FICO scores -- debt usage ratings

[kathy884]

Just curious about your thoughts on FICO scores and in particular that rating that they give you related to debt usage (This accounts for about a third of your score I hear). I just out of curiosity got one of my score estimates for the first time. I realize there are several out there, but went with a freebie one from Credit.com which I believe is connected with Experian. // My score was a 786. Interestingly enough the one area pulling down my score was debt usage. Even though I always pay off credit cards every month I only had a C+ in this category as we use about 30% of available revolving credit every month when we get those freebie frequent flyer miles and charge purchases. I thought it was prudent to only have credit limits on credit cards up to what you think you would ever charge (especially after adding my very trustworthy college student to my main card - why not limit exposure just in case even though I don't think this would ever be a problem -- horror stories from other parents). My asking credit card companies to keep my credit limits lower, though, actually contributed to a lower FICO score (my debt usage to revolving credit was 30% as stated above, and to get the highest rating they like to see this under 10%).

Other debt FYIs -- We buy cars for cash, so never do auto loans and just have two more years left on our mortgage, and the payment is pretty low given that we purchased a nice, but relatively modest house back in 1989. We don't have any education loans or anything like that either -- are paying for that out of pocket. I also have no store credit cards.

In general, I would think a credit score is only a problem you would consciously try to improve if improving your score could get you a better interest rate. For example, I wouldn't do cash for more purchases and sacrifice the freebie frequent flyer miles just to improve the score. And I wouldn't go for the higher credit limits (have more cards that I want or higher limits than I want) just to improve the score either. All you savvy posters out there, I 'd be curious to hear your overall thoughts on this subject?

 

[rnorwo1]

The debt to credit ratio is extremely important. I have a lot of credit cards, too, for the travel rewards. I don't cap the credit limits, though, because they're irrelevant to us, so our ratio is very low. Having newer cards lowers your scores, too. We actually have a D in the new accounts category! You need high scores to get the best rates on insurance and things like that, but we paid our house off in 10 years and do not intend to move, so I'm not worried about having the max score. Ours is almost 800, also, so I'll keep getting the new cards and free travel. I don't know if there's a need to get it higher, other than bragging rights??

 

[Jen and Ashwin]

You will want more available credit so you can get your ratio lower and your score higher. Don't have the credit card company cap your limit, but rather allow them to automatically raise your spending limit. You could consider opening another credit card to increase your debt to credit ratio as well.

 

[MillauFr]

If you have a 786 I wouldn't worry about it.

 

[Gr8t Fan]

My score went down because of a lack of installment payment accounts when we paid off our mortgage. No matter that the lack of installment accounts was because the mortgage was gone. It went up a few months later, but I found the logic puzzling.

 

[StuckInKS]

Asking credit companies to keep your limits low does hurt your score if you are actually using your cards. $100 on a $500 card is going to hurt your score more than $1,000 on a $10,000 limit card because your utilization is larger on the smaller limit card. I honestly would not worry about what's "pulling down your score" unless you are looking at actual FICOs. I can tell you that for me ALL of the FAKOs (Credit Karma, Quizzle, Credit Sesame, and the ones from credit card companies) are 50-100 points LOWER then my actual FICOs. Your score could actually be much higher than you think. And I believe they always give some "factors affecting your score" even for 800+ scores, so as long as the score is in the top (750+ maybe?) I wouldn't worry about it.

 

[StuckInKS]

My score went down because of a lack of installment payment accounts when we paid off our mortgage. No matter that the lack of installment accounts was because the mortgage was gone. It went up a few months later, but I found the logic puzzling.

Same here. Never a mortgage or car loan, and my score is lower than others who have bankruptcies or collections on their reports because of it. FICO like to see a mix of credit to see that you can pay all types responsibly. I am puzzled that your mortgage fell off your credit report just because it was paid off. Usually positive accounts remain after being paid/closed, while negative account fall off after 7 years.

 

[Gr8t Fan]

Same here. Never a mortgage or car loan, and my score is lower than others who have bankruptcies or collections on their reports because of it. FICO like to see a mix of credit to see that you can pay all types responsibly. I am puzzled that your mortgage fell off your credit report just because it was paid off. Usually positive accounts remain after being paid/closed, while negative account fall off after 7 years.

Not that the mortgage fell off the report, but I was watching the score like a hawk expecting it to go up after we paid off the mortgage and it actually went down. My score was over 800, so I was just being a nerd hoping that it would go up after the mortgage payoff. I was shocked to see it go down.

 

[dreamit]

(especially after adding my very trustworthy college student to my main card - why not limit exposure just in case even though I don't think this would ever be a problem -- horror stories from other parents)

My credit card provides the ability to limit the amount available to "authorized users". You may want to see if you have that option.
I have been watching my credit scores like a hawk because we're looking at a new home purchase. The months my credit utilization is below 10% my score really goes up. Between 10% and 29% doesn't hurt my score and above 30% hurts my score quite a bit. I now make payments on my cards every time I use them, so on the day my card company reports to the bureaus, my utilization rate isn't a problem. I still haven't nailed down on which date they report.

 

[MrPTato]

My credit card provides the ability to limit the amount available to "authorized users". You may want to see if you have that option.
I have been watching my credit scores like a hawk because we're looking at a new home purchase. The months my credit utilization is below 10% my score really goes up. Between 10% and 29% doesn't hurt my score and above 30% hurts my score quite a bit. I now make payments on my cards every time I use them, so on the day my card company reports to the bureaus, my utilization rate isn't a problem. I still haven't nailed down on which date they report.

Most companies report what your statement balance is. US Bank uses end of month reporting and if a balance is on a Chase statement and you pay to 0, they will update your reports. Others will do mid cycle reporting if you request.

 

[tvguy]

Credit scores are a mystery to me. People talk about wanting to get their score up so they can get more credit, yet we are in an era where credit has been way way too easy to get and people end up with more credit that they can afford to pay back.
If credit has been soo easy to get, why are people working so hard to get more?

 

[SuzanneSLO]

Credit scores are a mystery to me. People talk about wanting to get their score up so they can get more credit, yet we are in an era where credit has been way way too easy to get and people end up with more credit that they can afford to pay back.
If credit has been soo easy to get, why are people working so hard to get more?

People who are looking to increase their credit scores are usually perfectly capable of using credit responsibly. -- Suzanne

 

[dreamit]

Credit scores are a mystery to me. People talk about wanting to get their score up so they can get more credit, yet we are in an era where credit has been way way too easy to get and people end up with more credit that they can afford to pay back.
If credit has been soo easy to get, why are people working so hard to get more?

In my case, I am trying to get the best interest rate possible on a new mortgage, which is why I'm paying such close attention to how quickly my score can move based on utilization. I'd barely utilize at all right now if I wasn't also trying to earn maximum award points on my card to use toward flights on my upcoming Disney trip.

 

[PACVII]

Over 750 is good. But Remember banks also look at other factors like risk level, number of trade lines, time in file and PND. Revolving and installment debt is also reviewed but not as much as a factor. Remember inquiries will also pull a score down.

 

[CalDisneyMomof2]

In my case, I am trying to get the best interest rate possible on a new mortgage, which is why I'm paying such close attention to how quickly my score can move based on utilization. I'd barely utilize at all right now if I wasn't also trying to earn maximum award points on my card to use toward flights on my upcoming Disney trip.

This is what I was going to say except we aren't trying to buy a new home right now. But I can't predict the future and if we'd need to buy again. When the market got hot about a year and a half ago we were actually thinking about selling but didnt have great credit to buy a another house. And I know tvguy hasn't bought a car in like 20 years and major props there but that's not typical. We typically finance a large portion when we purchase a car every 3-5 years. It makes a HUGE difference when our credit is in the 600s vs. high 700s. Our current interest rate is at .9% I believe vs 7% when we had bad credit.

 

[ktmo]

This is a running joke in our house. My DH has a better credit score than I do, yet he owes so much more than me. We both have excellent credit so it doesn't really matter in the grand scheme of things. For years, I didn't have any debt. Which doesn't do much for your credit score. The funny thing is that my credit score probably went up because I just financed a new car loan.

 

[tvguy]

This is what I was going to say except we aren't trying to buy a new home right now. But I can't predict the future and if we'd need to buy again. When the market got hot about a year and a half ago we were actually thinking about selling but didnt have great credit to buy a another house. And I know tvguy hasn't bought a car in like 20 years and major props there but that's not typical. We typically finance a large portion when we purchase a car every 3-5 years. It makes a HUGE difference when our credit is in the 600s vs. high 700s. Our current interest rate is at .9% I believe vs 7% when we had bad credit.

LOL, I admit I am cheap. But for the record, I did buy my daughter a car in 2008. And given than the average AMerican keeps at car 11.4 years, my commute car at 12 years old is about average, and my family car at almost 29 is above average.

 

[CalDisneyMomof2]

LOL, I admit I am cheap. But for the record, I did buy my daughter a car in 2008. And given than the average AMerican keeps at car 11.4 years, my commute car at 12 years old is about average, and my family car at almost 29 is above average.

I wasn't mocking you, tvguy. Honest. And that's interesting about the average American KEEPING a car 11.4 years but does that also mean they don't PURCHASE a car every 11.4 years? I know many people keep their cars that long but hand them down to family members or use as a spare. Most in my own family/friends circle purchase a new car every 3-5 years. That includes us. We always have two cars between us. So one new car between the both of us about every 3-5 years. Our kids are just 5 and 7. I'd imagine after our next purchases we will keep those cars for our kids.

 

[Colleen27]

This is a running joke in our house. My DH has a better credit score than I do, yet he owes so much more than me. We both have excellent credit so it doesn't really matter in the grand scheme of things. For years, I didn't have any debt. Which doesn't do much for your credit score. The funny thing is that my credit score probably went up because I just financed a new car loan.

That's how it worked for me - I owe way more than DH (about 8K in student loans vs his <1000 rewards card balance that we pay off monthly) and I have no income. But since I took out that first student loan last year to finish my degree, my score jumped up to significantly higher than his. He's got a record of paying on time every month for almost two years now, since we opened that account to work on his credit (before that we were all cash for long enough to hurt both of our scores). My loans haven't entered repayment and I don't use the credit card I have in my name except for the odd car rental or hotel when DH isn't traveling with me, so I have almost no repayment history. But I apparently have a more desirable balance of types of debt because I now have the better credit score.

None of this makes much sense to me and I don't see myself working to improve our scores once they get to a solid 700+. We're not house shopping so the difference between good & great isn't likely to make any difference in our lives.

 

[tvguy]

I wasn't mocking you, tvguy. Honest. And that's interesting about the average American KEEPING a car 11.4 years but does that also mean they don't PURCHASE a car every 11.4 years? I know many people keep their cars that long but hand them down to family members or use as a spare. Most in my own family/friends circle purchase a new car every 3-5 years. That includes us. We always have two cars between us. So one new car between the both of us about every 3-5 years. Our kids are just 5 and 7. I'd imagine after our next purchases we will keep those cars for our kids.

I have 6 cars, including the 1965 Mustang I bought in November.
I would figure with most couples having at least 2 cars, that would be just under every 5 years people buy a car.