18:34:50 GMT

Having a maxed out card is probably costing you about 20 points. I suspect the damage is actually higher than that but there aren’t enough DPs on it. I have a feeling that on a clean scorecard this is far more damaging than that.

If you have 10 or less cards, you’re getting a penalty for more than 50% with a balance as well.