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I'm applying for a mortgage and the FICO 5 says I have too many Revolving Accounts ["Number of Bank or National Revolving Accounts with Balances"] and "Too Many Consumer FInance Company Accounts".
I have played the 0%APR game for years (putting the equivalent ammounts in high yield savings accounts, etc), always paying them off in full before the 0% period ends. But I have never closed a credit card account because I've always heard it does nothing but hurt credit by lowering the total credit limit thereby increasing utilization %. However it appears my credit is being hurt by having too many of these accounts.
What is the threshold that determines how many revolving or consumer finance accounts is too many?
Should I close down the lower limit cards so long as they are younger than the average account age (thereby increasing the total account age while limiting the reduction in total credit limit)?
Details:
@DHC5500 wrote:I'm applying for a mortgage and the FICO 5 says I have too many Revolving Accounts ["Number of Bank or National Revolving Accounts with Balances"] and "Too Many Consumer FInance Company Accounts".
I have played the 0%APR game for years (putting the equivalent ammounts in high yield savings accounts, etc), always paying them off in full before the 0% period ends. But I have never closed a credit card account because I've always heard it does nothing but hurt credit by lowering the total credit limit thereby increasing utilization %. However it appears my credit is being hurt by having too many of these accounts.
What is the threshold that determines how many revolving or consumer finance accounts is too many?
Should I close down the lower limit cards so long as they are younger than the average account age (thereby increasing the total account age while limiting the reduction in total credit limit)?
Details:
- 708, 750, and 745 FICO 5 scores (Equifax, Transunion, and Experian respectively)
- 7 cards. 6 used every month.
- 9 yrs and 10 months average account age
- 15 years and 7 months credit history
- $122,500 total credit limit
- Utilization averages around 19%
having 1 "consumer finance account" (open or closed) is too many, you have the penalty, nothing you can do about it now, nothing to worry about there.
closing accounts doesn't increase your average age of accounts for FICO scoring purposes, that's not going to help.
What will help to maximise your mortgage scores is going AZEO, ensuring all of your cards have a $0 balance except one card which has trivial balance <1% ideally, but no more than 8.9% of that card's limit.
@GZG Do all credit cards count as consumer finance accounts? Or what would constitute a consumer finance account?
Thanks for the insight. Really helpful!
@GZG wrote:
having 1 "consumer finance account" (open or closed) is too many, you have the penalty, nothing you can do about it now, nothing to worry about there.
closing accounts doesn't increase your average age of accounts for FICO scoring purposes, that's not going to help.
What will help to maximise your mortgage scores is going AZEO, ensuring all of your cards have a $0 balance except one card which has trivial balance <1% ideally, but no more than 8.9% of that card's limit.
@DHC5500 wrote:@GZG Do all credit cards count as consumer finance accounts? Or what would constitute a consumer finance account?
typically it's supposed to represent stuff like rent-to-own or buy now pay later stuff, but anything can be coded as a consumer finance account, even car loans directly from the manufacturer's financing
the penalty is a one off thing, you either have a CFA on your report or you don't, it's a small penalty, and there's nothing you can do it about it, not worth worrying about.
being 6/7 for balances on your revolving accounts and being over 10% utilization are far greater score suppressors and will lead to score increases when AZEO is implemented.
@DHC5500 wrote:I'm applying for a mortgage and the FICO 5 says I have too many Revolving Accounts ["Number of Bank or National Revolving Accounts with Balances"] and "Too Many Consumer FInance Company Accounts".
You don't have too many revolving accounts (no such thing), you have too many revolving accounts with balances. This gets you a score penalty. If you have seven accounts, don't let more than three of them report a balance to avoid the penalty ( have to stay under 50% of revolvers). Nothing you can do about the CFAs.
@GZG has given you some good advice on how to maximize your scores.
All good advice above, but it appears that your scores are already in pretty good shape for now ( middle score 745 ).
Do you need a higher score to qualify for better rates / terms on your loan ?
@DHC5500 wrote:I'm applying for a mortgage and the FICO 5 says I have too many Revolving Accounts ["Number of Bank or National Revolving Accounts with Balances"] and "Too Many Consumer FInance Company Accounts".
I have played the 0%APR game for years (putting the equivalent ammounts in high yield savings accounts, etc), always paying them off in full before the 0% period ends. But I have never closed a credit card account because I've always heard it does nothing but hurt credit by lowering the total credit limit thereby increasing utilization %. However it appears my credit is being hurt by having too many of these accounts.
What is the threshold that determines how many revolving or consumer finance accounts is too many?
Should I close down the lower limit cards so long as they are younger than the average account age (thereby increasing the total account age while limiting the reduction in total credit limit)?
Details:
- 708, 750, and 745 FICO 5 scores (Equifax, Transunion, and Experian respectively)
- 7 cards. 6 used every month.
- 9 yrs and 10 months average account age
- 15 years and 7 months credit history
- $122,500 total credit limit
- Utilization averages around 19%
What is your goal for middle score? Typically 760 gets you the best rate on a 30 year mortgage.
Equifax score 5 is very sensitive to how many cards report a statement balance. TransUnion score 4 and particularly Experian score 2 are less sensitive. Limit the # of revolving credit cards posting statement balances to 1 or 2 but never 0. One is optimal but 2 won't hurt given you have 7 cards. Dropping from 6 to 2 cards reporting balances could boost EQ score 10-15 points, TU 5-10 points and EX 5 points.
All other cards used should be paid to $0 a couple days before their statement cut date. If that presents a problem, reduce # of cards used each month. The card(s) designated to report a balance should be Visa, MasterCard, Discover or AMEX revolver. Not an AMEX charge card or store card.
You should get aggregate reported revolving utilization to under 9%. A 19% level is hurting your score - up to 15 points. Cards that do post a statement balance should show under 29% and more preferrably under 9% utilization. Fico looks at highest utilization on any card as well as in aggregate. Over 29% and over 49% are thresholds for penalties on individual cards.
Don't close any revolvers now. Focus on dropping your aggregate UT and reducing number of cards reporting balances - not closing bank and national revolving credit card accounts. They are not CFAs.
Some store accounts could be CFAs. If a buy now pay later account like Affirm was established for a purchase, that is a CFA. Just one CFA account is a negative and can hurt your score. Open/closed status does not change impact of a CFA. It must be removed from the report to avoid potential negative impact.
@Thomas_Thumb and community - I'm really impressed and appreciative of the detailed insights which are invaluable! Thank you : )
My goal is to get a middle score that puts us in the best rate bracket.
How often do the credit reports update such that a lender can see changes and adjust their underwritting accordingly?
@DHC5500 wrote:
My goal is to get a middle score that puts us in the best rate bracket.
How often do the credit reports update such that a lender can see changes and adjust their underwritting accordingly?
Most creditors update your CRs monthly, after each statement is cut. So as soon as their changes hit your reports you'd be able to request new scores from your lender.
If you're going FHA/VA loan (Gov't loans) then your 745 MMS would be just like having an 800 score as these loans are not as score sensitive as Conventional loans (Fannie/Freddie). If you're going with a CNV loan ideally you'd like to get to 780+ especially if you're putting less than 20% down because your mortgage insurance would be a little higher monthly with a 745 score. The rate could be the same for 745 vs 780 but the cost of the rate would be higher on the lower score. All depends on your timeframe to purchase a house vs waiting to raise the score to buy.