The Truth about Credit Card Utilization

[Anonymous]

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@Anonymous wrote:

TD has turned out not to be the great thing that many people hoped it would be, however, because many CC issuers are still not reporting the full spectrum of TD, especially the date and amount of every payment.  But perhaps that will change in the next couple years, in which case FICO might include the Transactor-Revolver distinction in its next model (FICO 10).

That 'full spectrum of trended data' is becoming more valuable every day, and I am sure that's why they are reluctant to give it away so freely.

I work in the data analytics field as a software developer (and reluctant devops manager right now), and I've learned a lot from working so closely with the mathematicians and other researchers. EVERYONE is so focused on AI/ML now and extracting every bit of data they can from anything they can, because we just don't know what data will be found by the AI/ML systems to be important predictors.

Just look at this link: https://news.cuna.org/articles/115561-analytics-drives-journey-toward-data-nirvana

"Bauer says staff throughout the credit union are involved in using data analytics, with two team members assigned to data analytics full-time. His advice for credit unions just starting a data warehouse project aimed at maximizing data analytics? “Grab all the data you can, even if you don’t know what you’ll do with it yet."

[myscorerocks]

I couldn't agree more. It is a scam. I've paid down balances in the past only to have my limit reduced, which then in turn raises my utilization and lowers my score. Honestly, this shouldn't be legal in my opinion. It's one thing to lower my spending ability, but I don't think it should happen after paying down a balance. You have to use credit to get credit. The system is definitely not fair and sometimes seems arbitrary. I've never missed a car payment and have had a payment for years, yet my car score is lower than my credit card score. I've never had a mortgage payment, yet my mortgage scores are high. Go figure. 

[Anonymous]

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@myscorerocks wrote:

I couldn't agree more. It is a scam. I've paid down balances in the past only to have my limit reduced, which then in turn raises my utilization and lowers my score.

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If you've paid down your balances and have seen CLDs to go along with them, it means that your lenders aren't comfortable with your profile and are handing over AA as a result.  The question here is to ask yourself why that's the case?  Something profile-related (late payments, high utilization, etc) caused them to balance-chase you.  They didn't do it for no reason, so it's important to try and determine what that reason was.  As much as you may not want to hear it, the "truth" here is that it was something you did (not them) that initiated the AA.

[SouthJamaica]

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@myscorerocks wrote:

I couldn't agree more. It is a scam. I've paid down balances in the past only to have my limit reduced, which then in turn raises my utilization and lowers my score. Honestly, this shouldn't be legal in my opinion. It's one thing to lower my spending ability, but I don't think it should happen after paying down a balance. You have to use credit to get credit. The system is definitely not fair and sometimes seems arbitrary. I've never missed a car payment and have had a payment for years, yet my car score is lower than my credit card score. I've never had a mortgage payment, yet my mortgage scores are high. Go figure. 

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Very good points.

[Thomas_Thumb]

The credit scoring algorithms are based on millions of data points to correlate target variables to risk. I expect some type of ANOVA was used to determine what attributes were statistically significant and which were not. Undoubetedly some scoring attributes identified for consideration or specific exclusion in the algorithms were influenced by input from customers (primarily lenders) and regulators.

For example, lenders want to get paid. Thus the removal of points deduct in Fico 9 for paid collections but, apparent re-instatement of points deduct for small unpaid collections. Carrot and stick motivation. 

BTW - There is no such thing as a "mortgage model" (other than the failed Fico 8 mortgage algorithm). The scores used as part of mortgage application reviews are generated by Classic Fico models: Fico 04 (EQ, TU) and Fico 98 (EX). 

[sarge12]

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@Anonymous wrote:

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@myscorerocks wrote:

I couldn't agree more. It is a scam. I've paid down balances in the past only to have my limit reduced, which then in turn raises my utilization and lowers my score.

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If you've paid down your balances and have seen CLDs to go along with them, it means that your lenders aren't comfortable with your profile and are handing over AA as a result.  The question here is to ask yourself why that's the case?  Something profile-related (late payments, high utilization, etc) caused them to balance-chase you.  They didn't do it for no reason, so it's important to try and determine what that reason was.  As much as you may not want to hear it, the "truth" here is that it was something you did (not them) that initiated the AA.

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I agree with most of that, but it might also be because you always PIF and the lender has not gotten a cent in interest from you. I always PIF, and even my credit union had cancelled my checking line of credit due to me never having used it. They did reinstate it when I complained. I also never get CLI consideration on my cards. I think I read somewhere that with revolving lines of credit, a lender must have a certain percentage of liquid assets based on the total credit limits of all their customers. If that is the case, AA might be taken to lower your credit limits so they can extend that credit to a revolver that will be more profitable for the lender. It is important to remember that credit limits are usually set based on what will be best for the lender, and it is not a right. I do have a few cards that I never use at all, they are basically SD'd. Eventually the issuers will likely cancel those cards, which may be considered AA. I am somewhat surprised it has not happened already. Sometimes a credit card issuer will be directed to reduce the issuers overall exposure. If that happens, they may find it easier to do a CLD on a customer that has never even used 10% of their existing credit line with them. AA is not always due to something the card holders have done, but usually it is unless the economy starts getting bad enough to make the issuers nervous about their current exposure to potential debt. On those occasions a large percentage of card holders might get CLD's until the issuers potential exposure is reduced to a level they are comfortable with.

[ruhul]

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@ruhul wrote:

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FICO 8 Scores as of 2/10/2019

EQ: 711

TU: 708

EX: 708

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Reporting back the outcome of my AZEO venture:

- With AZEO,  My FICO 8 went up by 70 points. Mortgage score was up by 60 points.

- My middle mortgage score (762) + 30% equity helped me to get 3.75%  30 yr fixed rate with no points.

Thanks for great discussion here. I learned a lot. Now that my refinence is behind me, I will watch out my credit card usage but not AZEO for sure.

[Anonymous]

Sarge, you and I are speaking of two different types of AA.  I'm referring to balance-chasing, you're referring to a CLD.  CLDs can happen for the reasons you stated in your post; lenders like Amex have been doing this lately. A CLD typically though is a one-time thing and doesn't have to be because of a weakened profile (it can be from limited or non-use, for example).  Balance-chasing is completely different, as it's multiple CLDs and usually because of a weakened profile.

[Anonymous]

Maven,

Thanks for your remarks on risk.

Most folks don't know the original purpose of FICO: to help lenders use documented payment behavior to make lending decisions. 

FICO scores infer one's probability of repaying a loan or line; FICO scores do not consider one's capacity to repay.

Your remarks on repayment risk ($5K in the liquid assets in a bank vs $250K) are spot on. 

Underwriters use FICO to assess one's prior repayment behavior, and use repayment capacity to set credit limits.

[Anonymous]

I would imagine that they also look at either current CLs with other Lenders, or highest balance reported. I have 100% paymet record going back 6 years, yet it hasn't resulted in approvals of $20+ SLs. My average SL is about $10K, which is what my highest ever balance is on two of my cards.