@Anonymous wrote:
I'm trying to understand the reports I just pulled from myFICO. In the Summary area, it says Amount of Debt - Not Good. When I go to the next section - Understanding Your FICO Score, it lists 3 things hurting my score 1) Ratio of revolving balances to credit limits 2) Newest account opened 5 months ago 3) Number of accounts with a missed payment. Only time can fix #2 and #3, and #1 is very straight-forward.
None of these 3 have to do with my total amount of debt, which is what I thought was the worst thing shown in the Summary area. So I am confused about where to focus.
Are there certain types of debt that are less damaging than others? Is Mortgage debt treated different vs.Auto Loan debt vs. Student Loan debt vs. unsecured non-revolving debt vs. revolving debt?
How do the # accounts play into the score? Does student loan consolidation help (reducing say 9 accounts into 1)?
To add, your utilization (#1 on your list) factors into that too. Not only do the overall balances factor in, but the utilization (balances/CL) too.
Balances play a small part in the amount of debt. If you added a million-dollar mortgage tomorrow, for example, it wouldn't go from "not-good" to "bad". IMO, the biggest impact to that category is revolving utilization. Ideally, you'd want all but one CC to report $0 and the other to report a balance of under 9% of the CL. Doing that alone can easily move it to "not-good" to "good" and beyond. It rank them, revolving is probably scored most heavily. Installment is next, but again, adding a million dollar mortgage might ding your scores tomorrow, but the ding would likely come from the added account as opposed to the amount of debt. I just added a $500k mortgage almost 2 months ago. My scores dropped, but the drop was due to rebucketing and the added TL (I had been good about not applying for anything in nearly 2 yrs). Since then, the scores rebounded and I'm at par this week when compared to the days leading up to the mortgage being added. In other words, if there's any impact due to the balance, it is almost nil.
Installment loans (e.g. mortgage, unsecured, auto, etc.) are treated virtually the same, though I understand there are some small differences. Revolving is very important. Increasing your utilization, for example, from 0% to 50%, assuming you had a solid mix of credit, could easily drop your FICO scores 50+, if I had to guess. Adding a new loan where the installment utilization hits 100% from nothing won't really impact you (oither than the new credit as mentioned).
Number of accounts have a minor impact, though having a good mix of credit is important (IMO, at least 3 CCs). There are certainly documented cases in here of folks hitting 800 with only one or two CCs and had nothing else reporting to their CRs (but had years and years of history on those TLs).
Number of accounts reporting $0 is important. On the Glance page, you'll see that line item. Ideally, you'd want more than half of your TLs reporting $0.
