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The overlooked "number of accounts with balance" fico formula

Posted by TheChosenOne , 04 April 2009 · 301 views

Here is the blog entry in which I will disect the often overlooked formula that seems to weigh the most for the particular fico scorecard I'm currently on. I realize that some if not all the vets may already be aware of this part of the fico formula. This is more for the newer members.

Open Revolving accts/closed..............with balance.................result
35/8....................................................9/0......................-8 points
35/8....................................................8/0......................+8 points
36/9.....................................................10/0.....................-10 points
37/9..................................................12/0........................(no change)
38/9....................................................8/0.......................+10 points
38/9....................................................4/0.......................+11 points

These are the last score alerts from eq scorewatch. Here we can see that the score jumps and goes
back down by a fairly significant number of points when it hits a certain percentage of accounts with balances vs. open accounts (thats my theory, see 2nd paragraph below for other possibility). So when the 9th account that reported a balance put the percentage over 25% (25.7%), just like with utilization percentage, the score took a pretty decent hit (8 points). And when the number of accounts went back down to 8 (under 25% of open accts - 22.8% to be exact) the score jumped back up the same amount of points. So 25% seems to definitely be a benchmark in the formula. Note that I don't dare carry a balance on a closed account, so I can't tell the effects that would have. Hopefully if you have a balance on a closed accont, you pay it off quickly as it can really damage a credit score in more than one part of the fico formula.

The other possibility (or yet another part of the formula) would be total accounts period vs. ones with a balance. This theory would also fly, as when the 9th account out of 43 total put the percentage over 20% (20.9%). And when it went back down to 8, of course the percentage fell to below 20 (18.6%) and the score went back up. This also happened at the 10/45 ratio (22.2%).

My theory are that both are figured into this part of the fico formula, with active accts vs. ones with balances being the dominating factor. I will update this blog as time goes on to prove or disprove my theories. I will be paying my number of accounts with balances down to 3 total on my reports, keeping an eye on fico score movement along the way. I am expecting to see significant gains as the percentage passes 20%, 15%, 10% and maybe 5%. Stay tuned.

Update #1: Right before paying off a bunch of balances, I let a couple more report to see the point result, if any.. With 2 extra balances reporting and only 1 new account, there was no fico point movement, due to the ratio percentage still being over 25% (27.8%). However, we can see that IF total number (both closed and open) were taken into account, the 2 extra accounts reporting would put the ratio from 22% to over 25% (26.1%) reinforcing my theory that open accounts are the main factor in this part of the fico formula.

Update #2: A 38th account reports and balances paid down to 8, which brings the ratio down to below 25% (21.1%), and guess what happened? Yep, the exact same 10 points that were deducted a month ago are added back. The balances that zeroed out were all very small amounts (less than $100), further prooving that its not hitting on utilization at all, but the same ratio of accts w/ balance. The next test is the score reaction as the ratio falls under 20% in the next week.

Update #3: You can thank equifax for cancelling my scorewatch without my consent. For some reason they blocked my report access. After a lot of work, I was able to unblock it to start up a scorewatch with myfico.com, though I missed some marks (20% and 15%). Accounts with balances number lowered to 4 (10.5%) and my score increased 11 points. Not sure which milestone created the largest increase, but Im thinking 20%. Even though Equifax sabotaged this experiment, we can see that ratio of balances vs. total active accounts is a very powerful part of the fico formula.

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