Utilization

[Anonymous]

Really feel they need to tweek the algorithms in the scoring system. Wife has had a credit score of 850 with 1% utilization. Just recently she paid off her balance on last credit card making her utilization 0%. Result? 14 point drop in FICO score! Based on these results I'm assuming in order to obtain a perfect FICO score you must have a balance left on at least one of your credit cards to stick at 1%. Wow.

[HeavenOhio]

Yeah, you need to report at least a tiny balance on at least one card. $5 will do, as 0.00000001 percent will round up to 1%. Several credit monitoring services get it wrong and round percentages down. Ignore that and rest assured that FICO rounds up.

You don't have to pay interest to report your small balance. The balance should come from new charges. Of course, with your wife's high scores, all cards at zero isn't a big deal.

[Anonymous]

And here is something even more curious.  Your wife's score drop may have actually been more than 14 points.  Her score is capped at 850, but it is possible on FICO's back end for it to be even higher.  So perhaps her score just before it dropped was 856.  In that case she had a 20 point drop.

Again, from a practical point of view, it's very easy for anyone to accomodate this. You just have one card that has a comparatively small recuring transaction and you set the card on autopay.  Boom -- you're done.  For me, mine is Netflix, but her's could be a cell phone bill or whatever.  Then she is always reporting a small balance on one card.

[SouthJamaica]

---

@Anonymous wrote:

Really feel they need to tweek the algorithms in the scoring system. Wife has had a credit score of 850 with 1% utilization. Just recently she paid off her balance on last credit card making her utilization 0%. Result? 14 point drop in FICO score! Based on these results I'm assuming in order to obtain a perfect FICO score you must have a balance left on at least one of your credit cards to stick at 1%. Wow.

---

I agree with you about the algorithms. I think it's ridiculous that a person who's paid off all of their revolving accounts gets penalized for that. And that a person who has paid off all their installment loans gets penalized for that.

[Anonymous]

SJ, I know we've agreed to disagree on the installment loan payoff penalty in the past, but I'm curious about your statement above regarding revolvers.  How would you suggest the FICO algorithm verify revolving credit use if not a single balance is present?

[HeavenOhio]

---

@Anonymous wrote:

SJ, I know we've agreed to disagree on the installment loan payoff penalty in the past, but I'm curious about your statement above regarding revolvers.  How would you suggest the FICO algorithm verify revolving credit use if not a single balance is present?

---

As we talked about in another thread, some cards don't even report the date of last payment. If cards consistently reported past (trended) payment data, there might not be a need for the all cards at zero ding in future scoring models.

[Anonymous]

I think FICO should stop using number of cards reporting and stick to UTIs until they are able to see payment information through out the cycle, a person with multiple cards reporting 5% UTI is no riskier than another with AZEO reporting the same 5% UTI, and a person who paid down their last CC balance is most certainly not riskier than the first 2, at least not based on this information alone.

[Anonymous]

I agree that if trended data were readily available and could be used by the FICO algorithm to see revolving credit use that there would be no need to allow at least one balance to report to maximize scoring.

[Thomas_Thumb]

---

@Anonymous wrote:

Really feel they need to tweek the algorithms in the scoring system. Wife has had a credit score of 850 with 1% utilization. Just recently she paid off her balance on last credit card making her utilization 0%. Result? 14 point drop in FICO score! Based on these results I'm assuming in order to obtain a perfect FICO score you must have a balance left on at least one of your credit cards to stick at 1%. Wow.

---

If your wife uses one or more credit cards each month she can just let charges report naturally on monthly statements and just pay the reported statement balance(s) in full each month. That's what I do and it keeps things simple.

Of course utilization has a point in time impact on score as does # of accounts reporting balances. If the score drop causes heart burn, it's an easy fix. Allow a statement balance to report or change # cards reporting balances.

[sarge12]

---

@Anonymous wrote:

Really feel they need to tweek the algorithms in the scoring system. Wife has had a credit score of 850 with 1% utilization. Just recently she paid off her balance on last credit card making her utilization 0%. Result? 14 point drop in FICO score! Based on these results I'm assuming in order to obtain a perfect FICO score you must have a balance left on at least one of your credit cards to stick at 1%. Wow.

---

Having all zero hurts the score because it looks like you are not using credit period...remember the credit score is a representation of the responsible use of various types of credit...that requires the use of credit cards, and from a utilization standpoint all zero balances is non-use.