Two accounts is too many?

[Anonymous]

Howdy. This is my first post here. I recently refinanced my mortgage. Afterward I checked my credit report at TransUnion and everything looked correct. Through BofA I was able to view my FICO score and saw that it had dropped from 823 to 784. The reasons given were:

1) Proportion of loan balances to loan amounts is too high

Okay; it's a brand-new loan and I get that it's 0% paid off.

2) Too many accounts with balances

Say what? I have precisely two credit balances: my refinanced mortgage and a lightly used (and always paid-off) credit card. No other open accounts, no other balances. How in the world can two accounts with balances be too many? That seems to set an astonishingly high bar, but I'm not an expert on this stuff. Any ideas why this flag was raised, and why the refinancing had such an impact on my score? Thanks!

[thornback]

If your refi and credit card are your only open accounts - and both have balances - then yes, you have 100% of accounts reporting a balance so it's too high by FICO standards. FICO prefers less than 30% of accounts with balances.  There's nothing you can do about it though - if you have your card report $0, you'll get hit with the 'no revolving credit usage' penalty and you'll still only be at 50% of accounts with a balance.  And, while I gather this was not in the cards for you anyway, if you were to pay your refi off, you'd get hit with the no active installment penalty and still be at 100% of accounts with a balance.

The refinancing had an impact because it was the addition of a new account and your aggregate loan utilization increased from whatever it was prior to refi to 100% utilization.  

Time for the new account to age to 1 year  and mortgage payments to slowly reduce your loan utilization are the only solutions. 

Welcome to the forums!

[Anonymous]

Naively, it never occurred to me that having additional accounts without balances (i.e. unused accounts) would be a positive factor in one's credit score. Perhaps if the wording of the flag gave an explanation the way you did I wouldn't have had such a reaction. I kinda get FICO's rationale, though it seems weird to the way I operate. Thank you muchly.

[thornback]

Yeah FICO sees everything through a risk lens and from a mathematical standpoint.  There is zero human nuance so whether it be 2 accounts or 20 accounts - 100% with a balance is high risk. 

The wording of the flags can be very confusing-- this forum dedicates a lot of time and energy to testing and the gathering of data points to make sense if them all.  

Anyway, glad I could help! 

[Anonymous]

Good information from thornback above.

I will add to the conversation that on some scoring models I see the same exact negative reason code as the OP regarding too many accounts with balances when I have just 2 non-zero balances reported (1 loan, 1 revolver) with a total of 8 accounts (1 loan, 7 revolvers) which of course means that code is possible at 25% of accounts with balances.  This year I plan on opening 2-3 new accounts, so I'll be able to get that number down to 18%-20% and will see if the code goes away.

[thornback]

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@Anonymous wrote:

Good information from thornback above.

I will add to the conversation that on some scoring models I see the same exact negative reason code as the OP regarding too many accounts with balances when I have just 2 non-zero balances reported (1 loan, 1 revolver) with a total of 8 accounts (1 loan, 7 revolvers) which of course means that code is possible at 25% of accounts with balances.  This year I plan on opening 2-3 new accounts, so I'll be able to get that number down to 18%-20% and will see if the code goes away.

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@Anonymous 

Am I correct in that we're seeing this on EX2 (so far)? 

[Anonymous]

Indeed there is a threshold below 25% on EX2. I believe we have confirmed one at 30%, but there are some lower.

[Anonymous]

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@thornback wrote:

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@Anonymous 

Am I correct in that we're seeing this on EX2 (so far)? 

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I don't recall the be honest.  I'm pretty bad at remembering my negative reason statements per model.  On March 1 I'm going to do another 28 score pull and will see what's there at that time.  On that date my AoORA hits 20 years which feels like somewhat of a milestone.