topic Re: Ratio of loans:revolvers in Understanding FICO® Scoring

Ratio of loans:revolvers

Anonymous — Tue, 13 Oct 2020 05:48:40 GMT

So, I saw in a fico slide that the algorithm considers the ratio in the Mix category.

Any info, DPs, or insights anyone? It's usually said another loan/SSL wouldn't help someone, but if one has many cards, they could be leaving points on the table, if the number of loans is less than the ideal unknown ratio. But I'm wondering if it also includes closed loans.

Anyway big unknown. Seeking info and feedback.

Re: Ratio of loans:revolvers

Anonymous — Tue, 13 Oct 2020 04:23:36 GMT

Re: The below direct from FICO

Main takeaway from that is someone from FICO said you should aim for 2-3 revolvers per installment. Not definitive that it helps.

In the Resilience thread, I think there was talk of the ratio being a thing for that score? Excessive revolvers to IAs bearing a penalty?

IME, I had 11 open revolver, 2 closed IA, 1 open IA; I added 3 more open IAs, no FICO 8 change.

Though, I was penalized across the other versions for too many credit accounts with balances, but that's independent of mix.

Closed accounts probably contribute to mix ratio if it exists in mainstream FICO vers.

Bust-out by Experian

It may not be FICO, but internal algos + bust-out watch out for people with lack of or minimal installments.

Re: Ratio of loans:revolvers

Slabenstein — Tue, 13 Oct 2020 05:21:59 GMT

Somewhat OT, but that bust-out doc is super interesting.

Re: Ratio of loans:revolvers

Anonymous — Tue, 13 Oct 2020 05:59:48 GMT

@Anonymous wrote:
Re: The below direct from FICO
Main takeaway from that is someone from FICO said you should aim for 2-3 revolvers per installment. Not definitive that it helps.

In the Resilience thread, I think there was talk of the ratio being a thing for that score? Excessive revolvers to IAs bearing a penalty?
IME, I had 11 open revolver, 2 closed IA, 1 open IA; I added 3 more open IAs, no FICO 8 change.

Though, I was penalized across the other versions for too many credit accounts with balances, but that's independent of mix.

Closed accounts probably contribute to mix ratio if it exists in mainstream FICO vers.
Bust-out by Experian
It may not be FICO, but internal algos + bust-out watch out for people with lack of or minimal installments.

@Anonymous wow great information thank you. I have no doubt that closed loans contribute to satisfying the portion of credit mix of simply having credit types, but I didn't know whether closed loans would also be considered in the separate metric of ratio, but based on reading those documents, I believe it does!

And I was aware if Bustout scoring, but that was a very informative white paper! on it.

@Anonymous had more to say and hit post. Yeah that would make sense that you wouldn't see an increase because you were exceeding the ratio and we're already at the optimal prior to adding them. Also makes sense that you saw too many credit accounts with a balance rather than two many revolvers with a balance.

yeah the resiliency score definitely doesn't like a lot of cards. I had heard that ratio before but I'd never read the document and that thread. thank you

Re: Ratio of loans:revolvers

Anonymous — Tue, 13 Oct 2020 06:04:10 GMT

@Anonymous wrote:
So, I saw in a fico slide that the algorithm considers the ratio in the Mix category.

Any info, DPs, or insights anyone? It's usually said another loan/SSL wouldn't help someone, but if one has many cards, they could be leaving points on the table, if the number of loans is less than the ideal unknown ratio. But I'm wondering if it also includes closed loans.

Anyway big unknown. Seeking info and feedback.

The resiliency score flags individuals for having more than 75% of their accounts as revolvers.

Many say the basic (re)build kit includes 3 revolvers and an installment loan, meaning 75% of accounts are revolvers and 25% of accounts are installment products.

I wonder if this holds true beyond the resiliency score and baseline credit (re)establishment?

So if one were to have 9 revolvers, you would "need" 3 installment products for maximizing scoring?

I know it seems silly to require so mamy, but I am wondering outside of fico-land/churners/sub-chasers what the average number of CCs consumers carry?

According to EX in 2019, the number is 4 CCs.

Thinking:

1 x mortgage

1 x auto (or other type of installment)

4-6 x CCs

1 x auto

1 x SL

4-6 x CCs

Does that seem reasonable? Obviously the possibilities are endless that would keep one under the 75% threshold.

I guess this theory will need to be tested further.

I know once SLs are out of rehab, I will have 12 x SLs and SO will have 7 x SLs with each SL reporting individually (some are already consolidation loans). I guess that would keep us well under the 75% threahold for some number of apps in the future.

When the resiliency score came out that got me thinking about this question as well and while 1 satisfies credit mix, maybe it does only to a certain level?

I do know from the resiliency score perspective (only thing I have concrete info on) is that closed products do not count.

Re: Ratio of loans:revolvers

Anonymous — Tue, 13 Oct 2020 06:23:32 GMT

@Anonymous wrote:
Re: The below direct from FICO
Main takeaway from that is someone from FICO said you should aim for 2-3 revolvers per installment. Not definitive that it helps.

In the Resilience thread, I think there was talk of the ratio being a thing for that score? Excessive revolvers to IAs bearing a penalty?
IME, I had 11 open revolver, 2 closed IA, 1 open IA; I added 3 more open IAs, no FICO 8 change.

Though, I was penalized across the other versions for too many credit accounts with balances, but that's independent of mix.

Closed accounts probably contribute to mix ratio if it exists in mainstream FICO vers.
Bust-out by Experian
It may not be FICO, but internal algos + bust-out watch out for people with lack of or minimal installments.

Well that throws my theory out, making my comparison to resiliency scoring worthless. It is good to know, though, that is comparing apples to oranges.

I am guessing Fico scores consider open and closed accounts while Resiliency scoring only factors open accounts.

Thx!

Re: Ratio of loans:revolvers

Anonymous — Tue, 13 Oct 2020 08:45:43 GMT

@Anonymous wrote:
So, I saw in a fico slide that the algorithm considers the ratio in the Mix category.

You always find the best slides.

My Credit Mix went from Fair to Very Good in the switch from 1 open loan to 1 closed loan and 2 revolving accounts (January 2019 myFICO 3B).

It's been at Very Good ever since - 2 additional revolving didn't change anything. The closed loan counts for something.

Tommy Lee (Director of Analytics Science at FICO): "The same FICO analytics and data science team who work on developing the FICO Score also work on the analytics driving the myFICO ingredients." (Link to his answer to my question)

Re: Ratio of loans:revolvers

Anonymous — Tue, 13 Oct 2020 13:28:10 GMT

If a closed loan and open loan count equally toward credit mix (which I believe most agree it does) I don't see why a fluff rating of "fair" or "very good" would change when the loan status changes.

Re: Ratio of loans:revolvers

Brian_Earl_Spilner — Tue, 13 Oct 2020 13:47:29 GMT

I've been denied CLIs lately with the ratio being one of the 4 reasons.

Re: Ratio of loans:revolvers

Slabenstein — Tue, 13 Oct 2020 14:15:37 GMT

@Brian_Earl_Spilner wrote:
I've been denied CLIs lately with the ratio being one of the 4 reasons.

What were your ratios at the times of those denials?

Re: Ratio of loans:revolvers

Duke_Nukem — Tue, 13 Oct 2020 15:14:25 GMT

@Anonymous , I'm assuming this ratio affects Clean and Dirty scorecards (perhaps varying amounts)?

I experienced an unexplained loss of around 6 points across all 3 bureaus Fico 8 scores when I paid off 1 of 2 auto loans a few months ago. There were some other variants changed as well. I was planning on posting about it to see if anyone knew why the drop occurred, but Covid reared its ugly head.

I'll post DP's a bit later.

Re: Ratio of loans:revolvers

Anonymous — Tue, 13 Oct 2020 18:25:02 GMT

Two very interesting reads, I wonder how I look then with 1 Auto Loan(open), 2 Personal Loans(closed) and 14 Revolving Accounts(open).

It seems I'm slightly over by five cards so I would apparently need to open at least one more installment Loan. i haev bene thining about opening an SSL, and that would also not inflict UT damage.

As fro bust-out, i never did understadn why anyone would spend that much time to build good credit only to tank it. As someone who spent many years in the corner trying to rebuild, I definitely would do something like this or ruin my credit on purpose. Informative article though and may be the cause for some denial reasons we've seen for people not having an installment/mortgage on certain profiles?

Re: Ratio of loans:revolvers

Duke_Nukem — Tue, 13 Oct 2020 19:07:22 GMT

Posting some DP's for what may be related to the topic. I had a mysterious drop in my Fico scores when paying off 1 of 2 installment loans. My installment loan age dropped by 1 month, but the AGG Installment UTI improved when the payoff occurred (so if anything, the AGG UTI should have had a postive effect rather than negative).

Loan reported as open on 8/19, then reported as closed and PIF on 8/20. That was the only change that occurred until the first couple of weeks into September. I'm including 9/1 info as well to show the change in age of accounts was not the reason for the score drop (scores were the same on 9/1 as on 8/20).

I could only isolate EX scores for this sole change. EQ and TU had other things change when this loan closed, so I can't isolate just the loan for those bureaus.

I have 4 revolvers and 1 AU revolver.

Went from 2 open installments to 1 open installment.

Went from 2 closed installments to 3 closed installments.

Practicing AZEO and had a tiny $10 balance on the AU to avoid the AU AZ penalty.

No scoreable inquiries.

BK7 in 2012

ETA: There was a change to my Negative reason codes (Positive codes remained the same):

On 8/19

Collection And/Or PR
Short Account History

On 8/20

Collection And/Or PR
Few Accounts Paid On Time

Re: Ratio of loans:revolvers

Anonymous — Wed, 14 Oct 2020 06:28:52 GMT

@Anonymous wrote:
@Anonymous wrote:
So, I saw in a fico slide that the algorithm considers the ratio in the Mix category.
You always find the best slides.

@Anonymous I've got a great Technical Advisor 😉

Re: Ratio of loans:revolvers

Anonymous — Wed, 14 Oct 2020 06:31:37 GMT

@Duke_Nukem wrote:
@Anonymous , I'm assuming this ratio affects Clean and Dirty scorecards (perhaps varying amounts)?

I experienced an unexplained loss of around 6 points across all 3 bureaus Fico 8 scores when I paid off 1 of 2 auto loans a few months ago. There were some other variants changed as well. I was planning on posting about it to see if anyone knew why the drop occurred, but Covid reared its ugly head.

I'll post DP's a bit later.

@Duke_Nukem yes, I believe that's correct.

Re: Ratio of loans:revolvers

Anonymous — Wed, 14 Oct 2020 06:38:20 GMT

@Anonymous wrote:
Two very interesting reads, I wonder how I look then with 1 Auto Loan(open), 2 Personal Loans(closed) and 14 Revolving Accounts(open).
It seems I'm slightly over by five cards so I would apparently need to open at least one more installment Loan. i haev bene thining about opening an SSL, and that would also not inflict UT damage.

As fro bust-out, i never did understadn why anyone would spend that much time to build good credit only to tank it. As someone who spent many years in the corner trying to rebuild, I definitely would do something like this or ruin my credit on purpose. Informative article though and may be the cause for some denial reasons we've seen for people not having an installment/mortgage on certain profiles?

@Anonymous I bet it's 3 to 1 so you're not that far over and I think it includes closed accounts.

Re: Ratio of loans:revolvers

Anonymous — Wed, 14 Oct 2020 06:44:13 GMT

@Duke_Nukem wrote:
Posting some DP's for what may be related to the topic. I had a mysterious drop in my Fico scores when paying off 1 of 2 installment loans. My installment loan age dropped by 1 month, but the AGG Installment UTI improved when the payoff occurred (so if anything, the AGG UTI should have had a postive effect rather than negative).

Loan reported as open on 8/19, then reported as closed and PIF on 8/20. That was the only change that occurred until the first couple of weeks into September. I'm including 9/1 info as well to show the change in age of accounts was not the reason for the score drop (scores were the same on 9/1 as on 8/20).

I could only isolate EX scores for this sole change. EQ and TU had other things change when this loan closed, so I can't isolate just the loan for those bureaus.

I have 4 revolvers and 1 AU revolver.
Went from 2 open installments to 1 open installment.
Went from 2 closed installments to 3 closed installments.
Practicing AZEO and had a tiny $10 balance on the AU to avoid the AU AZ penalty.
No scoreable inquiries.
BK7 in 2012

ETA: There was a change to my Negative reason codes (Positive codes remained the same):
On 8/19
Collection And/Or PR
Short Account History
On 8/20
Collection And/Or PR
Few Accounts Paid On Time

@Duke_Nukem forgive me if I'm wrong, but I think you misunderstand when we say aging related changes occur on the first. That's only organic ones meaning caused by aging of your accounts naturally.

When you open a new account and it reports, the day it reports it changes your ages and so that can be part of the point change or affect the point change.

But based on your negative reason code change, I have a theory: since your profile is dirty, it's looking for a minimum number of active non-derogatory accounts. You've had that until you closed the loan. Now that it's closed and no longer open and active, it's not counting towards your active and current accounts. I don't know if the code disappeared or just moved down. That's my theory.

Re: Ratio of loans:revolvers

Anonymous — Wed, 14 Oct 2020 06:46:17 GMT

@Anonymous wrote:
@Anonymous wrote:
Re: The below direct from FICO
Main takeaway from that is someone from FICO said you should aim for 2-3 revolvers per installment. Not definitive that it helps.

In the Resilience thread, I think there was talk of the ratio being a thing for that score? Excessive revolvers to IAs bearing a penalty?
IME, I had 11 open revolver, 2 closed IA, 1 open IA; I added 3 more open IAs, no FICO 8 change.

Though, I was penalized across the other versions for too many credit accounts with balances, but that's independent of mix.

Closed accounts probably contribute to mix ratio if it exists in mainstream FICO vers.
Bust-out by Experian
It may not be FICO, but internal algos + bust-out watch out for people with lack of or minimal installments.
Well that throws my theory out, making my comparison to resiliency scoring worthless. It is good to know, though, that is comparing apples to oranges.

I am guessing Fico scores consider open and closed accounts while Resiliency scoring only factors open accounts.

Thx!

@Anonymous I think the fico score considers open accounts for some metrics and closed accounts for some metrics. Jmho.

Re: Ratio of loans:revolvers

Anonymous — Wed, 14 Oct 2020 06:47:43 GMT

@Anonymous wrote:
If a closed loan and open loan count equally toward credit mix (which I believe most agree it does) I don't see why a fluff rating of "fair" or "very good" would change when the loan status changes.

@Anonymous while you were on vacation the experts explained that the same people that create the score work on the ingredient section of the MF report, so it's actually not fluff apparently.

Re: Ratio of loans:revolvers

Anonymous — Wed, 14 Oct 2020 06:48:20 GMT

@Brian_Earl_Spilner wrote:
I've been denied CLIs lately with the ratio being one of the 4 reasons.

Wow!