FICO due to no mortgage and credit card only debt

[FICOdawg]

What's the trick to get over 800?

[Thomas_Thumb]

A score of 800 can be achieved with only 2 open credit cards on file and no open or closed loans. Just need adequate account age and moderately low reported revolving utilization. My daughter has such a profile. Both her cards are now 8 year old. However, a profile like hers is leaving points on the table due to lack of file thickness and insufficient credit mix.

Characteristics for a robust file scoring above 800 without dipping below are:

1. File has no derogs.

2. File is not thin and has a decent credit mix. This means 3 or more revolving credit accounts and at least 1 installment loan.

3. Credit history is sufficiently long. It is preferrable to have oldest account be 10 years or greater. Closed accounts on file count.

4. Age of youngest revolving account should be greater than 12 months. This is obviously not a requirement but, avoids the new account penality which is often 15-20 points.

5. Maintain aggregate utilization under 9%. Again, not an absolute requirement but significant points will be lost straying much higher.

6. Maintain highest card utilization under 29%. Staying under 49% is often ok if aggregate CL is high enough to avoid a significant spike in aggregate UT.

7. Maintain an open installment loan on file. This is certainly not a requirement but can help boost score.

* AZE1 is not a significant factor in achieving or even maintaining +800 scores. The key is clean file with low reported utilization that has a reasonably long credit history with sufficient number of accounts and decent credit mix.

** Fico does look at aggregate installment loan B/L ratio. Under 9% is ideal for mid length to short term loans. For those with an open mortgage this threshold is not a consideration. Fico looks at age of installment loans and length of payment history. Closed loans count.

P.S  A score of 850 is possible with no open installment loans on file.

[Realist]

I would pull from the 401k as a loan, and use this to eliminate the debt.  This action achieves a number of things.

1.   It offers an up front lump sum to handle a situation.

2.  It frees up the immediate monthly cost to carry the CC debt.

3.  It delivers a solid 7%-10% whatever rate your 401k loan carries, and ensures you get paid back into your 401k that loan amount at that interest rate.  That cost may be less than the credit card carry amount.

4.  In a stock market that is pulling north of 20% and more annually, this is not normal.  Those that believe it is, haven't yet had their faces ripped off by events such as 2008/9, 2000/1, etc, etc.  I've seen my share of acquaintances lose 50%-75% of their 401ks in a blink, and some of them were also on a timeline to retire.  At a certain point in your life, there's simply no more time left to recover from those kinds of events.  Today we are entered into the largest bubble in history to date.  By holding a tiny fraction of your 401k money allocated to doing something powerful elsewhere, is not such a bad idea.

5.  With all the additional money you're tossing at paying down the credit cards, you could immediately remedy the situation, and then toss payments right back at repaying your 401k loan, should you want to.  You get the benefit of immediate resolution, with an interest rate that pays you, and then when properly situated, you can pay back the loan quickly or on your own manageable timeframe.   Meanwhile the credit score takes care of itself as quickly as allowed.

All this is, is financial reallocation.  Shuffle the numbers around to make them dance.  

[Xarquinn]

This is by far the best option.  If your 401k does not allow loans, i would go with a home equity line of credit through a credit union.  If you withdraw from a 401k, you will be paying 35% tax based on your 200k income plus a 10% penalty.  Rates for a HELOC should be in the 7.5 to 8.0% range with zero costs.

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@Realist wrote:

I would pull from the 401k as a loan, and use this to eliminate the debt.  This action achieves a number of things.

1.   It offers an up front lump sum to handle a situation.

2.  It frees up the immediate monthly cost to carry the CC debt.

3.  It delivers a solid 7%-10% whatever rate your 401k loan carries, and ensures you get paid back into your 401k that loan amount at that interest rate.  That cost may be less than the credit card carry amount.

4.  In a stock market that is pulling north of 20% and more annually, this is not normal.  Those that believe it is, haven't yet had their faces ripped off by events such as 2008/9, 2000/1, etc, etc.  I've seen my share of acquaintances lose 50%-75% of their 401ks in a blink, and some of them were also on a timeline to retire.  At a certain point in your life, there's simply no more time left to recover from those kinds of events.  Today we are entered into the largest bubble in history to date.  By holding a tiny fraction of your 401k money allocated to doing something powerful elsewhere, is not such a bad idea.

5.  With all the additional money you're tossing at paying down the credit cards, you could immediately remedy the situation, and then toss payments right back at repaying your 401k loan, should you want to.  You get the benefit of immediate resolution, with an interest rate that pays you, and then when properly situated, you can pay back the loan quickly or on your own manageable timeframe.   Meanwhile the credit score takes care of itself as quickly as allowed.

All this is, is financial reallocation.  Shuffle the numbers around to make them dance.  

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[Kforce]

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@Patient957 wrote:

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@FICOdawg wrote:

 Crazy that with my salary, paid off house, long credit history, that 41k in credit cards would kill my score so much.    

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Salary and paid off house do not factor into credit score. 

It's your utilization that's killing you, and it probably would be even worse if not for your long credit history.

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^^^^ This

Fico does not look at your income, savings, investments, etc.

What is hurting you is "Utilization".

The good side of this is that 40k @ 18% can be paid off in <  year with your income, or

you can borrow against your savings , house, etc if you wish and save a few thousand in interest.

Just ignore your score and fix the debt, and all will be good again.

Can't change the way Fico scores, and it doesn't see both sides of the coin.

As you said in a post many would trade only 40k debt / having a high Fico.

Don't look at your score for 9 months.   

[Patient957]

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@Kforce wrote:

The good side of this is that 40k @ 18% can be paid off in <  year with your income

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Which is why income doesn't factor in to credit score.  If there's such a big income, you should be able to quickly pay off the debt.  The fact that the big debt exists despite the high income suggests there might be an issue.  It's a warning sign.

Stated another way, nobody carries $40K debt at 18% unless they have to.

[SouthJamaica]

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@FICOdawg wrote:

Yeah divorce bit me there too.  Bought a new (used) car so we had clean ownership of cars so getting dinged on credit for that new loan as well.   Credit scoring is truly stupid.      Just started using the Experian app.  Should my score keep improving every month with the lower balance or only when I hit certain percentages?   I also had a PayPal credit card amount that I paid off and score bounced up but I basically took a $4k balance to zero in one go.     

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You would have been better off keeping the card and letting it report zero each month.  By closing it you took it out of the utilization computation.

[FICOdawg]

That's not actually true at all and where formulas like FICO fail.   Realize I could pull from my Roth today and pay this off.     Because I can pay it off quickly is why I'm not touching my retirement accounts.   Last thing I want to be doing is yanking money out of my retirement during a downturn in the market (SEE: tariffs)      If FICO considered ALL available assets then yes, but FICO formula is 1000% non predictive in my case.    I could have used a mortgage and paid off the CC instead but then I'm paying origination fees, would have slowed down my purchase as I got a better much deal on my condo as a cash buyer with a quick close.

There is some true stupidity in FICO scoring.   So if I get a car loan at a dealer and they do 2-3 hard pulls checking rates,I get dinged.   Then I also get dinged again when then new loan hits.     Remember this; FOLLOW THE MONEY.   FICO makes money off of these formulas.   The banks make more money if you have a lower score.

I just paid down another 4k today.......

[FICOdawg]

I did not close any credit accounts.   My mortgage and solar loan closed when I paid them off.

[FICOdawg]

Yes I don't need any credit/loans for next 10-12 months so doesn't matter other than my personal irritation at how FICO operates.