Windfall payments

[moijea]

If I make a windfall payment, but then keep my UT low, how does FICO, or creditors know that it was a windfall payment?

 

I have just seen some comments regarding that windfall payments won't help scores, but as long as the UT stays low, does it matter?

 

I don't get it.

[Pavlov]

A lot of the hype comes from people's perception that a large payment to a revolving account will result in a large jump in FICO scores. The word is that it does not work that way very often, but expectations remain.

 

So a lot depends on precisely what you mean by " low utilization ". It is tough to make a lrge payment to a single CC without going below one of the FICO utilization thresholds like 30%, 50%, or 70%. So how oulw one make alarge payment and still not effect the percent utilization in a significant way?

[hoapres]

If I make a windfall payment, but then keep my UT low, how does FICO, or creditors know that it was a windfall payment?

 

 

Old Experian report would actually give one a 24 month payment record.

 

For example, if you had a $10,000 credit card balance paying at $2,000 a month. For simplicity, assume 0% interest and no new charges.

 

Then

 

The old experian reports would have

 

Month 1 - $10,000 Month 2 - $8,000 Month 3 - $6,000 Month 4 - $4,000 Month 5 - $2,000 Month 6 - $0

 

in a separate section on your CR

 

So the information presumably is available to Fair Isaac

 

 

 

I have just seen some comments regarding that windfall payments won't help scores, but as long as the UT stays low, does it matter?

 

 

My theory which I will be the first to admit could be wrong is that Fair Isaac only uses your current utilization and ignores the rate of payment.

 

For the mathematical types, consider this to be similar to a Brownian process with the past utilization being irrelevant or possibly a Markov process with only the last utilization point being a factor.

 

 

 

 

 

I don't get it.

 

 

Hope this helps

 

[direred]

Payments are reported, as are balances. If you think about it, it's really not too hard to figure out.

 

Say you've got a $2500 card and you're at $2400.

 

You pay $100 a month for 12 months, then pay $1000, then keep your balance at the $200ish level. They can tell from the payment history that $1000 isn't typical, y'know?

 

And the reason it doesn't count as much: because there's no change in payment *habits*, therefore there's risk that you'll run it back up and go back to your old payment habits.

[moijea]

Exactly, but I have read here before, even on some topic tonight, that windfall payments are not the best route to go, rather pay down over a period of time, cuz paying down w/windfall won't help your FICO?

 

Except if it is a fairly new TL and you are trying to establish a history with the creditor, it seems that in all other cases, paying down, whether by windfall OR over time would garner an increase in FICO

 

I just don't see the difference---Am I missing something?

 

I am wondering because I have a windfall coming and was going to pay everything down.

[hoapres]

A lot of the hype comes from people's perception that a large payment to a revolving account will result in a large jump in FICO scores. The word is that it does not work that way very often, but expectations remain.

 

 

Any attempt to reverse engineer the Fico model has the problem that few data points exist. A true reverse engineeing would probably require a fairly sophisticated design of experiments to attempt to isolate the variables.

 

Anyone, although I have a "gut feeling" of the Fico model, claiming that they can make any accurate prediction of future Fico scores based on your actions should be taken skeptically.

 

However, with regards to utilization, I probably have the best "test base" being that I only have one open credit card and have played with the utilization.

 

For the math types, with experience with Taguichi design of experiments, I only have one variable being the utilization of one open CR.

 

Again, I claim no claim of an accurate predictor on the utilization, but I suspect that Fair Isaac does a snapshot and your utilization at the moment the score is generated is the only factor and the historical payment record has no effect on your score.

 

Again, I will be the first to admit that I could be wrong.

 

 

 

So a lot depends on precisely what you mean by " low utilization ". It is tough to make a lrge payment to a single CC without going below one of the FICO utilization thresholds like 30%, 50%, or 70%. So how oulw one make alarge payment and still not effect the percent utilization in a significant way?

 

 

I went from 670 with 98% utilization to 807 with 0% utilization. Only 1 credit card with no derogs.

 

[direred]

What you want to do is establish a payment pattern. A windfall can be the beginning of a new payment pattern, in which case it'll help your FICO more later, but not necessarily as much as you think right off the bat.

 

There's nothing wrong with paying off cards in full, and it's good to do that. It's just that a lot of people expect a huge FICO boost from going from high util to low in one swoop, and, well, it's not that simple.

[moijea]

If I make a windfall payment, but then keep my UT low, how does FICO, or creditors know that it was a windfall payment?

 

 

Old Experian report would actually give one a 24 month payment record.

 

For example, if you had a $10,000 credit card balance paying at $2,000 a month. For simplicity, assume 0% interest and no new charges.

 

Then

 

The old experian reports would have

 

Month 1 - $10,000 Month 2 - $8,000 Month 3 - $6,000 Month 4 - $4,000 Month 5 - $2,000 Month 6 - $0

 

in a separate section on your CR

 

So the information presumably is available to Fair Isaac

 

 

 

I have just seen some comments regarding that windfall payments won't help scores, but as long as the UT stays low, does it matter?

 

 

My theory which I will be the first to admit could be wrong is that Fair Isaac only uses your current utilization and ignores the rate of payment.

 

For the mathematical types, consider this to be similar to a Brownian process with the past utilization being irrelevant or possibly a Markov process with only the last utilization point being a factor.

 

 

 

 

 

I don't get it.

 

 

Hope this helps

 

 

 

 

Okay that makes sense, so even if FICO doesn't use it, if a creditor pulls the report, they may see that a specific windfall payment has been made.

 

But, I would think that would be a problem ONLY if you charged everything back up again, right?

[moijea]

Payments are reported, as are balances. If you think about it, it's really not too hard to figure out.

 

Say you've got a $2500 card and you're at $2400.

 

You pay $100 a month for 12 months, then pay $1000, then keep your balance at the $200ish level. They can tell from the payment history that $1000 isn't typical, y'know?

 

And the reason it doesn't count as much: because there's no change in payment *habits*, therefore there's risk that you'll run it back up and go back to your old payment habits.

 

 

Okay, I did not realize that payment patterns were available on the CR, that would be the creditors version of the CR right, or now that I think about it, I may have seen that info on one of my CR from one of the CRA, I will check on that.

 

I just couldn't figure out how it mattered if there was not payment history viewable.

 

Thanks for the clarification.

Edited January 3, 2006 by moijea

[hoapres]

Your payment history is available to your current creditor. In my crude attempts to reverse engineer the model doing wide variation of utilization from 98% to 0% on a recurring basis is likely to raise eyebrows with the credit evaluation department whose concerns presumably are put on the back burner when one has substantially more on deposit with the credit grantor than the credit limit.

[moijea]

Actually, since most of the accounts are fairly new, I was thinking of paying them down to say, 30%, so my utilization goes way down, but I am still keeping the accounts active--

 

My intention is to get a reasonable FICO boost, but pay down enough while keeping a small enough balance on the cards to qualify for CLIs ----

 

Does that strategy make sense, I was thinking that would keep all my bases covered????

 

[moijea]

Your payment history is available to your current creditor. In my crude attempts to reverse engineer the model doing wide variation of utilization from 98% to 0% on a recurring basis is likely to raise eyebrows with the credit evaluation department whose concerns presumably are put on the back burner when one has substantially more on deposit with the credit grantor than the credit limit.

 

 

 

HUH????

[moijea]

Your payment history is available to your current creditor. In my crude attempts to reverse engineer the model doing wide variation of utilization from 98% to 0% on a recurring basis is likely to raise eyebrows with the credit evaluation department whose concerns presumably are put on the back burner when one has substantially more on deposit with the credit grantor than the credit limit.

 

 

 

HUH????

 

 

 

 

HOAPRES.....OKAY I SEE... I JUST READ THE POST ABOVE.....VERY INTERESTING.......

[hoapres]

Actually, since most of the accounts are fairly new, I was thinking of paying them down to say, 30%, so my utilization goes way down, but I am still keeping the accounts active--

 

 

One needs to define the objective. Assuming that your objective is to increase your fico score, then the longer the accounts are open the better. Or perhaps crudely put "time heals all wounds".

 

 

 

My intention is to get a reasonable FICO boost, but pay down enough while keeping a small enough balance on the cards to qualify for CLIs ----

 

 

Again, defining the objective is the key. The fico score is quite likely not the sole factor in CLI's.

 

While admittely an extreme example, I know of one case of one having credit problems depositing a six figure check at a financial institution and you can be sure that ANY score model went out the window with regards to getting a credit card with a high limit.

 

Responsible use of credit cards over a period of time will get you the credit limits that you wish. One tactic that you should consider if you truly need a high credit limit due to travel, etc. is to make a substantial payment in advance and in the event that the credit card company calls you then you can make the argument -(if true)- "I have to make a long trip, my credit is clean, and I don't want any problems -(overseas trip may work best)-so I decided to pay in advance all the expected charges"

 

If your CR is clean and even though you may have a limited credit history then you can expect future CLI.

 

 

 

 

Does that strategy make sense, I was thinking that would keep all my bases covered????

 

 

Again, DEFINE your objective.

 

1. You want credit cards with decent CL

 

or

 

2. A high fico score

 

While a correlation exists, i.e. 2 will help in 1, it is not the only factor.

 

 

 

[moijea]

Thank you sir, you insights have been invaluable!

[hoapres]

Perhaps somewhat but I believe Fair Isaac oversells their scores.

 

While I can see one getting the scores if one has a serious interest in trying to figure out how the basis of the Fico model, with that presumably rare exception, then I believe that one should concentrate on attacking the credit report then worrying about the Fico score of the moment.

 

George said it best "Fico does not pay the bills".

 

With regards to auto financing, MarvBear will probably support the statement "That the fico score is not the sole factor in getting an auto loan"

 

One needs to define one's objective or perhaps crudely put "don't put the cart in front of the horse". While Fair Isaac will push fico scores, if you look at Fair Isaac's statements then one is led to the conclusion that in the long run one should concentrate on establishing good credit report -(concentrating on your credit report and/or establishing satisfactorly handled accounts over a long period of time) - than having a perhaps -(the wrong word and with no negative connotations implied) -paranoid concern about your CURRENT fico score.

[GEORGE]

MY BALANCE...

 

01/05 $5,000

02/05 $4,000

03/05 $3,000

04/05 $2,000

05/05 $1,000

 

I PAID OFF $1,000 EVERY MONTH...RIGHT???

 

NO I SPENT $10,000 AND PAID $11,000

 

F.I.C.O. KNOWS THIS HOW???

 

...AND WHY IS IT BETTER TO PAY OFF $1,000 PER MONTH THAN $5,000 AND BE DONE WITH IT???

[GEORGE]

Perhaps somewhat but I believe Fair Isaac oversells their scores.

 

While I can see one getting the scores if one has a serious interest in trying to figure out how the basis of the Fico model, with that presumably rare exception, then I believe that one should concentrate on attacking the credit report then worrying about the Fico score of the moment.

 

George said it best "Fico does not pay the bills".

 

With regards to auto financing, MarvBear will probably support the statement "That the fico score is not the sole factor in getting an auto loan"

 

One needs to define one's objective or perhaps crudely put "don't put the cart in front of the horse". While Fair Isaac will push fico scores, if you look at Fair Isaac's statements then one is led to the conclusion that in the long run one should concentrate on establishing good credit report -(concentrating on your credit report and/or establishing satisfactorly handled accounts over a long period of time) - than having a perhaps -(the wrong word and with no negative connotations implied) -paranoid concern about your CURRENT fico score.

PAY DOWN YOUR DEBT

PAY ON TIME EVERY TIME

SHOOT FOR 100% PERFECT CREDIT REPORTS

100% ACCURATE IS NOT EASY

[direred]

George said it best "Fico does not pay the bills".

 

FICO does make the bills easier to pay, which is important to keep in mind.

[moijea]

Yup, been working on the CR all along the way, made lots of progress.

 

I guess considering where I was two years ago, having the "horrible" decision/choice of how much to pay on my CC is a good problem, NO?

[hoapres]

MY BALANCE...

 

01/05 $5,000

02/05 $4,000

03/05 $3,000

04/05 $2,000

05/05 $1,000

 

I PAID OFF $1,000 EVERY MONTH...RIGHT???

 

NO I SPENT $10,000 AND PAID $11,000

 

F.I.C.O. KNOWS THIS HOW???

 

 

One of my favorite phrases is "that the document speaks for itself".

 

I usually order credit report by mail. My old experian reports give a 24 month balance payment history on my credit card.

 

If I have that information then I assume that Fair Isaac also has access to my past payment history.

 

 

 

...AND WHY IS IT BETTER TO PAY OFF $1,000 PER MONTH THAN $5,000 AND BE DONE WITH IT???

 

 

If you accept my above statement as an offer of proof - (that my old CR's have a payment history presumably being available to Fair Isaac is accurate)- then I agree with you that no difference exists in paying off the balance in one payment versus paying over time.

 

My contention -(which could be wrong!)-is that Fair Isaac only looks at your CURRENT utilization to calculate the score.

 

[GEORGE]

George said it best "Fico does not pay the bills".

 

FICO does make the bills easier to pay, which is important to keep in mind.

MAX OUT A 0.00% BT or WORRY ABOUT WHAT F.I.C.O. THINKS

 

I'LL MAX OUT THE 0.00% BT

[moijea]

MY BALANCE...

 

01/05 $5,000

02/05 $4,000

03/05 $3,000

04/05 $2,000

05/05 $1,000

 

I PAID OFF $1,000 EVERY MONTH...RIGHT???

 

NO I SPENT $10,000 AND PAID $11,000

 

F.I.C.O. KNOWS THIS HOW???

 

 

One of my favorite phrases is "that the document speaks for itself".

 

I usually order credit report by mail. My old experian reports give a 24 month balance payment history on my credit card.

 

If I have that information then I assume that Fair Isaac also has access to my past payment history.

 

 

 

...AND WHY IS IT BETTER TO PAY OFF $1,000 PER MONTH THAN $5,000 AND BE DONE WITH IT???

 

 

If you accept my above statement as an offer of proof - (that my old CR's have a payment history presumably being available to Fair Isaac is accurate)- then I agree with you that no difference exists in paying off the balance in one payment versus paying over time.

 

My contention -(which could be wrong!)-is that Fair Isaac only looks at your CURRENT utilization to calculate the score.

 

 

 

So would a correct assumption be:

 

FICO has access, but ignores

 

BUT

 

Individual creditors have access, and MAY avail themselves of this information in making a credit decision if they deem necessary?

[hoapres]

Fair Isaac may have access to your prior payment history but with regards to utilization will ignore the past.

 

Be aware, that I am assuming a pristine CR with only one varialble being your current utilization.

 

Individual creditors can and do use other factors beside your fico score with regards to granting you credit.

[Edual]

My experian report shows balance history but I also agree that fico score is based on current utilization.

 

 

This is how my 4 month old cc shows for the past few months on experian

 

Balance History:

11/2005 $111

10/2005 $134

09/2005 $0