@Focker69 wrote:I have heard in the past that for Utilization % calculcations, Fico does not use the Limit but instead uses the high credit or highest balance as the limit in it's calculation. Can anyone confirm that? Also, is anyone aware of there being differences between the Mortgage Fico 5,4,2 and the others in this matter?
You're getting a lot of inaccurate info from somewhere. Utilization is calculated as a %, both aggregate and individual, of the reported balance of your accounts vs their credit limits. Example: $1K reported balance of a $2K credit limit is 50% utilization. The 'high balance' is not a scoring factor in any FICO model 9 or earlier. There are major differences between the mortgage scores and the other FICO models. Most notably, the mortgage scores are particularly sensitive to new accounts and the total number of accounts with balances more than FICO 8 or 9.
The example here being: If someone applies and opens up a new credit card with a $25,000 limit and zero balance, the utilization and score will not change because the new card has not been utilized. The question then becomes, is the new unused limit ractored into the utilizations calculation?
When you have a new account reported, the CL is immediately factored into your revolving utilization scoring. Whether you ever use it or not, it will report the credit limit, a $0 balance, and 'pays as agreed' every month, all which are scoring factors. The lender could eventually decide to close an account due to inactivity if it just sits unused for too long.
Many thanks in advance!
@Focker69 wrote:I have heard in the past that for Utilization % calculcations, Fico does not use the Limit but instead uses the high credit or highest balance as the limit in it's calculation. Can anyone confirm that? Also, is anyone aware of there being differences between the Mortgage Fico 5,4,2 and the others in this matter?
The example here being: If someone applies and opens up a new credit card with a $25,000 limit and zero balance, the utilization and score will not change because the new card has not been utilized. The question then becomes, is the new unused limit ractored into the utilizations calculation?
Many thanks in advance!
No, none of that is correct.
For credit cards with a credit limit, the credit limit and the reported balance are the 2 components of FICO score utilization.
When you get a new card, the limit and reported balance are factored into your aggregate utilization.
(Perhaps you're thinking of Amex charge cards, where there is no set credit limit. Most FICO scoring models simply disregard those for utilization purposes, but I believe one of the older mortgage scores does consider the "high credit" as though it were a limit.)
@Focker69 wrote:
Thank you for your response. So, in essence, someone can apply for a new credit card, assuming they get approved and the minute that card reports to their credit, their utilization % is immediately dropped and the score will increase. In short, this would be a cheat by decreasing utilization without reducing balances. Is this correct?
Yes. As soon as the new card reports, the CL is included. My new Discover card with a $7K SL was more than the CLs of my open 4 revolving accounts combined, and my utilization immediately dropped from 3% aggregate utilization to 1% the moment the Discover card first reflected on my credit reports.
@Focker69 wrote:
Were you able to verify a score increase with that? Even with the mortgage score?
There was no score increase for me as my reported aggregate revolving utilization was already below the lowest threshold for scoring purposes before the new Discover SL was factored in.
Note: Opening a new revolving account to lower your aggregate utilization specifically for the mortgage scores is probably a bad idea. The mortgage scores are particularly sensitive to new accounts, and the penalty for opening a new account could more than offset any score increase you might see from lowering reported utilization.
@Focker69 wrote:
Thank you for your response. So, in essence, someone can apply for a new credit card, assuming they get approved and the minute that card reports to their credit, their utilization % is immediately dropped and the score will increase. In short, this would be a cheat by decreasing utilization without reducing balances. Is this correct?
Incorrect. When a new account is opened, there will typically be one or more Hard Pulls which will negatively impact your scores; what I have seen personally, and what I have gleaned from my readings here, after a few months, yes, your scores should go up a bit, but there is nothing "immediate" about it.
@Focker69Yes there will be an immediate score increase once util goes down as your opeining post asked. But then. Now it depends on other factors on scores. If your util is already below 8% and goes to 5%. No big points gain. If it was like 30%+ and goes to 8% its a bigger gain. Thats is if no new accounts were open. Although. In your case with a new card yes it will go up so many points. But then here comes what will limit your util % gain score wise. Subtract the HP which isnt much of a hit depending on profile. Then it goes to your AAoA's and how much lower did that go and where was it before the new account. And your AoYA resets and goes back to 0 months. So 3 things go into effect once a new card is obtained and added to your reports. Without knowing your scores and AAoA's it hard to say how much you'll gain. I'm aware I went a tad off course from your util question. Theres a few other things that come into play with new accounts and lowering util %'s and point gains that go with it.
Thats why people ask for CLI's so no new accounts are added to the mix and the hits that come with it. CLI's will lower your util %'s without all that goes with a new card.
