@DaveInAZ wrote:
@Anonymous wrote:
One, between 1% and 9% of the CL on the card.
Well, I kow from the BK forum on rebuilding credit that to maximize your score have 3 CCs and let only 1 report a balance 9% or under, but I assumed that if you have 6 CCs you can let 2 report <9%. and with 9 CCs you can let 3 report. Seems silly and counter productive to have the credit worthiness to be approved for multiple credit accounts and not use them. And in my situation I have a couple early rebuilding CCs that I've outgrown with CCs with better rewards and CLs but I don't want closed so they don't adversely affect my available credit & untilization so I use them a couple times per month to keep them active so they won't CLD or other adverse action. I have 9 CCs/store cards and if FICO is going to ding my score if I let more than 1 report a balance that seems like a serious flaw in the scoring model. A CC shouldn't be like a trophy that you look at and admire but don't dare use it out of fear that will ding your credit score.
Hi Dave. You are right. There are serious flaws, especially in how credit cards are assessed. The worst offender is "utilization" wherein people are rewarded for hyper low percents. We are so used to gaming the score in this respect here on the myFICO forums that we forget how intensely artificial it is: tweaking your balances and/or credit limits so that you are definitely reporting a positive balance somewhere but that it is less than 1% of what you could charge.
But this is not FICO's fault (or its chief competitor Vantage). Until recently the CRA's simply didn't supply them with the information that they really wanted about credit cards. The issue is easiest to see in a thought experiment. Suppose you have two guys, Bob and Dave. Both have two cards with credit limits of 5k. Bob typically charges between 2k and 4k on each of his cards but he always pays in full each month.. Dave, on the other hand, has been steadily adding to his card debt and only paying the minmum. Last month, both guys reported 8k of CC debt. It's obvious that Bob is far less of a risk than Dave, but until fairly recently the big three CRAs only were able to tell FICO the bare fact of their current debt. There was no way for FICO to get at the much more revealing fact of whether the guy was somebody who always paid it off or whether his spending was gradually getting out of control. (People who can't PIF are almost always people with no reserve of cash and who are living paycheck to paycheck, and therefore at a vastly higher risk of default.)
Because FICO and Vantage couldn't see the crucial thing they wanted (does this guy PIF or does he often carry a balance?), they were forced to rely on the only thing they could see (the current reported balance and its ration to credit limit). Which led to artificial silliness: clever people securing absurdly high credit limits (vastly higher than they really needed) or paying their cards down just before they reported.
But moving forward, the CRAs are now collecting this information. FICO now can typically see not only what your current balance is on your Chase Freedom, but also exactly what your balance was five months ago and of that how much you paid. FICO is not using it yet, as part of the standard score, not even in FICO 9 as far as the news reports go. But it's only a matter of time before they do, e.g. possibly in FICO 10. At that point we will start seeing, I hope, much less emphasis in the models on hyper low utilizations and "zeroing" out all your cards but one, and a richer look at the payment patterns of people over time, notably whether they pay in full or carry a balance.
In the meantime, we have a practical question of what do we do now as consumers -- how do we act to protect our score given the current models? The good news, Dave, is that we don't have to treat our CCs like trophies we can never use. The only time we have to engage in the silliness related to 1% utilizations and lots of zeroes is right before a really important credit pull, like a mortgage or a car. FICO at the moment has no memory for CC balances so typically all anyone has to do is pay on time and use their cards naturally. Polishing up your trophies is only something we have to do in really rare stituations.
