Author Topic: Some FICO Myths  (Read 12302 times)

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Flyingifr

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Some FICO Myths
« on: May 13, 2014 03:34:29 PM »
I am in a situation where I am Judgment proof and have no need for credit. I have a ton of old credit card debts and a mortgage. When the economy went south in 2008 I had good credit. Since then I have done nothing to "repair" it. For purposes of this thread, all Credit Scores are from Credit Karma. In April 2010 my Score was 753. In May I stopped paying all debts except the mortgage. By September 2010 my score had dropped to 598. It has held there +/- 10 points since. Now... keep in mind this is purely an academic exercise - I neither need nor want credit in the future so I figured I would test some common Credit Scoring beliefs to see if they held true.

Myth #1: Time heals all credit wounds. If that were the case, as my baddies aged my score would have increased. It has held in the 600+/-10 points for over 4 years so time by itself does nothing.

Myth #2: On time payments on installment loans help your credit score. The mortgage has been continuously paid on time - never a late payment, ever. The balance has continually gone down each month by $400 or so. If this myth were true, my score would have increased over the 4 years it hovered. It has held in the 600+/-10 points for over 4 years so decreasing balances on installment loans by itself does nothing.

Myth #3: A CA or JDB  TL by itself will drop your score. All my OC's promptly reported the delinquencies, causing the 150+/- point drop in 4 months (June to September 2010). JDB's purchased the accounts in July 2011 and December 2013 and promptly reported to the CRA. In those months my score deviated by 0 and -2 points respectively. Therefore, once the OC reports the delinquency, the damage is done and a CA or JDB entering the picture will not add further damage.

Myth #4: Dropping Inquiries helps my score. The final 2 inquiries left my CRA file in January 2014. In that month my score deviated from the prior month by 0 points.

I will report more in the future as I test the system in different ways.
BTW-the Flyingifr Method does work. (quoted from Hannah on Infinite Credit, September 19, 2006)

I think of a telephone as a Debt Collector's crowbar. With such a device it is possible to pry one's mouth open wide enough to allow the insertion of a foot or two.

Debtors Exams are the perfect place for us Senior Citizens to show off our recently acquired Alzheimers.

Founder of the Credit Terrorist Training Camp (Debtorboards)

Clydesmom66

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Re: Some FICO Myths
« Reply #1 on: May 13, 2014 03:53:12 PM »
Myth #1: Time heals all credit wounds. If that were the case, as my baddies aged my score would have increased. It has held in the 600+/-10 points for over 4 years so time by itself does nothing.

I would not say myth as much as misunderstood fact.  Time DOES heal all credit wounds because eventually those TLs have to drop off.  What is not conveyed is how much time is needed for full recovery.  I can attest that when I was laid off in 2008 at the beginning of the recession I had the same issue but thanks to repair I went from a 535 to my current 688 in a couple of years.  I always say you do not get into debt over night and you won't fix it that way either.

Myth #2: On time payments on installment loans help your credit score. The mortgage has been continuously paid on time - never a late payment, ever. The balance has continually gone down each month by $400 or so. If this myth were true, my score would have increased over the 4 years it hovered. It has held in the 600+/-10 points for over 4 years so decreasing balances on installment loans by itself does nothing.

It does help but if there are too many other negatives not enough.  All it takes as you know is new JDBs reporting their trade line to tank your score or keep it low.

Myth #3: A CA or JDB  TL by itself will drop your score. All my OC's promptly reported the delinquencies, causing the 150+/- point drop in 4 months (June to September 2010). JDB's purchased the accounts in July 2011 and December 2013 and promptly reported to the CRA. In those months my score deviated by 0 and -2 points respectively. Therefore, once the OC reports the delinquency, the damage is done and a CA or JDB entering the picture will not add further damage.

I think this USED to be the myth.  Now it is widely understood that the most damage is the initial late payments and the longer that situation drags on to charge offs and JDBs the worse it simply gets.  A JDB or CA entering the picture CAN do that kind of damage when you have been diligently paying and they suddenly appear.  I can attest to that as well.  For the past 2+ years I have been obsessively paying on time and managing credit limits and got to a score of around 650.  Then a new CA popped up with no warning and tanked the score almost 75 points.  They deleted in 3 days but it took almost 6 months to fully recover and be moving up in numbers again.

Myth #4: Dropping Inquiries helps my score. The final 2 inquiries left my CRA file in January 2014. In that month my score deviated from the prior month by 0 points.

This IS a myth.  However, too many recent inquiries will ding your score.  The key is not to robo-apply for a lot of credit at one time to avoid this problem. 

The better solution is if you manage your debt you won't need to worry about your credit score.
Be VERY careful following advice from the internet! What worked for someone with thousands of posts on a message board may not work for YOU in your state.  Consult a lawyer when ever possible.

fisthardcheese

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Re: Some FICO Myths
« Reply #2 on: May 13, 2014 04:12:18 PM »
These are good tests, however, I am wondering if there would be a variation in each test if your available credit/used credit ratio were not in the negative the entire time?

For instance, I had about an 80% usage rate on my available credit for the longest time, and when a CA or JDB added a TL it did drop my score around 10-20 pts each because it was adding the amount owed into my "used credit" amount making my available credit to used credit ratio 100% or more.

I agree that the on time payments themselves do nothing to drive up your score, but if you were paying on a revolving credit line, your available credit would increase over that time which I do believe would raise the score some.  Additionally, even if making on-time payments does not increase your score, missing one will drop your score. So at the very least you are preventing it from driving down by keeping an on-time history.

I like your research on it so far.  I think more variables need to be tested to get a more complete picture.
11 Arb Settlements (9 AAA, 2 JAMS)
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Flyingifr

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Re: Some FICO Myths
« Reply #3 on: May 13, 2014 04:58:37 PM »
These are good tests, however, I am wondering if there would be a variation in each test if your available credit/used credit ratio were not in the negative the entire time?

For instance, I had about an 80% usage rate on my available credit for the longest time, and when a CA or JDB added a TL it did drop my score around 10-20 pts each because it was adding the amount owed into my "used credit" amount making my available credit to used credit ratio 100% or more.

I agree that the on time payments themselves do nothing to drive up your score, but if you were paying on a revolving credit line, your available credit would increase over that time which I do believe would raise the score some.  Additionally, even if making on-time payments does not increase your score, missing one will drop your score. So at the very least you are preventing it from driving down by keeping an on-time history.

I like your research on it so far.  I think more variables need to be tested to get a more complete picture.

The first rule of research is to limit the variables, so by doing nothing and letting time pass I am using time as the sole variable. Later I will test the effects of new credit lines and how its usage changes FICO.
BTW-the Flyingifr Method does work. (quoted from Hannah on Infinite Credit, September 19, 2006)

I think of a telephone as a Debt Collector's crowbar. With such a device it is possible to pry one's mouth open wide enough to allow the insertion of a foot or two.

Debtors Exams are the perfect place for us Senior Citizens to show off our recently acquired Alzheimers.

Founder of the Credit Terrorist Training Camp (Debtorboards)

excelsior

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Re: Some FICO Myths
« Reply #4 on: May 13, 2014 05:30:28 PM »
Credit Karma is close to FICO but not exact.  In some cases I've seen it within 10 points of real FICO; in others it has been off by 90 points from real FICO.  My comments below
Myth #1: Time heals all credit wounds. If that were the case, as my baddies aged my score would have increased. It has held in the 600+/-10 points for over 4 years so time by itself does nothing.
Time heals all wounds at the 24 month mark if the account is paid/showing $0 balance.  If there is a balance showing on the account, there may be a slight improvement in score at the 25 month mark, but that may be offset by other factors in the credit file.  Incidentally, FICO scores don't catch debts under $100, so those won't impact a score.
Myth #2: On time payments on installment loans help your credit score. The mortgage has been continuously paid on time - never a late payment, ever. The balance has continually gone down each month by $400 or so. If this myth were true, my score would have increased over the 4 years it hovered. It has held in the 600+/-10 points for over 4 years so decreasing balances on installment loans by itself does nothing.
FICO gives points to average account age.  FICO high score achievers (those in the top 5% of the US) have an average account age of 11.2 years.  As long as the average age of accounts is getting close to that number, it will help FICO.  There is also a positive effect for a "mix" of credit, e.g. installment loans/mortgages/auto and credit.  FICO believes this shows a consumer who is capable of handling a variety of credit scenarios.  But, on its face, paying a mortgage on time won't do much for FICO.  If there is a car loan, credit card, and average age of accounts at 11 years, well then it looks great.
Myth #3: A CA or JDB  TL by itself will drop your score. All my OC's promptly reported the delinquencies, causing the 150+/- point drop in 4 months (June to September 2010). JDB's purchased the accounts in July 2011 and December 2013 and promptly reported to the CRA. In those months my score deviated by 0 and -2 points respectively. Therefore, once the OC reports the delinquency, the damage is done and a CA or JDB entering the picture will not add further damage.
This is generally true, but it needs to be balanced against the rest of the credit file.  If the OC stops reporting or if the OC doesn't report an account as "collections," and then the JDB shows up....it will decrease the FICO score.  There is a diminishing effect on FICO after 2 or 3 collections are in the file.  Getting the 5th or 6th doesn't hurt much at all.  The corollary is true for credit repair:  the first few collections removed won't have a huge impact, but as a consumer climbs to fewer collection accounts each removal has a greater impact. 
Myth #4: Dropping Inquiries helps my score. The final 2 inquiries left my CRA file in January 2014. In that month my score deviated from the prior month by 0 points.
Inquiries weigh about 5-10% of the score.  If there is already a lot of negatives there, inquiries matter less.  The average FICO high score achiever has 2 or less inquiries annually.  FICO only measures inquiries for the last year; Credit Karma measures inquiries for the last 2 years.  If the credit file is otherwise "good" and a consumer has 3 inquiries in a year, there will be a negative effect on FICO (excluding the 14 day window for mortgage/auto loan shopping).

In my experience, the single biggest determinant of FICO score was utilization.  If a consumer can set utilization at 7 percent exactly, there is a HUGE positive boost.  Credit Karma didn't catch that, but FICO sure did.

Mech85

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Re: Some FICO Myths
« Reply #5 on: May 13, 2014 07:19:55 PM »
I will affirm the utilization scenario. In preparation for making a big purchase, I took my FICO from 740 to over 800 in a month's time (call it gaming the system I guess?). Quick history and background:

4 revolving accounts, avg age ~9 years, no lates, no derogatory stuff, I was at about 45% utilization. Moved some of my balance to an account that doesn't report, and borrowed some cash from a friend for others (who has since been paid back, needed it quick since my purchase was coming up and needed the score to increase quickly) and brought my overall total utilization to ~3%.

The kicker on this is how you come to that utilization. Three of my revolving accounts were brought to a zero balance, and the entire utilization was on one card. I kept 9% of that specific account's limit on the card, which equated to 3% total across the board. For some reason, splitting the utilization across multiple cards didn't raise it as much as only using it on one card and keeping that specific card at 6-9% of it's limit. Weird system but it worked. I let one month cycle so everything reported, and voila - overnight score jump.

Anyway, definitely not something that you want to keep going month-to-month because it's a pain to manage, and not using your accounts will eventually start to hurt you to some degree. But if you're looking for a big purchase where your FICO score is going to be a big (huge) factor in your rate or cost, then this does the trick. FICO has always been an interesting algorithm to play with.

gwheelock915

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Re: Some FICO Myths
« Reply #6 on: May 13, 2014 07:28:29 PM »
I am currently in foreclosure, defaulted on all of my credit cards, (except for a new cap 1 card with a $2,100 limit about 10% utilization) and I was recently able to get a USED car loan at 2.49%.

The key for me was to dispute all negative entries then immediately apply for credit. Worked like a charm.

In fact, my EX car buying score was 860/900. Figure THAT out.

Flyingifr

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Re: Some FICO Myths
« Reply #7 on: May 14, 2014 02:11:15 AM »
I would not say myth as much as misunderstood fact.  Time DOES heal all credit wounds because eventually those TLs have to drop off.  What is not conveyed is how much time is needed for full recovery.  I can attest that when I was laid off in 2008 at the beginning of the recession I had the same issue but thanks to repair I went from a 535 to my current 688 in a couple of years.  I always say you do not get into debt over night and you won't fix it that way either.

I'm not looking for a complete recovery but to not budge out of a 10 point range for 4 years belies the common wisdom. If the adage were true there would have been SOME upward movement.

Quote
It does help but if there are too many other negatives not enough.  All it takes as you know is new JDBs reporting their trade line to tank your score or keep it low.

Once again, everything else being equal, there should be some upward movement over 4 years. After all, as the accounts age the common wisdom is they have less and less effect. This common wisdom appears not to be true. Time is the only variable here - no new delinquencies, no new Trade Lines, no new inquiries in 4 years.

Quote
I think this USED to be the myth.  Now it is widely understood that the most damage is the initial late payments and the longer that situation drags on to charge offs and JDBs the worse it simply gets.  A JDB or CA entering the picture CAN do that kind of damage when you have been diligently paying and they suddenly appear.  I can attest to that as well.  For the past 2+ years I have been obsessively paying on time and managing credit limits and got to a score of around 650.  Then a new CA popped up with no warning and tanked the score almost 75 points.  They deleted in 3 days but it took almost 6 months to fully recover and be moving up in numbers again.

Once again, the difference between us is you have new things popping up. I don't. I also have experience with a new adverse TL appearing on my CRA, my FICO dropping precipitously immediately, the TL being deleted shortly thereafter but not getting back the FOICO points I lost. That is exactly the action that led to the birth of Debtorboards (read "Why the Flyingifr Method?" in the Flyingifr Method)

Quote
This IS a myth.  However, too many recent inquiries will ding your score.  The key is not to robo-apply for a lot of credit at one time to avoid this problem. 

We agree here.

Quote
The better solution is if you manage your debt you won't need to worry about your credit score.

We each have to walk in our own shoes.
BTW-the Flyingifr Method does work. (quoted from Hannah on Infinite Credit, September 19, 2006)

I think of a telephone as a Debt Collector's crowbar. With such a device it is possible to pry one's mouth open wide enough to allow the insertion of a foot or two.

Debtors Exams are the perfect place for us Senior Citizens to show off our recently acquired Alzheimers.

Founder of the Credit Terrorist Training Camp (Debtorboards)

Flyingifr

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Re: Some FICO Myths
« Reply #8 on: May 14, 2014 02:18:44 AM »
Credit Karma is close to FICO but not exact.  In some cases I've seen it within 10 points of real FICO; in others it has been off by 90 points from real FICO.

Whether Credit Karma is real FICO or FAKO to me is irrelevant - for control of variable purposes I am using it so I have a constant scale.

Quote
My comments belowTime heals all wounds at the 24 month mark if the account is paid/showing $0 balance.  If there is a balance showing on the account, there may be a slight improvement in score at the 25 month mark, but that may be offset by other factors in the credit file.

These accounts all have a balance and are well past the 24 month time frame with NO meaningful change in score. That is the result, so the common wisdom is disproven in this case.

Quote
Incidentally, FICO scores don't catch debts under $100, so those won't impact a score.

All accounts are well above $100.

Quote
FICO gives points to average account age.  FICO high score achievers (those in the top 5% of the US) have an average account age of 11.2 years.  As long as the average age of accounts is getting close to that number, it will help FICO.  There is also a positive effect for a "mix" of credit, e.g. installment loans/mortgages/auto and credit.  FICO believes this shows a consumer who is capable of handling a variety of credit scenarios.  But, on its face, paying a mortgage on time won't do much for FICO.  If there is a car loan, credit card, and average age of accounts at 11 years, well then it looks great.This is generally true, but it needs to be balanced against the rest of the credit file.  If the OC stops reporting or if the OC doesn't report an account as "collections," and then the JDB shows up....it will decrease the FICO score.  There is a diminishing effect on FICO after 2 or 3 collections are in the file.  Getting the 5th or 6th doesn't hurt much at all.  The corollary is true for credit repair:  the first few collections removed won't have a huge impact, but as a consumer climbs to fewer collection accounts each removal has a greater impact.  Inquiries weigh about 5-10% of the score.  If there is already a lot of negatives there, inquiries matter less.  The average FICO high score achiever has 2 or less inquiries annually.  FICO only measures inquiries for the last year; Credit Karma measures inquiries for the last 2 years.  If the credit file is otherwise "good" and a consumer has 3 inquiries in a year, there will be a negative effect on FICO (excluding the 14 day window for mortgage/auto loan shopping).

In my experience, the single biggest determinant of FICO score was utilization.  If a consumer can set utilization at 7 percent exactly, there is a HUGE positive boost.  Credit Karma didn't catch that, but FICO sure did.

My credit mix is what it is and it isn't going to change so it is a constant and not a variable. Once again, it's not the number of FICO/FAKO points I have, but over 4 years nothing has happened to indicate any activity on my CRA except for paying a single account on time and there has been NO movement in 4 years. The argument given by the credit and collection industry is that time alone will improve a credit score. In this case time is the ONLY variable and it has not.
BTW-the Flyingifr Method does work. (quoted from Hannah on Infinite Credit, September 19, 2006)

I think of a telephone as a Debt Collector's crowbar. With such a device it is possible to pry one's mouth open wide enough to allow the insertion of a foot or two.

Debtors Exams are the perfect place for us Senior Citizens to show off our recently acquired Alzheimers.

Founder of the Credit Terrorist Training Camp (Debtorboards)

AXXEL

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Re: Some FICO Myths
« Reply #9 on: May 14, 2014 03:25:22 AM »
I defaulted on 4 cc ($30k) in 2010 and quit my job due to disability, so I had zero income for 2 years. During this time, I kept up on a car payment and a mortgage. In 2012, my credit scores were 580-600 range. Also that year, upon receiving my ssdi, I settled all of my debt, including paying off the car loan, except for chase cc of $5k. My credit score has slowly increased, and this year has been 715, 700, 755 across all three. This despite the fact that chase is still reporting the $5k delinquent balance.

I was shocked to see my scores so high but in my case the mortgage has helped significantly to rebuild my credit.

credit_h

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Re: Some FICO Myths
« Reply #10 on: May 14, 2014 07:17:38 AM »
I have 8 defaulted credit cards of over 4 years. Score has been around 550 for 2 years already, never a change.

kevinmanheim

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Re: Some FICO Myths
« Reply #11 on: May 14, 2014 07:42:48 AM »
I have 8 defaulted credit cards of over 4 years. Score has been around 550 for 2 years already, never a change.
Have you established new credit since then?

New, on time payments will help.

TomNTex

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Re: Some FICO Myths
« Reply #12 on: May 14, 2014 10:29:46 AM »
In 2008, I had two CO of $30+ each, dropped me like an anchor. Got it back up in the 700's this year. Applied to my bank for a newer cc and they gave me one for $9000.00 at 19.99%. Told my wife we would never use them with that rate. Called them a few weeks ago and told them to cancel.

Friday, I made a phone application to one of our local credit unions, have yet to put money in the account and they called today and approved me for a $15K limit at 8.26% interest. Got to love those credit unions. This makes three that I belong two anf my interest rate with the other two run 7-8%. So much better than the banks. So, credit score does play a part of it, but those ontime payments make a big difference too.

CtrlAltDelete

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Re: Some FICO Myths
« Reply #13 on: May 14, 2014 11:24:16 AM »
Mech85 in post # 5 nailed the utilization, but didn't mention one important factor (but did it right anyway)
 
Utilization is an aggregate computation Only - adds all card limits and all card balances and then does the utilization % math.  And lower the better to Excelsior's 7% sweet spot.

In addition, there is weight given to the Number of accounts with balances - so zeroing out 3 of the 4 cards helped here too.  Put All remaining balance on a single card and cut the number of accounts with balances is the most effective change.
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silverzgirl

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Re: Some FICO Myths
« Reply #14 on: May 15, 2014 12:48:28 PM »
Have you established new credit since then?

New, on time payments will help.

This is what worked for me. I had several that I did not default on (they worked with me). I added a couple of new ones, paid off my car and bought a house.

I am now in the 700 club officially, but CK and CS have me in the 660-680 range. FICO has me in the low 600s because BoA is still reporting a balance two years after 1099Cs went on my taxes. The others zeroed them out when they saw the 1099.
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