High Credit Score, But Only Revolving Debt?

[Anonymous]

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@driftless wrote:
I am deeply troubled that a $500 loan can replace a mortgage for FICO scoring.

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Tell me about it.  I am deeply troubled that for years people have been able to play all kinds of games with their score.  For example, engaging in all kind of troubling and risky spending patterns with their credit cards (carrying huge balances on high interest cards and paying only the minimum payment) and then hiding that by paying the cards off a couple months before they buy a house.

In fairness to FICO, it didn't have the tools (due to limitations in the CRA database) to see that kind of gamemanship so it had to rely on other stuff (thus the lopsided emphasis on CC utilization).  Future models will be able to see what people do over extended periods of time -- with balances, payments, etc.  Indeed the new mortgage software CAN see that, so it behooves people to begin paying their cards in full as soon as they can if they think they might be buying a house in the next few years.

That said, the current and past models are what they are, and as a community we are here to help people do well within the existing system.  Thus this thread and all the other tricks you hear about in the forum (all cards zero except one, etc. etc.).

[Revelate]

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@driftless wrote:
I am deeply troubled that a $500 loan can replace a mortgage for FICO scoring.

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Eh.  UW > FICO.

All the points I gained in finding the SSL trick to begin with were promptly lost as soon as my mortgage reported.  Easy come easy go

[vanillabean]

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@driftless wrote:
I am deeply troubled that a $500 loan can replace a mortgage for FICO scoring.

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I don't know. A utilization of 10% can come from $10/$100 or $3000/$30,000.

[Anonymous]

My strategy is to do most of my spending on my JP Morgan Reserve card, which gets paid off every month.  The other cards won't see much use, and none of them have balances.  There's pretty high limits with now almost no spending on the other ones, and since the JPMR has a hidden tradeline, there will seem to be almost no utilization.

Utilization was never a problem, but it seems silly I should be docked for clearing all debt beyond revolving.  There should be long-term kudos from FICO for taking on debt and clearing it.  I'd be interested to hear if these little loans help.

[SouthJamaica]

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@Anonymous wrote:

My strategy is to do most of my spending on my JP Morgan Reserve card, which gets paid off every month.  The other cards won't see much use, and none of them have balances.  There's pretty high limits with now almost no spending on the other ones, and since the JPMR has a hidden tradeline, there will seem to be almost no utilization.

Utilization was never a problem, but it seems silly I should be docked for clearing all debt beyond revolving.  There should be long-term kudos from FICO for taking on debt and clearing it.  I'd be interested to hear if these little loans help.

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It should be mentioned that not all FICO formulas are the same.

It is clear that one gets dinged in FICO 8 for having no open installment loans, but it is not so clear that this is the case in FICO 5.

[Anonymous]

SJ is right.  What it boils down to in almost all cases is that the SS loan technique works fine unless you are looking for a mortgage loan.  Currently (and for the last several years) mortgage lenders use very old FICO models.  The mortgage model used for one's EQ and TU score gets no benefit from an open installment loan that is mostly paid down.  The mortgage model used for EX does give you a benefit.

In a few years I think it is likely that Fannie Mae will permit lenders to use models other than these old ones, but right now a borrower should expect no benefit for his EQ and TU mortgage score from the SSL technique.

[Anonymous]

Given that I deliberately cleared the debt, it sounds like I shouldn't worry about it unless I see it drop quite low. Just seems silly that someone who owns it all outright yet borrowed and paid to noting should have a lower credit rating than someone who has hundreds of thousands of debt to their name (especially when it's the same person a few months apart).

[Anonymous]

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@Anonymous wrote:
Given that I deliberately cleared the debt, it sounds like I shouldn't worry about it unless I see it drop quite low. Just seems silly that someone who owns it all outright yet borrowed and paid to noting should have a lower credit rating than someone who has hundreds of thousands of debt to their name (especially when it's the same person a few months apart).

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It may seem that way, but it is what it is and FICO 08 needs to see an open installment loan that's mostly paid off to give maximum points.  As Rev eluded to above however, having a fully paid off mortgage on your credit report is far more valuable to any lender looking at your credit report than the 20-30 point score difference (under FICO 08).  Trust me, the fact that you paid it off is a very good thing regardless of what happens with your score.  The SSL technique is a quick and easy work around though to get the best of both worlds (your score and your file both looking their best). 

[SouthJamaica]

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@Anonymous wrote:
Given that I deliberately cleared the debt, it sounds like I shouldn't worry about it unless I see it drop quite low. Just seems silly that someone who owns it all outright yet borrowed and paid to noting should have a lower credit rating than someone who has hundreds of thousands of debt to their name (especially when it's the same person a few months apart).

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I totally agree.

[Anonymous]

Thanks everyone. Any techniques other than the SSL?