Question about % utilization on credit cards.

[Anonymous]

So a balance on 8 cards is not more valuable than a balance on 1 card(possibly the opposite) ?

[Revelate]

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@Anonymous wrote:

So a balance on 8 cards is not more valuable than a balance on 1 card(possibly the opposite) ?

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We've had a couple of tests over the past several years, my favorite was when a near 800ish (FICO 8) poster let $1 report on each of her 8 cards and got hammered worse than I (with an admittedly lower score at 710-720 at the time on a mixed file, I don't get slapped as hard as the gold plated people do) got hit by a brand spanking new tax lien on my reports.  Not directly comparable as a result of our files, but still makes me giggle a bit at the algorithm.

End of the day, the fewer cards with balances the better from a scoring perspective as long as at least 1 card reports a balance.  All $0 across the board is another straight negative.

[Anonymous]

Hi Revelate.  I think you are misunderstanding my citing of David Howe's $253 figure.  You are thinking that I am making it an "11th Commandment" -- presumably Thou Shalt All Have a TL Reporting $253.  Anyone deviating from that figure being punished by FICO.

That's not what I was saying by citing the $253.  I was saying that IF we assume that FICO does look at raw dollar figures as one factor (possibly a very minor one) then there would be a question of what a safe figure would be.  What would be a range of values where one could be reasonably confident that FICO wouldn't take away any points?   I was suggesting that the case history published by DH suggests that the vicinity of a couple hundred dollars would be safe, since if it wasn't then it's hard to imagine how he could get a perfect score with a $253.  (Unsafe = puts you at risk of having at least one point taken away)

Now of course it's also possible to discuss a different question, which is whether or not FICO looks at raw dollar amounts EVER -- or if FICO only looks at amounts relative to the tradeline's line of credit (a CL in the case of a credit card, an original amount borrowed in the case of an installment loan).  It sounds like you tend to believe that FICO only looks at utilization (in this second sense).  Happy to talk about that too.  Just wanted to clarify that the $253 figure was something straightforward: e.g. it looks like a couple hundred dollars is low enough -- assuming that FICO considers the raw dollar amount at all.

[jamie123]

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@Anonymous wrote:

Hi Revelate: I know it's something that a number of people seem certain about.  John Ulzheimer talks about it, David Howe (who scored a triple 850) talks about it.  There are some discussion threads on myFICO that talk about it (and which reference 2010 literature put out by FICO itself). 

Furthermore the wording put out by FICO in its discussion of the "Amounts Owed" category itself seems to suggest it (without doing so explicitly).  Most of the sub-factors listed refer to FICO looking at the amounts themselves.  Only in the last two sub-factors do we begin to see the amount owed compared to the amount of the credit line.

http://www.myfico.com/CreditEducation/Amounts-Owed.aspx

If our friend myOwnFICO is reading this, I think he may have posted a myFICO link a while back on utilization that discussed the raw amount issue and gives specific thresholds.

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I would be amazed if FICO used actual dollar amounts in their equations. It would be prejudicial against poor people and that is a HUGE reason for not doing it. Attorneys would be taking FICO to the cleaners and you just don't hear about that happening.

[Anonymous]

Hi Jamie123.  I am not sure how using actual dollar amounts would be prejudicial against poor folks.  (Assuming that small is better.  Obviously if FICO took points off for failing to have a large dollar amount reporting, that would work against poor folks.)

Actually, by contrast, if dollar values are ever used as one factor in the proprietary algorithm, that would work against rich folks, not poor folks.  Let's assume for a second that all FICO cares about is % utilization.  If so, that works in favor of rich people, or at least people able to have huge CLs, which is presumably what you had in mind.  In such a model, which is the one you believe operates now, the wealthy could report far larger balances without penalty than the poor.

If, however, dollar amounts are also employed in the model (as an additional factor to % utilized) then that means that the ability of the rich to secure large CLs would be limited in its ability to benefit them.  There would in this sense be more of a level playing field.

[jamie123]

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@Anonymous wrote:

Hi Jamie123.  I am not sure how using actual dollar amounts would be prejudicial against poor folks.  (Assuming that small is better.  Obviously if FICO took points off for failing to have a large dollar amount reporting, that would work against poor folks.)

Actually, by contrast, if dollar values are ever used as one factor in the proprietary algorithm, that would work against rich folks, not poor folks.  Let's assume for a second that all FICO cares about is % utilization.  If so, that works in favor of rich people, or at least people able to have huge CLs, which is presumably what you had in mind.  In such a model, which is the one you believe operates now, the wealthy could report far larger balances without penalty than the poor.

If, however, dollar amounts are also employed in the model (as an additional factor to % utilized) then that means that the ability of the rich to secure large CLs would be limited in its ability to benefit them.  There would in this sense be more of a level playing field.

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Ahh...But who determines what size the dollar amounts should be? A level playing field? Not even close!

Once you use dollar amounts in the equation you are prejudicing a group whether rich or poor. Rich people have attorneys too!

The only way FICO stays in business is by using proportions in their calculations. That is the only fair and just way to score people. If it were ever found to be different, I would be one of the first to jump on that class action lawsuit bandwagon.

[iv]

For what it's worth, I've had (FICO 8) 850s while reporting $1k+ on revolving cards (PIF, but letting them report), and with 2 of 3 cards (and 2 of 2 AU cards) reporting balances.  (Total util under 1% overall, and under 5% on any one card.)

YMMV...

[Anonymous]

Hi Jamie123.  You asked "who decides what size the dollar amounts should be?"  The answer is that FICO would.  If they use them at all in their model, it is FICO who decides them -- as with all other details of their model.  And the way that they would make that decision is the same way that they decide other parts of the model.  If the raw dollar amounts are a factor, it would be because FICO has observed that people reporting large dollar values are a (slightly) greater risk statistically than people with small dollar balances, even when the two classes of people have exactly the same % utilization.  I do not know that this claim is true, but if FICO uses raw dollar amounts as a factor (or did once use them) its because FICO believes it to be true.

I suggest we tackle your concerns one at a time.  You first were concerned that using dollar amounts (as an additional factor) would work against poor people and in favor of the rich.   I responded by showing that a pure utilization only model favors the wealthy against the poor, whereas adding raw dollar amounts as an additonal factor would make this advantage of the wealthy less pronounced.  There would be MORE of a level playing field, though of course the model in practice would still favor the rich to some extent.

You then shifted gears and became concerned that using dollar amounts would work against rich people.  You are correct.  It would decrease the advantage that a pure util-only model gives to the rich.  Though rich people can still pay their balances to low dollar amounts too, so it just means that the rich would have less of an advantage, not that they would be penalized.

Part of the problem may be that you believe that FICO has a responsibility to be "fair" and "just" to various groups of people.  They don't.  It has two obligations.  (1) To abide by the law (which forbids them from using categories like race, etc.) in their model.  and (2) To create a model that best identifies risk to potential lenders.  Being in the category of "poor people" or "rich people" isn't a protected category (like race, religion, etc.) so all FICO has to do here is decide whether they think there is evidence that large balances (even when low on utilization) are a predictor of risk (however slight).

[Anonymous]

Revelate and Jamie123 were both somewhat skeptical that FICO might use raw dollar values in their model.  Revelate was interested in seeing any kind of sources I could find that seemed to indicate that.  I mentioned several but wasn't able to give him a definite URL at that point.

Here is a source on the MYFICO site.

http://www.myfico.com/fico-score-high-achievers-infographic.aspx#.VVkJLkbBXp8

You'll see that it lists as two different factors the raw dollar amount you owe on your credit cards (BALANCE section) vs. the % utilization on them (UTILIZATION section).

There have also been discussions a while back inside the MF forums that discuss the details in more depth.  I'll see if I can find those at some point.

[NRB525]

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@iv wrote:

For what it's worth, I've had (FICO 8) 850s while reporting $1k+ on revolving cards (PIF, but letting them report), and with 2 of 3 cards (and 2 of 2 AU cards) reporting balances.  (Total util under 1% overall, and under 5% on any one card.)

YMMV...

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^This

I like

A lot of emphasis here on paying before statement cut. The file is going to score what it is going to score, based on the entire history of payments, modified to a minor extent by utilization. In my case, modified heavily by a large level of utilization, but for the cardholder who has all cards at reasonable balances and is only PIF each month, it is time to relax.