How high can I score with a small number of tradelines?

[jamie123]

By having 3 cards and 1 installment loan, with the stars and moon aligned just right, you can probably get to a perfect 850 FICO 08 score. The FICO 04 probably requires a mortgage to get a perfect 850. But as soon as a new account shows up on your reports your scores will drop by a lot for 2 years. You cannot get to 850 in any of the models if your youngest account is less than 2 years old.

I just think that it makes no sense for you to throw in the towel so to speak and quit managing your credit and just let it ride when you are so close to making a few moves that will set you up for life.

By getting 2 cards this year and 2 cards next year to bring your total card count to 7 CCs while you still have the AAoA to take that kind of hit in stride makes perfect sense to me. It costs absolutely nothing for you to do this and you would actually make money with bonus points or travel rewards if you do it right. I'm sure with your current scores and history you would receive rather large CLs giving you a great cushion if an emergency should occur and you would never have to worry about UTI bringing your score down.

I mean really, you would be way far ahead of the game if you just apped for 4 more cards, used them once and then cut them up and threw them away than doing nothing. The lenders would probably keep the accounts open for a couple of years before closing them so we are talking that they would stay on your reports for 12 years from now.

FICO is all about ratios and never dollar amounts. You leave yourself open to risk by having just 4 accounts. You will have high scores because the few accounts that you do have are well seasoned and always paid on time. If a disaster happens, whether public or personal and you need to open 4 new credit accounts in one year, your scores will drop for years. Your ratio of 4 seasoned accounts to 4 new accounts would be too great for your seasoned accounts to overcome the negatives of having an equal amount of new accounts. Now don't get me wrong, your scores would drop by a lot but would still be decent in this scenario. I can't envision your scores dropping below 720 unless negative information shows up like a 30 day late or something.

[NRB525]

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@Anonymous wrote:

NRB525,

Thanks for your thoughts.  I'm a bit puzzled though.  It's possible that you misunderstood would I was asking.  Basically, it's this: most of my tradelines will fall off in a few years from now.  I am trying to make a guess as to how much my score could go down when that happens.  From 830 to.... _____?  (E.g. 815?  800?  790?) That's equivalent to asking "how high can someone score with a small number of tradelines?"

You call this a "noble quest" and also "circular."  You also talk at some length about why I am not likely to be able to score 850.  All of this seems off the mark of what I am asking.  It's possible that you were thinking that I was trying to INCREASE my credit score from 830 to some higher number, and to do so after my closed tradelines dropped off.  That is not the case.  I expect that my 830 score will go down after they drop off, but I am trying to get a handle on whether that will be a tiny dive (to 825 say) or one a bit more pronounced (800).

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Circular was not the best phrase to convey what I was thinking, let me try again. With your perfect payment history and good scores you can choose two paths: Pay down debt to near zero and get to close to or at 850. Or take on new debt, and your score will decline. Probably not so much that it should be alarming, but not to an amount that we can put an exact number on it. So the choice is a sliding scale now: Don't borrow, or borrow.

If you decide you need to borrow, your scores will decline, but we don't know by how much. If you end up borrowing a lot, like I have, then your scores will probably go down more. But if you do borrow, there's probably a good reason you need to use the money, and that is the whole point of having a good credit score; to be able to borrow for those good  reasons, at good rates.

As to assigning a specific scientific number to it? 

There's a common term used arond here: Your mileage (or experience) may vary.

[Anonymous]

Dad has a discover card (1990), visa from his bank (10+ yrs) walmart card (5+ yrs) and home equity line of credit (under 5 yrs).  The only closed account was his chase account and it was closed a few years ago for inactivity.  His score was 827 when he checked in January while we were talking about his financials.

[Anonymous]

Thanks, mimsof4!  That's a huge help.  Interesting that a very old credit profile (25 years) with a high AAoA (looks like about 11 years) is still topping out at 827.  Thus it may be that this represents a practical upper limit when one has a small number of tradelines.  (I am assuming that there's nothing else of interest in your dad's credit history: no late payments, no accounts opened in the last two years, 0-1 inquiries in the last year, etc.)

[thom02099]

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@Anonymous wrote:

Thanks to everyone who is chiming in.  I do appreciate everyone's thoughts, including and especially people who  take time to write a longer post.

Since it sounds like I am not likely to get anything further along the line of what I originally was asking (how high can one score with a small number of tradelines), I'll give some closing thoughts/issues on the thoughts that Jamie123 and CH-7-Rebuilding have raised.

CH-7-Rebuilding suggests that I have a science/evidence based mind.  I do.  So there really a couple different questions, and my main interest was in the first.  The first question was: purely as an empirical question, how high can a person score with a small number of tradelines?  This was a question of fact.  Then there were other questions that could be considered, that typically involved implying that one shouldn't care about that first question.  E.g... "But you shouldn't try to only have three credit cards, you should try to add more (for reason X or Y)..." or "But it doesn't matter whether your score is 760 or 800 or 840, so since you have a good score you shouldn't care about how high you can score with a few credit cards..."

This other class of questions are are questions of value.  They involve what a person should be doing or should be caring about.  They involve Should -- and my initial question was just focusing on fact.  My style of thinking is to first make sure I understand what is factually the case, and then I can begin thinking about what I might want to do or not do after that.  CH-7-Rebuilding was right to perceive that as a thinking style -- no reason everyone needs to think the same way, but that's how I in fact think.

There are two interesting issues that Jamie123 and CH-7-Rebuilding have raised.  So I will tackle those and give them my thoughts.

(1)  Will opening a new line of credit cause my credit score to drop in a big way?  Jamie123 thinks it will.  He suggests that I should expect a drop from 830 to 760 -- assuming I do this five years from now, when I have only four accounts.  I am curious to hear more why he is convined that the drop would be so pronounced.  The only reason I can think of is that he (correctly) sees that the hit on my AAoA would be larger than if I had many accounts.  But let's do the math on it.  Based on the original post, you can see that I probably have an AAoA right now of 10 years (if you ignored the closed accounts for a second).  That means that in 5 years I would have an AAoA of 15 years.  If I then added a new CC or loan, that would drop my AAoA to 12 years (the next month) and then my AAoA would continue to go up every year after that.  My understanding is that an AAoA of 12 years (with a total age of almost 20 years) is GREAT.  And note that this would be an age profile that is BETTER than what I have now (with an 830).

(2)  Will a FICO of 760 look just as good to future lenders as a score of 850? In General, Yes.  The best rates at most lending institutions are for 760 and above.  There can be some exceptions as noted, to a score of 720 or above,. and in some cases, 800 or greater could get even better rates.  There are no absolutes, it can vary by lender as well as consumer.   CH-7-Rebuilding is certain that it will.  In fact, he thinks that it's quite possible that a 720 will be just as good.  I suspect that he's basing this on the pre-meltdown era and before, where it was indeed common for there to be a comparitively low bar.  What I just can't have the same level of confidence in is that future lenders will all view it the same way. No one can.  No one can predict the future.  One can speculate with all sorts of "what if's", but that doesn't make it so.   One reason is that a number of things have been happening that may be causing current and future FICO scores to be on average higher.  For example some things that used to punish people (FICO-wise) are being mitigated or removed, either by alteration to the model or to the credit bureaus' data: bad records due to medical events and natural disasters, for example.  Obviously that's great news if you were a victim of illness or disaster, but if you weren't, then that puts more people up into the 760 780 or even 800 range, and thus lowers your percentile ranking.  Again, it's entirely possible that for the next 20 years all mortgage underwriters will consider a FICO of 760 (or 720) no different than an 850, but to be sure of that (as CH-7 apparently is) is something I can't be.  No one can predict 20 years from now.  Over 20 years ago, I got my first mortgage and at that time lenders were looking at 580-620 as being the scores at which they were looking to service.  This was for nearly all lenders at the time.  Times change, credit scoring evolves.  But of course CH-7 and I agree in principle that it's virtually certain that there always will be some cutoff where all stratospheric FICO scores are functionally identical.  I just think there's a chance it could be higher than 760 at some point -- maybe even as high as 790 or 800 (though of course I don't know). Maybe.  Maybe not.  As the FICO formulas evolve, there's no reason to think that the score range will always be to a maximum of 850.  There are deviations to that now.  At some point in the future, that 20 years that you've been looking at, it could be that a perfect score is 1000. 

Again, thanks to all contributors to the thread.  Best wishes...

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I can sure understand your questioning.  Having had credit for a very long time (40+ years), it's been a very interesting evolution, both for the industry as well as personally.I wish there had been a forum like this and others for discussion of such matters, but 40 years ago there wasn't even the internet!  A factor to always keep in mind, is there are no absolutes, in credit or in life.  As another poster pointed out, it's always YMMV (your mileage may vary); each of us is different in our credit profiles and how the score gods look upon those profiles.

[Anonymous]

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@Anonymous wrote:

Thanks, mimsof4!  That's a huge help.  Interesting that a very old credit profile (25 years) with a high AAoA (looks like about 11 years) is still topping out at 827.  Thus it may be that this represents a practical upper limit when one has a small number of tradelines.  (I am assuming that there's nothing else of interest in your dad's credit history: no late payments, no accounts opened in the last two years, 0-1 inquiries in the last year, etc.)

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You assume correctly.  No inquiries, never late, no new accounts, low utilization etc.  Perfect report for scoring and typical elder credit habits. He primarily uses his home equity line of credit  ($75k) when he needs something then pays it off within 6 months.  When we pulled his score, he had a balance of like $1k on his LOC and his discover card was like $100.  That seemed typical of his spending pattern.  I didn't ask him how often he pays or if he just waits til a statement cuts.  I found it interesting that his credit limits haven't changed along the way.

The one factor that may change his score is that closed Chase account.    I am not sure what his score will do when that  falls off (or even if it will fall off if it is just inactive).  I didn't pay much attention to the details on that.  I was primarily looking at his open trade lines vs. his score.

[Anonymous]

Yep, I saw the closed Chase account.  The account doesn't have any negative data attached to it.  It was just closed because he wasn't using it very much.  If the account was opened a long time ago (say over 11 years ago) then your father's average age of accounts (AAoA) is even higher now than I had guessed.  If it was opened more recently (say 8 years ago), then your dad's AAoA is a bit lower than my 11 year estimate.  Regardless, when it does finally fall off, your dad's AAoA will be obscenely high from his other accounts, so it shouldn't cause his score to drop to below 827.  (It's worth observing that David Howe, who scored a tri[ple 850, only had an AAoA of 11 years.)

The Chase card raised one thing to my mind, which was that it was closed due to inactivity.  That means that your dad has a pattern of occasionally letting cards go for a very long time with not being used.  He did that with his Chase card at any rate, and perhaps he does that occasionally with one or more of his other cards.  One factor that can come up as a reason why a person's FICO isn't as high as it might be is that the person hasn't been using a revolving line of credit recently.  It may be that all one needs to do (to avoid that small FICO ding) is use at least one CC every few months.  But it might be that if the credit report shows any open CC as having been inactive for a long time, then there is a small ding to one's FICO.  If that is built into the model, then I suppose it's possible that your dad might improve his already stellar score slightly by using each card every 3-4 months.  And of course the greater reason is that he wants to prevent these old CC's from ever being closed by the issuer, like the Chase card was, since they are such a great part of his record.

(incidentally, you call this a "closed Chase account" but don't explicitly identify it as a credit card.  I assumed it was a CC, rather than an installment loan.)

The concrete case study of your dad is immensely helpful to me.  This is exactly the sort of thing I was looking for: a case study with no negative data, a very old account, a high AAoA, and a small number of tradelines.  It's illuminating that he appears to be topping out at 827.  While I can imagine his score might be a few points higher in a few years when his AAoA is even higher than it is now, you dad seems to provide evidence that (a) one can score very high with a small number of accounts, and (b) there is a practical ceiling of HOW high, probably around 830.

Thanks so much!

[Anonymous]

As a quick PS: can you confirm for us that your dad did not have any installment loans of any kind on his credit reports?  For example, no car loans?  It's entirely possible that he paid cash for his last car, or that he bought it a long time ago (and paid off the loan over ten years ago).  Just wanted to be sure.

[Anonymous]

Hi Jamie123.  I just wanted to thank you again for your willingness to respond -- and at some length.  Very kind of you.  I will certainly understand if you decide you need to "sign off" of the discussion, and I appreciate you posts thus far.

It occurs to me that sometimes when two people appear to be talking past each other, that's because somebody feels like they aren't being heard.  So in the best tradition of the helping professions, let me tell you that I Am Hearing You!  :-)  I totally understand your point that, five years from now, it would be a great thing to have some extra credit cards on my account, cards that had been added a few years before.  That way when old installment accounts start falling off, I have some younger accounts on it.  I reap the benefit of having a greater number of accounts and my AAoA ends up not taking a huge hit in do so. 

Basically I thought through all of your talking points a few months ago (which you put very well in your last post).  The reason why I am a bit skittish in adding CC's (now or soon) is that I am in a situation where I might need/want to buy a house.  And it is possible that the need could come up comparatively suddenly -- AND it could happen any time between now and six years from now.  I won't go through the reasons why this is the case, but please trust me that it is the case. 

Thus assume the following: (1) right now buying a house is a bad idea for me (2) That could suddenly change where it becomes (unexpectedly) a very good idea (3) At this moment it appears that this could happen any time between now 2021. 

Mortgage underwriters become very worried when they see that a prospective borrower has just taken out a new revolving line of credit.  It's not just a question of what the new tradeline might do to one's FICO score, it's an issue of how the underwriter feels about it, who is using his human judgment.  He's not a machine that just says "FICO above 760 -- give him best rates!"  I am sure you must know that. 

So if I start adding cards, and then all of a sudden I discover that I need/want to buy a house, then I have shot myself in the foot.  I'll have to wait for many months (after the last new line of credit) -- if I want to be sure that I will get the best rate and a big loan.

So I have been carefully balancing all of this stuff against each other, all the pros of adding CC's against their cons (which I just described).  As it turns out, after great deliberation and with some caution, I added one new CC at the end of March.  I didn't mention it at the beginning of the thread, because I didn't want to muddy the waters of the original question.  The question is sharper and better defined when it is a case like MIMSOF4's father, who is indeed a case that answers how high you can get with a small number of old accounts and an even older profile.

Once I could get that (factual) question answered (and with a real case study, rather than just people offering their opinions), it then gives me one clear piece of data which I can use to make some decision.  It's not the only fact that enters into the decision -- as I just mentioned I still ended up deciding to cautiously add one card a few weeks ago.  That however is still a gamble, hoping that nothing radically shifts two months from now where I want to buy a house.  Hopefully I won't and I will then have four open credit cards and an open installment loan (rather than only 3 cards).

Lastly, it's worth observing that there are some other ways to add extra accounts down the road.  Although I tend to buy a car only once a decade, it's likely that I will buy a car shortly before all the old accounts fall off.  So I will have at that point two installment loans and four open cards.  That will be fine as far as mix and number goes I think.  My own personal situation is one thing, but the abstract question of how high one can get with a small number of accounts is one I find interesting, and also more applicable to a large number of people, which is why I framed it as such at the start of the thread.

[jamie123]

Well, I'm glad you found the answer to your question!

I do however think that you are worrying too much about what an underwriter will have to say about new credit. (That is, a new account or two within the last year.) Sure, they will question you about any new credit that was opened in the past year but I think that is so they can check the box on their form that demands they ask the question. I've been on these forums for a few years now and as long as someone has decent credit, say above 700, they were asked about it but not penalized for it with higher interest rates or loan denial.

I think that an underwriter would have more misgivings about someone with a really high score but a very thin file wanting a loan. He will be asking himself, "Has this person really proved his credit risk or could it be higher? Have they justified their high score?"

Having new credit in other words, is not as important in the mortgage loan decision as you are making it out to be. A mortgage loan decision is based on many factors and scores are just one component of that decision. If loan decisions were based on scores alone there wouldn't be a need for underwriters, a computer would do it as they do now for credit cards.

An underwriter's job is to verify that all the facts listed on your reports and application are correct and then determine if your data fits the guidelines given to him by his loan board for the quality of debtors they are willing to lend money to. Lenders have varying standards when it comes down to who they will lend money to and those standards are raised and lowered inside each institution on a regular basis.

If you add 1 new account per year, you will not have any issues with obtaining a mortgage, but will build an even better foundation for your future credit needs. You know that, that's why you obtained that new card.

My suggestion to you since you are so worried about it, is to get 1 new credit card a year until you have at least 6 credit cards that you can keep open for life. Once you have 6 credit cards with the youngest one being 2 years old, you will be golden and will be able to obtain any credit (Within reason.) that you will need in life at the very best rates.