FICO Math lesson

[Flyingifr]

When Sherman Acquisitions erroneously was put in my CB file, I lost 40 FICO points immediately. Sherman's trade line was removed today. In the interim, no new Inquiries or Credit lines, no delinquency, only some reduction of total debt due to payments. I got 14 of the 40 points back.

You go figure, you just can't win with FICO.

[calawyer]

I heard something recently about FICO scores that bears further investigation. Apparently (especially with open-ended credit), it can make a huge difference WHEN you get your credit report. For example, if you have several credit cards, and you pay them off each month, it is much better to get a report after your payment has been credited to your account. I would be interested if anyone could either affirm or refute this notion.

[Swede]

<blockquote>Originally posted by calawyer

I would be interested if anyone could either affirm or refute this notion.

</blockquote>

I will affirm this for you but only cause I like ya so much

The reason is because of utilization, when you pay down your balances, the more credit you have available -obviously Since utilization is such a big part of the score it'll change every time a new balance is recorded.

[calawyer]

That was the theory I heard also. Does it work in practice?

[Flyingifr]

<blockquote>Originally posted by Swede

<blockquote>Originally posted by calawyer

I would be interested if anyone could either affirm or refute this notion.

</blockquote>

I will affirm this for you but only cause I like ya so much

The reason is because of utilization, when you pay down your balances, the more credit you have available -obviously Since utilization is such a big part of the score it'll change every time a new balance is recorded.

</blockquote>

Let me see if I understand this: If you DON'T pay, FICO counts that as bad. If you DO pay down your balance, FICO treats that as bad also.

So just what does FICO want us to do????

[Swede]

<blockquote>Originally posted by calawyer

That was the theory I heard also. Does it work in practice?

</blockquote>

Absolutely. I do it every month and the day the new balance is reported on my report, the score changes, for the better if the balance is lower and vice versa.

<blockquote>Originally posted by Flyingifr

Let me see if I understand this: If you DON'T pay, FICO counts that as bad. If you DO pay down your balance, FICO treats that as bad also.

So just what does FICO want us to do????

</blockquote>

Not at all. Ok, lets say you have an open, good account with Sears. Every month, they report your ending balance. If you credit limit is $1000 and at the end of the month, your balance is $900. The way the score works is that it sees this as you using 90% of your available credit.

Now if you paid down your debt with Sears at the end of the month (you need to find out exactly WHEN they report to the CRA) so that your balance is instead $100, the score will look at it as you using 10% or your available credit.

Since credit utilization consists of 30% of your overall FICO score, your balance vs. available credit will GREATLY affect your score.

http://www.wellsfargo.com/credit_center/credit_status/understand/factors/

Factors That Affect Your Score

Many lenders use a FICO® score — a numeric calculation of your credit report calculated by Fair, Isaac and Company — to obtain a fast, objective measure of your credit risk. By understanding the factors that can help or hurt your score, you'll have a better understanding of how lenders view you as a credit risk — and how you can improve your score.

Here are the five factors that determine your FICO score. The levels of importance shown here are for the general population, and will be different for each individual:

1. Your payment history: what is your track record? (approximately 35% of your score)

The most significant impact on your score is whether you have paid past accounts in a timely manner (on or before the date the payment was due). However, an overall good credit profile can outweigh a few late payments, and late payments have less impact over time.

2. Amounts that you owe: how much is too much? (30%)

Part of the science of credit scoring is determining how much debt is too much:

In some cases, having a very small balance without missing payments shows you've managed credit responsibly, and may be slightly better than having no balance at all.

While you don't want to have too many accounts open, it's good to have more than one, so that you're not using too much of one account's available credit limit.

Owing a lot of money on numerous accounts suggests to lenders that you may be overextended and more likely to make late payments — or make no payments at all.

3. Length of your credit history: how established is it? (15%)

In general, a more seasoned credit history will increase your FICO score. Lenders want to see that you can responsibly manage your credit accounts over time. However, even those people who have not used credit for an extended period of time may get high scores, depending on how the other information in their credit report appears.

4. New credit: are you taking on more debt? (10%)

Opening several credit accounts in a short period of time can represent a greater risk, especially for those with newer credit histories. According to Fair, Isaac and Company, FICO scores try to distinguish between an attempt to obtain many new credit accounts and an attempt to obtain the best interest rate. FICO scores generally do not associate higher risk with shopping for the best interest rate.

5. Types of credit in use: is it a "healthy" mix? (10%)

Your FICO score will reflect your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans, etc. While a healthy mix will improve your score, it's not necessary to have one of each, and it's not a good idea to open accounts you don't intend to use.

What does not affect your score

Lenders look at many things when making a credit decision, including your income, employment history, and the kind of credit you're requesting. But none of those factors are included in your FICO score. And neither the lender nor your score considers your race, religion, sex, marital status, age, or if you receive public assistance.

FICO scores also ignore self-inquiries, so checking your own credit report will not lower your credit score. In fact, it's a good idea to check your credit report once a year to make sure there are no mistakes.

[Edit by Swede on Wednesday, March 12, 2003 @ 01:27 PM]

[calawyer]

No. I heard that your score will INCREASE right after the balance is paid off. If you are one of those people who have multiple cards and do try to pay down your balance monthly, it could make a big difference.

[Swede]

<blockquote>Originally posted by calawyer

No. I heard that your score will INCREASE right after the balance is paid off. If you are one of those people who have multiple cards and do try to pay down your balance monthly, it could make a big difference.

</blockquote>

Uhm, isn't that what I just said? If not, that's what I meant. If my balance is LOWER on the reporting day, the score increases. If the balance is HIGHER, the score will be lower. Higher than the prior reporting period that is.

[calawyer]

But of course, Swede. Haven't known you to be wrong yet. Seems we were responding to Flyingifr at the same time and my screen didn't refresh.

[gnosis]

great info and warm fuzzies...it don't get no bettah

[Swede]

<blockquote>Originally posted by calawyer

But of course, Swede. Haven't known you to be wrong yet. Seems we were responding to Flyingifr at the same time and my screen didn't refresh.

</blockquote>

LOL, I thought your response was to me- duh!! :notsure:

[Flyingifr]

<blockquote>Originally posted by kenrb01

I checked my CR this morning through Privacy Guard and noticed the score went up 1 point from yesterday, and payment was posted on credit card. The strange thing is, I also have 2 new collection accounts and 1 inquiry for old charge off courtesy of Providian/Asset Acceptance. I guess 2 collections + 1 inquiry = 1 payment!

</blockquote>

Your math is off. In my case it was

1 CB File

-20 old derogs

+1 new derog

-that same new derog

-2 payments on all accounts

= -26 FICO points.

[Anonymous]

I went through a similiar situation. An error was on my account

which had resulted in a 40 point drop. After its correction my FICO

went up only 1 point. I contacted the CRA regarding the matter. Although,

they are "not responsible" for the FICO scoring system, the customer

service agent told me that it takes about 2-3 weeks for the credit

scores to "right" themselves after a correction.

I think this is a very abusive system--FICO can put out a score which

could cause you financial harm in a instant, yet it takes a minimum of

two weeks for the scores to "right" themselves after a correction.

During these great times of low interest rates--I think this needs to be

corrected by the industry or if not then thru legislation; or better yet

thru the initiative process--the public CAN make law if it wants.

End of soap box speech.