Is FICO scoring flawed?

[Anonymous]

Today I received my 3 credit scores.  Although they were excellent, there were 3 comments that concerned me. 

They were listed as "Key Factors Affecting Your Score"

1) The amount owed on your revolving/charge accounts is too high.

2) You have too many bank/national revolving accounts with balances being reported.

3) The proportion of balances to credit limits (high credit) on your revolving/charge accounts is too high.

I have 8 revolving accounts with 3 having balances and a 8% debt to credit ratio.

Of the 3 accounts, 1 Amx and 1 bank charge are paid in full EVERY month, and always have been.  I basically use these 2 cards to purchase everything including gas. I collect their travel miles and pay the balance in full when I get the statement.  I always thought this was a smart use of credit, and I never have had to pay any interest charges.  When I called Equifax, I was told that FICO scores do not take in to account when you pay your balance in full every month, only that you had a balance on the day the report was pulled.  So my understanding is charging 2,500 per month and paying the balance in full every month will have the same negative affect on my score, as it would on someone who has a perpetual balance of $2500 and only makes the minimum payment each month, then re-charges the amount of the payment.  I would have thought paying my balances in full every month would have a positive affect on my score.  I think over looking that is a serious flaw in the scoring.  Is there anything I can do to have this acknowledged and reflected in my score.

The 3 account does have a $4,000 balance.  I used a Amx Blue offer of 2.99% interest for the life of the loan to buy my car several years ago; The card has never been used for anything else, I make a fixed monthly payment (way more than the minimum) and will have it paid off in 2 years.

11-28-09  TU 812  XPN 805  EFX 799

[llecs]

Welcome to the forums!

Where did you pull your scores from?

[Anonymous]

I pulled the Equifax online to see the actual report.  The 3 scores were provided on a "Score Disclosure" from CBCInnovis.

[llecs]

Great....had to ask. Fantastic scores, BTW!  

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HawaiiSurf wrote:

I would have thought paying my balances in full every month would have a positive affect on my score.  I think over looking that is a serious flaw in the scoring.  Is there anything I can do to have this acknowledged and reflected in my score.

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The FICO score only sees what is reporting. It just happens your credit cards are reporting a balance each month vs. $0. Your scores are excellent. You can't bump them up too much more, but for max effect, get all but one CC to report $0 and get the remainder to report a small balance of under 9% of the CL. What is happening is that you are paying in full and then using the card again prior to the next statement cutting. CCCs report the balance (typically) that you had when the statement cuts and they only report once per month. So, if you PIF a given CC today (18th) and the CC's statement is set to cut on the 22nd, then make sure a 2nd payment is in their hands prior to the 22nd to get that CC to report the balance you want. Try that and I bet you can squeek out an extra few points.

Of the three things you listed, all of them had to do with CC balances. Doing the above will fix all of that.

What is the CL on the Amex Blue? FICO scores individual CC utilization too.

[Anonymous]

The CL on Amx Blue is 35,000.  That balance steadly declines every month as I pay my car off.  I've never used that card except for that one check.  Because me and my other half use the other 2 cards to purchase everything, there's a balance of at least $2,000 on each for every months statement.  I also use the cards for my business expenses.  The miles I get pay for a free trip to Maui 3 times a year, so I wouldn't want to stop using them.  I thought they use to report the amount of your payments.  From there they could tell you were paying off your balance. 

[llecs]

Payments aren't factored into a FICO score, only balances in relation to the CLs. Now reports pulled directly from each CRA, and maybe also on your Tri-merge, like from CBCInnovis, show payment history, but FICO doesn't read that. Your lender might and may take that into consideration. But your scores already qualify you for the best rate anyway.

[Anonymous]

Thanks....   Sounds like there's no way to change my score from here.  I certainly don't want to give up my free travel. 

Thanks for your responses.

[Anonymous]

Wouldn't paying off a big portion of your balance (like 90%) before your statement prints lower the statement balance that is reported to the credit bureaus?  That should lower your utilization big time, although your scores are already high enough already, don't think it would make a huge difference, but it might be worth a try.

[Anonymous]

I suppose I could do that, but it would be a pain to get the timing right.   I guess my point was that the FICO scoring system is flawed in that it can't differentiate between someone who uses credit wisely and pays their balance off each month and someone who has a perpetual balance and only makes minimum payments.  It's purpose is to rate you as a credit risk.  I would thing that paying off your entire balance every month makes you much less of a risk than someone you carries a perpetual balance by making only the minimum payment and then charging that amount again, thereby keeping a similar balance.  At the very least FICO should be smart enough to differentiate between a charge card (Amx) which MUST be paid in full every month and a credit card which allows you to carry a balance.  Additionally FICO scores discriminate against Amx card holders since Amx does not assign you a credit limit.  FICO calculates your balance as a percent of your credit limit.  So say you only have 2 cards a Amx with no limit and a MC with a $3,000 limit.  If you have a $2,000 balance on the Amx (Which must be paid in full) and $0 balance on the MC; FICO will calculate you as having a 66% usage since it only sees a $0 credit limit on the Amx.  So any balance on a Amx is over 100% usage.

My whole point is that until someone can update the scoring system; the scoring system is flawed

[MarineVietVet]

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@Anonymous wrote:

I suppose I could do that, but it would be a pain to get the timing right.   I guess my point was that the FICO scoring system is flawed in that it can't differentiate between someone who uses credit wisely and pays their balance off each month and someone who has a perpetual balance and only makes minimum payments.  It's purpose is to rate you as a credit risk.  I would thing that paying off your entire balance every month makes you much less of a risk than someone you carries a perpetual balance by making only the minimum payment and then charging that amount again, thereby keeping a similar balance.  At the very least FICO should be smart enough to differentiate between a charge card (Amx) which MUST be paid in full every month and a credit card which allows you to carry a balance.  Additionally FICO scores discriminate against Amx card holders since Amx does not assign you a credit limit.  FICO calculates your balance as a percent of your credit limit.  So say you only have 2 cards a Amx with no limit and a MC with a $3,000 limit.  If you have a $2,000 balance on the Amx (Which must be paid in full) and $0 balance on the MC; FICO will calculate you as having a 66% usage since it only sees a $0 credit limit on the Amx.  So any balance on a Amx is over 100% usage.

My whole point is that until someone can update the scoring system; the scoring system is flawed

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I can't deny that it can be aggravating but NO system will ever be perfect. There will always be someone complaining that "the system isn't fair" no matter what criteria are used.

This isn't directed at you personally. Just a general observation.

(myfico)
7/09 TU-742 EQ- 779
8/09 TU-765 EQ- 783
9/09 EX pulled by lender 802

CC interest free as of 8/09
Time can heal all wounds and a low FICO.
"Hello my name is Sandy and I'm a recovering crediholic".