topic Re: For the Fico Score Experts regarding utilization calculations and high credit vs/limit in Understanding FICO® Scoring

For the Fico Score Experts regarding utilization calculations and high credit vs/limit

Focker69 — Sun, 10 Oct 2021 18:16:33 GMT

I have heard in the past that for Utilization % calculcations, Fico does not use the Limit but instead uses the high credit or highest balance as the limit in it's calculation. Can anyone confirm that? Also, is anyone aware of there being differences between the Mortgage Fico 5,4,2 and the others in this matter?

The example here being: If someone applies and opens up a new credit card with a $25,000 limit and zero balance, the utilization and score will not change because the new card has not been utilized. The question then becomes, is the new unused limit ractored into the utilizations calculation?

Many thanks in advance!

Re: For the Fico Score Experts regarding utilization calculations and high credit vs/limit

SoonerSoldier33 — Sun, 10 Oct 2021 18:36:38 GMT

@Focker69 wrote:
I have heard in the past that for Utilization % calculcations, Fico does not use the Limit but instead uses the high credit or highest balance as the limit in it's calculation. Can anyone confirm that? Also, is anyone aware of there being differences between the Mortgage Fico 5,4,2 and the others in this matter?

You're getting a lot of inaccurate info from somewhere. Utilization is calculated as a %, both aggregate and individual, of the reported balance of your accounts vs their credit limits. Example: $1K reported balance of a $2K credit limit is 50% utilization. The 'high balance' is not a scoring factor in any FICO model 9 or earlier. There are major differences between the mortgage scores and the other FICO models. Most notably, the mortgage scores are particularly sensitive to new accounts and the total number of accounts with balances more than FICO 8 or 9.

The example here being: If someone applies and opens up a new credit card with a $25,000 limit and zero balance, the utilization and score will not change because the new card has not been utilized. The question then becomes, is the new unused limit ractored into the utilizations calculation?

When you have a new account reported, the CL is immediately factored into your revolving utilization scoring. Whether you ever use it or not, it will report the credit limit, a $0 balance, and 'pays as agreed' every month, all which are scoring factors. The lender could eventually decide to close an account due to inactivity if it just sits unused for too long.

Many thanks in advance!

Re: For the Fico Score Experts regarding utilization calculations and high credit vs/limit

SouthJamaica — Sun, 10 Oct 2021 19:48:11 GMT

@Focker69 wrote:
I have heard in the past that for Utilization % calculcations, Fico does not use the Limit but instead uses the high credit or highest balance as the limit in it's calculation. Can anyone confirm that? Also, is anyone aware of there being differences between the Mortgage Fico 5,4,2 and the others in this matter?

The example here being: If someone applies and opens up a new credit card with a $25,000 limit and zero balance, the utilization and score will not change because the new card has not been utilized. The question then becomes, is the new unused limit ractored into the utilizations calculation?

Many thanks in advance!

No, none of that is correct.

For credit cards with a credit limit, the credit limit and the reported balance are the 2 components of FICO score utilization.

When you get a new card, the limit and reported balance are factored into your aggregate utilization.

(Perhaps you're thinking of Amex charge cards, where there is no set credit limit. Most FICO scoring models simply disregard those for utilization purposes, but I believe one of the older mortgage scores does consider the "high credit" as though it were a limit.)

Re: For the Fico Score Experts regarding utilization calculations and high credit vs/limit

Focker69 — Sun, 10 Oct 2021 20:16:51 GMT

Thank you for your response. So, in essence, someone can apply for a new credit card, assuming they get approved and the minute that card reports to their credit, their utilization % is immediately dropped and the score will increase. In short, this would be a cheat by decreasing utilization without reducing balances. Is this correct?

Re: For the Fico Score Experts regarding utilization calculations and high credit vs/limit

SoonerSoldier33 — Sun, 10 Oct 2021 20:22:12 GMT

@Focker69 wrote:
Thank you for your response. So, in essence, someone can apply for a new credit card, assuming they get approved and the minute that card reports to their credit, their utilization % is immediately dropped and the score will increase. In short, this would be a cheat by decreasing utilization without reducing balances. Is this correct?

Yes. As soon as the new card reports, the CL is included. My new Discover card with a $7K SL was more than the CLs of my open 4 revolving accounts combined, and my utilization immediately dropped from 3% aggregate utilization to 1% the moment the Discover card first reflected on my credit reports.

Re: For the Fico Score Experts regarding utilization calculations and high credit vs/limit

Focker69 — Sun, 10 Oct 2021 20:24:20 GMT

Were you able to verify a score increase with that? Even with the mortgage score?

Re: For the Fico Score Experts regarding utilization calculations and high credit vs/limit

SoonerSoldier33 — Sun, 10 Oct 2021 20:30:33 GMT

@Focker69 wrote:
Were you able to verify a score increase with that? Even with the mortgage score?

There was no score increase for me as my reported aggregate revolving utilization was already below the lowest threshold for scoring purposes before the new Discover SL was factored in.

Note: Opening a new revolving account to lower your aggregate utilization specifically for the mortgage scores is probably a bad idea. The mortgage scores are particularly sensitive to new accounts, and the penalty for opening a new account could more than offset any score increase you might see from lowering reported utilization.

Re: For the Fico Score Experts regarding utilization calculations and high credit vs/limit

Horseshoez — Sun, 10 Oct 2021 20:40:23 GMT

@Focker69 wrote:
Thank you for your response. So, in essence, someone can apply for a new credit card, assuming they get approved and the minute that card reports to their credit, their utilization % is immediately dropped and the score will increase. In short, this would be a cheat by decreasing utilization without reducing balances. Is this correct?

Incorrect. When a new account is opened, there will typically be one or more Hard Pulls which will negatively impact your scores; what I have seen personally, and what I have gleaned from my readings here, after a few months, yes, your scores should go up a bit, but there is nothing "immediate" about it.

Re: For the Fico Score Experts regarding utilization calculations and high credit vs/limit

Focker69 — Sun, 10 Oct 2021 21:42:26 GMT

Understood but one more question.

Score will go down due to hard inquiry
Score will go down due to a reduction of AAOA.

But won’t the score go up due to improved utilization %?

Re: For the Fico Score Experts regarding utilization calculations and high credit vs/limit

FireMedic1 — Sun, 10 Oct 2021 21:52:06 GMT

@Focker69Yes there will be an immediate score increase once util goes down as your opeining post asked. But then. Now it depends on other factors on scores. If your util is already below 8% and goes to 5%. No big points gain. If it was like 30%+ and goes to 8% its a bigger gain. Thats is if no new accounts were open. Although. In your case with a new card yes it will go up so many points. But then here comes what will limit your util % gain score wise. Subtract the HP which isnt much of a hit depending on profile. Then it goes to your AAoA's and how much lower did that go and where was it before the new account. And your AoYA resets and goes back to 0 months. So 3 things go into effect once a new card is obtained and added to your reports. Without knowing your scores and AAoA's it hard to say how much you'll gain. I'm aware I went a tad off course from your util question. Theres a few other things that come into play with new accounts and lowering util %'s and point gains that go with it.

Thats why people ask for CLI's so no new accounts are added to the mix and the hits that come with it. CLI's will lower your util %'s without all that goes with a new card.

Re: For the Fico Score Experts regarding utilization calculations and high credit vs/limit

SoonerSoldier33 — Sun, 10 Oct 2021 22:20:29 GMT

@Focker69 wrote:
Understood but one more question.

Score will go down due to hard inquiry
Score will go down due to a reduction of AAOA.

But won’t the score go up due to improved utilization %?

It depends on your particular credit file. A hard inquiry might drop your score, and it might not. I personally just went from 0-3 hard inquiries on my Experian report, and lost a grand total of 1 point. This is not the case for every file. A hard inquiry may cost you more, and especially on the mortgage scores. When you open a new revolving line of credit, there are several aging metrics that can be affected. AAoA is the one everyone is most familiar with...Average Age of Accounts. This is the average age of ALL your accounts, revolving and installment, open and closed. If you have a thick, mature profile, opening 1 new account may not even drop your AAoA enough to merit a score loss. BUT, there are other aging metrics in play too. Average Age of Open Revolving Accounts (AAoORA) and Age of Youngest Revolving Account (AoYRA) are 2 big ones. If you have no new revolving accounts in the last 12 months and are on a clean scorecard, the penalty for AoYRA being reset to under 12 months by a new account can cause a pretty substantial score loss depending on your credit file. These points are not recovered until your youngest revolving account is 12 months old again. This is magnified even more on the mortgage scores which are just so, so sensitive to new accounts. As for utilization, it depends on where your aggregate revolving utilization currently stands, and how much a new account with a new SL affects it. If it brings you from 100% to 5% utilization, you'd see a big score increase. If it brings you from 40% to 30%, it wouldn't be near as big.

Re: For the Fico Score Experts regarding utilization calculations and high credit vs/limit

FireMedic1 — Sun, 10 Oct 2021 22:55:09 GMT

@SoonerSoldier33 wrote:
@Focker69 wrote:
Understood but one more question.

Score will go down due to hard inquiry
Score will go down due to a reduction of AAOA.

But won’t the score go up due to improved utilization %?
It depends on your particular credit file. A hard inquiry might drop your score, and it might not. I personally just went from 0-3 hard inquiries on my Experian report, and lost a grand total of 1 point. This is not the case for every file. A hard inquiry may cost you more, and especially on the mortgage scores. When you open a new revolving line of credit, there are several aging metrics that can be affected. AAoA is the one everyone is most familiar with...Average Age of Accounts. This is the average age of ALL your accounts, revolving and installment, open and closed. If you have a thick, mature profile, opening 1 new account may not even drop your AAoA enough to merit a score loss. BUT, there are other aging metrics in play too. Average Age of Open Revolving Accounts (AAoORA) and Age of Youngest Revolving Account (AoYRA) are 2 big ones. If you have no new revolving accounts in the last 12 months and are on a clean scorecard, the penalty for AoYRA being reset to under 12 months by a new account can cause a pretty substantial score loss depending on your credit file. These points are not recovered until your youngest revolving account is 12 months old again. This is magnified even more on the mortgage scores which are just so, so sensitive to new accounts. As for utilization, it depends on where your aggregate revolving utilization currently stands, and how much a new account with a new SL affects it. If it brings you from 100% to 5% utilization, you'd see a big score increase. If it brings you from 40% to 30%, it wouldn't be near as big.

AAoORA? Little correction. There is one key difference between FICO & Vantage scores. When calculating average age of accounts Vantage does not include closed accounts, whereas FICO does. Closed accounts stay on your credit report for a period of up to ten years but some fall sooner..

Re: For the Fico Score Experts regarding utilization calculations and high credit vs/limit

SoonerSoldier33 — Sun, 10 Oct 2021 23:05:58 GMT

@FireMedic1 wrote:
@SoonerSoldier33 wrote:
@Focker69 wrote:
Understood but one more question.

Score will go down due to hard inquiry
Score will go down due to a reduction of AAOA.

But won’t the score go up due to improved utilization %?
It depends on your particular credit file. A hard inquiry might drop your score, and it might not. I personally just went from 0-3 hard inquiries on my Experian report, and lost a grand total of 1 point. This is not the case for every file. A hard inquiry may cost you more, and especially on the mortgage scores. When you open a new revolving line of credit, there are several aging metrics that can be affected. AAoA is the one everyone is most familiar with...Average Age of Accounts. This is the average age of ALL your accounts, revolving and installment, open and closed. If you have a thick, mature profile, opening 1 new account may not even drop your AAoA enough to merit a score loss. BUT, there are other aging metrics in play too. Average Age of Open Revolving Accounts (AAoORA) and Age of Youngest Revolving Account (AoYRA) are 2 big ones. If you have no new revolving accounts in the last 12 months and are on a clean scorecard, the penalty for AoYRA being reset to under 12 months by a new account can cause a pretty substantial score loss depending on your credit file. These points are not recovered until your youngest revolving account is 12 months old again. This is magnified even more on the mortgage scores which are just so, so sensitive to new accounts. As for utilization, it depends on where your aggregate revolving utilization currently stands, and how much a new account with a new SL affects it. If it brings you from 100% to 5% utilization, you'd see a big score increase. If it brings you from 40% to 30%, it wouldn't be near as big.
AAoORA? Little correction. There is one key difference between FICO & Vantage scores. When calculating average age of accounts Vantage does not include closed accounts, whereas FICO does. Closed accounts stay on your credit report for a period of up to ten years but some fall sooner..

You're right about this. Went back to double check, and FICO does have 2 aging metrics which affect scoring specifically for open installment accounts, but not revolving accounts. So, AAoA, and AoYRA would be the 2 affected by opening a new revolving account. Good catch!

Re: For the Fico Score Experts regarding utilization calculations and high credit vs/limit

FireMedic1 — Mon, 11 Oct 2021 09:57:53 GMT

@SoonerSoldier33When you said: "FICO does have 2 aging metrics which affect scoring specifically for open installment accounts, but not revolving accounts." That really isnt the case.

Age: With FICO there is no such thing as Average Age of Open Revolving Accounts (AAoORA) and Age of Youngest Revolving Account (AoYRA). AAoA's is all accounts. AAoA's drops for any new accounts added to a report. AoYA is reset back to 0 months each time any/all new accounts are opened.

Util: Credit utilization rates are based solely on revolving credit. The rates do not include installment loans like mortgage or auto loans. Installment loans like mortgages and auto loans factor into a different util rate which is your debt-to-income ratio. The only things that aren't included in AAoA's is collections and PR's. Here are the acronyms used here: MyFICO Acronyms Back to topic.

Re: For the Fico Score Experts regarding utilization calculations and high credit vs/limit

Focker69 — Mon, 11 Oct 2021 13:47:02 GMT

This is great information. Thank you all who responded.

Can someone possibly help me understand why i have heard in the past that upon opening a new credit card, it is important to take the balance up to the limit for at least one cycle and then bring it back down and that this had some kind of impact with the credit score. Specifically the mortgage score. I've understood it that the Mortgage Fico does not count a limit unless the borrower has demonstrated the ability to bring it to the limit and then reduce it. Am i completely off here with this?

Re: For the Fico Score Experts regarding utilization calculations and high credit vs/limit

FireMedic1 — Mon, 11 Oct 2021 14:22:36 GMT

@Focker69 wrote:
This is great information. Thank you all who responded.

Can someone possibly help me understand why i have heard in the past that upon opening a new credit card, it is important to take the balance up to the limit for at least one cycle and then bring it back down and that this had some kind of impact with the credit score. Specifically the mortgage score. I've understood it that the Mortgage Fico does not count a limit unless the borrower has demonstrated the ability to bring it to the limit and then reduce it. Am i completely off here with this?

Honestly. That would be a great question in the Mortgage Section. There are actual mortgage peeps over there that can help you out. I never heard of this. But I dont go over there. I own my home. Good Luck!

Re: For the Fico Score Experts regarding utilization calculations and high credit vs/limit

SoonerSoldier33 — Mon, 11 Oct 2021 14:36:16 GMT

@Focker69 wrote:
This is great information. Thank you all who responded.

Can someone possibly help me understand why i have heard in the past that upon opening a new credit card, it is important to take the balance up to the limit for at least one cycle and then bring it back down and that this had some kind of impact with the credit score. Specifically the mortgage score. I've understood it that the Mortgage Fico does not count a limit unless the borrower has demonstrated the ability to bring it to the limit and then reduce it. Am i completely off here with this?

I have only ever heard of something like this in reference to a true charge card, but I'm not very well read on how charge cards affect the mortgage scores specifically. If an account is a credit card, the high balance should have no scoring effect on any FICO models including the mortgage scores.

Re: For the Fico Score Experts regarding utilization calculations and high credit vs/limit

HowDoesThisAllWork — Tue, 12 Oct 2021 10:58:30 GMT

@SouthJamaica wrote:
@Focker69 wrote:
I have heard in the past that for Utilization % calculcations, Fico does not use the Limit but instead uses the high credit or highest balance as the limit in it's calculation. Can anyone confirm that? Also, is anyone aware of there being differences between the Mortgage Fico 5,4,2 and the others in this matter?

The example here being: If someone applies and opens up a new credit card with a $25,000 limit and zero balance, the utilization and score will not change because the new card has not been utilized. The question then becomes, is the new unused limit ractored into the utilizations calculation?

Many thanks in advance!
No, none of that is correct.

For credit cards with a credit limit, the credit limit and the reported balance are the 2 components of FICO score utilization.

When you get a new card, the limit and reported balance are factored into your aggregate utilization.

(Perhaps you're thinking of Amex charge cards, where there is no set credit limit. Most FICO scoring models simply disregard those for utilization purposes, but I believe one of the older mortgage scores does consider the "high credit" as though it were a limit.)

^^^^^^^^^^^^^^^^^^^

This....

But, this is REALLY old school. Like when Vanilla Ice was a star! LOL

Re: For the Fico Score Experts regarding utilization calculations and high credit vs/limit

SouthJamaica — Tue, 12 Oct 2021 13:52:56 GMT

@Focker69 wrote:
Thank you for your response. So, in essence, someone can apply for a new credit card, assuming they get approved and the minute that card reports to their credit, their utilization % is immediately dropped and the score will increase. In short, this would be a cheat by decreasing utilization without reducing balances. Is this correct?

Yes it would immediately drop the aggregate revolving utilization if it has no balance.

No it would not necessarily increase your scores.

More likely, it would decrease your scores. Inquiries, reset of newest account age, lowering of average age of accounts.

Re: For the Fico Score Experts regarding utilization calculations and high credit vs/limit

SouthJamaica — Tue, 12 Oct 2021 13:54:41 GMT

@Focker69 wrote:
This is great information. Thank you all who responded.

Can someone possibly help me understand why i have heard in the past that upon opening a new credit card, it is important to take the balance up to the limit for at least one cycle and then bring it back down and that this had some kind of impact with the credit score. Specifically the mortgage score. I've understood it that the Mortgage Fico does not count a limit unless the borrower has demonstrated the ability to bring it to the limit and then reduce it. Am i completely off here with this?

Yes you're completely off base.