@Anonymous wrote:
CGID, I strongly agree with your overall point. Thank you for the well written reply. I am going to quibble a bit about one or two of your illustrations (with apologies to Bob):
Bob has one credit card. It totally meets his financial needs. But he reads on this forum that he will get a better FICO score if he has three or more cards. Bob therefore adds two more cards. He is gaming the system.
True, in this instance Bob is intentionally manipulating his FICO scores; but doesn't he emerge a better borrower as a result? Opening additional revolving accounts will give Bob a cushion in the event of sudden financial difficulties (think: unexpected medical/housing/auto expenses, interest rate rise, high bills due to a big-ticket impulse buy). Furthermore, since the scoring benefit will primarily occur once the new accounts have aged somewhat, Bob will have learned how to manage multiple credit card accounts for some time without missed payments. And since the balances will need to be relatively low, Bob will have had practice in exercising discipline by refraining from overusing his new, more generous spending power. Arguably, Bob is not gaming the system but becoming a more capable, sophisticated borrower.
Bob has one credit card with a 2k credit limit. It totally meets his financial needs. His reported utilization varies between 40% and 60%. He always pays the balance in full after the statement prints. But he reads on this forum that his score will be much higher if he pays his balance down to $5 just before the statement prints, and then pays in full after the statement prints. He is gaming the system.
Isn't Bob displaying responsibility as well as financial capability by being in the habit of paying his bills before the statements print? I remember reading that in commercial credit, the best rating is assigned to companies that pay their bills prior to being invoiced -- so presumably that is a valid predictor of both cash flow and future default risk. Furthermore, Bob has developed the habit of carefully monitoring his credit use. This habit is surely meaningful. And while this is undoubtedly a limitation of current credit data systems and the FICO algorithm (which only use a current snapshot rather than trended data), Bob has identified himself to the algorithm as someone who uses credit by choice rather than out of necessity.
Those two examples are united by Bob doing a thing (in both cases) solely to manipulate his score. Now it is possible that a different guy, George, might want two extra cards for reasons other than attempting to game the system. Maybe George likes having multiple sources of rewards cards. Maybe George wants to have an extra card in cases he loses one or the issuer goes bankrupt. Maybe George likes chasing bonuses (only possible if he opens extra cards). Maybe George is looking way down the line and foresees that his AAoA will take less of a hit if he has many accounts.
So Bob is not gaming the system because he is doing a thing that cannot be construed to have any value other than tricking FICO, not for any person in the world in any situation. He's gaming the system because right then Bob was actually very happy with one card. He was financially being quite successful using that one card. He managed it just fine. It covered all his expenses quite well. He didn't actually want two more cards. Only with a certain amount of reluctance did he get them, and in his case solely because a FICO-savvy friend correctly explained that he'd have a better score if he had three.
In the second example (Bob keeping his reported utilization artifically low) you are observing (I think) that Bob isn't fooling FICO. He's keeping his reported utilization very low, and FICO has very intentionally decided to reward people who do that. I am sure you are right. But it's just not relevant I think to what I was talking about. My point is that Bob was being very successful using his card, letting the statement print, and paying it in full. He never paid a penny of interest. He may have had everything set up on autopay and was happy as a clam. He was getting along just fine -- paying his bills socking away tons of money for retirement, providing for his family, and so on. It was only with some reluctance that his FICO savvy friend convinced him that he needed to make a separate additional payment several days before each statement printed. He switched to doing so solely (in his case) because he wanted jack up his FICO score.
Hope that clarifies those two examples. Thanks for your thoughts!
Starting Score: Ex08-732,Eq08-713,Tu08-717