What is REALLY included in Debt to Credit Ratio in the FICO score??

[Anonymous]

So, I'm a student who has a good chunk of student loans, and counting (I attend a private college)--and I'm trying to figure out what is really included in my debt to credit ratio for the purpose of my credit score.

I have heard that

1.  Student loans ARE included (even if deffered like mine) in the scoring model 

AND on the other side 

2.  Only revolving debt is included in the score (NOT student loans)

so, what is it?  And, would getting a merchandise card with a revolving credit line of $5K help my score?  Again, I heard mixed stuff.

Thanks!!

[haulingthescoreup]

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kt_scarlett007 wrote:

So, I'm a student who has a good chunk of student loans, and counting (I attend a private college)--and I'm trying to figure out what is really included in my debt to credit ratio for the purpose of my credit score.

I have heard that

1.  Student loans ARE included (even if deffered like mine) in the scoring model 

AND on the other side 

2.  Only revolving debt is included in the score (NOT student loans)

so, what is it?  And, would getting a merchandise card with a revolving credit line of $5K help my score?  Again, I heard mixed stuff.

Thanks!!

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Unless there is something amazingly peculiar about your SL's, they are figured separately into installment util. This has a very small effect on your scores, and it generally doesn't even show up on your reports.

It's revolving ( = CC's and lines of credit below somewhere around $30K) that figure into the util number that influences your scores so heavily.

If you have no open CC's, getting a card would definitely help your scores. Since revolving credit is riskier than installment credit, your history with it carries a lot more weight in your scores.

From what I have seen, you can get up to three CC's before you start getting a dip on your scores, and that would make sense, as the FICO scoring formula favors having this number of cards. By "merchandise", are you referring to a store card, one that does not have a Visa, MC, etc logo on the card? It seems that it does help to have one (just one) gas or retail card without the Visa, MC, etc logo, in addition to bank cards. But the logic is hard to see, and the debate rages continually.

[RobertEG]

I agree.  Installment loans are considered in FICO scoring, but at a very low level.

%util of revolving debt is much more significant, and can hurt a lot if high, and can help a lot if low, particularly if you have longer payment history shown on revolving debt.

As for your SLs, the must significant thing is to never pay late, and then disregard them in scoring. 

Being a student, I would speculate that you are not currently looking for the grant of major new credit at this time, such as a mortgage, so short-term FICO score is not that important.  This is the ideal time to establish revolving credit, build up your CL and payment history there, and start building upon your AAoA.

I dont thing focus on the affect of %util of installment loans is where your effort should be.