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Is 3 really the magic number -- of cards for rebuilding?


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There appears to be largely unquestioned CB gospel that someone rebuilding credit

should open 3 credit cards immediately for best results.

 

I don't think this is bad advice, but I'd like to understand

Why 3 cards?

 

In recent discussions on other threads,

the best answer I've heard is that

FICO'04 scored 3 cards well

but 3 is no longer a magic number for FICO'08.

 

Looking at Bob-Wang's graphs,

there is at most a 10-point FICO spread

between 1 credit card, 2-4 cards,

and 5+ credit cards

for FICO'08.

 

There have also been other recent discussions

about how just 1 credit card

has a greater FICO benefit

than any type of loan by itself.

 

So why not start rebuilding

with just 1 card,

or with 2 cards?

 

 

So, why 3 cards?

 

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I'm curious about this as well. I've simply accepted it as gospel but I did notice that the same thing you saw in Bob Wang's charts the other day. Why is three the rebuild sweet spot?

I'm curious about this as well. I've simply accepted it as gospel but I did notice that the same thing you saw in Bob Wang's charts the other day. Why is three the rebuild sweet spot?

Edited by Losluv
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If you gave one card and it reports a balance, what percentage of your cards is reporting a balance?

 

Fair enough.

 

But why not two cards?

If you have two cards and one is reporting a balance, what percentage of your cards is reporting a balance?

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Wow Losluv, that IS messed up. :lol:

I know, huh? The shame...

 

 

If you gave one card and it reports a balance, what percentage of your cards is reporting a balance?

Fair enough.

 

But why not two cards?

If you have two cards and one is reporting a balance, what percentage of your cards is reporting a balance?

Gotcha. More cards, smaller percentage of overall credit in use.

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One big reason is you typically get a Fico boost for the first 3 cards

 

But I see no evidence of 3 being special for FICO'08 -- at least in BobWang's graphs.

 

I think that may have been true for FICO'04.

 

For '08, it seems the breakpoints are:

- 1 cards

- 2-4 cards

- 5+ cards

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Wow Losluv, that IS messed up. :lol:

I know, huh? The shame...

 

 

If you gave one card and it reports a balance, what percentage of your cards is reporting a balance?

Fair enough.

 

But why not two cards?

If you have two cards and one is reporting a balance, what percentage of your cards is reporting a balance?

Gotcha. More cards, smaller percentage of overall credit in use.

 

 

From what I've read, the ideal FICO'08 utilization is:

< 1% overall -- the $2 trick

only let one card report a balance

 

Even with a couple of $300 cards, you can still optimize utilization for FICO.

It does not matter how many cards you have if you PIF and do the $2 trick.

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If you have two cards and one is reporting a balance, what percentage of your cards is reporting a balance?

 

If you have a million cards and one is reporting a balance, what percentage . . .

 

This is a specious argument, CV.

 

I don't think it is the percentage of cards reporting a balance;

rather, the sweet spot is exactly one card reporting a balance.

 

Why is 3 cards (33%) better than 2 cards (50%)?

 

 

I think what matters to FICO is:

- exactly one card (out of N) reporting a balance

- total util <=1% (e.g. $2 trick)

 

 

Again, WHY 3 CARDS?

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sorry for the ignorance, what is this $2 dollar trick you write of?

 

This is a tweak of utilization to maximize your FICO scores.

 

It goes like this.

 

1) First, pay off all your cards -- and never carry a balance.

 

2) PIF every month -- BEFORE the statement cuts -- so all your cards report a $0 balance to the CRAs.

 

3) Finally, let exactly 1 card report a $2 balance, to show <1% utilization, on just one card.

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I did not start this thread to be argumentative.

 

Rather, I have repeatedly read on CB that everyone who is rebuilding should open 3 credit cards,

 

and I have not seen any evidence to support this -- at least as far as optimizing your FICO'08 score.

 

 

So, I think it would be really helpful to many people here on CB

 

to understand the reasons for starting with 3 cards - or however many are ideal for rebuilders.

 

 

I would be delighted to be convinced that 3 is the magic number.

 

But why is this optimal?

 

And if not, how many cards should a new rebuilder open right away?

 

 

I'm looking for evidence and reasoning to back this up.

 

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I can only speak from my own experience. My scores soared as I added cards one, two, three and an installment credit builder loan. I have added 12 more cards and my scores have continued to climb each time. This is likely not due to the card reporting but something else going on in the background.

 

I had only one card for like a year and was shocked when I added #2 and #3 and saw how much my score jumped.

 

I think three cards is the bare minimum and five is great for those who don't want to manage too many cards. I'm at 15 now and that is too many. I think 10-12 is probably the most anybody should have to manage, but that's just my opinion. I feel like when people get up to 20+ cards it is so easy to somehow make a charge and miss a payment and get a 30-day late. It's actually stressful trying to keep them all active as well. JMHO.

 

Just sharing my experience.

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Not sure if it's adding anything to the conversation, but sometimes despite having very high credit scores I get some comments explaining what I might be doing wrong. And sometimes if I have like 5 cards reporting balances, even very small ones, out of 14 cards, there will be a notation that there are too many cards reporting balances even with total util about 2%. So apparently someone finds something wrong with it.

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You are looking at graphs and obviously not able to correlate them to one another.

 

Your "1 cc is better than a loan" has nothing to do with multiple cards so I'm not sure why you interjected it into the conversation.

 

If you have 3 cards and leave a balance on one then your overall percentage of cards with a balance is less than 50%.

 

If someone opens too many cards too soon they'll have a bunch of crap cards. What is someone with a 580 score going to do, open 5 secured cards? Most of which won't unsecure?

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Not sure if it's adding anything to the conversation, but sometimes despite having very high credit scores I get some comments explaining what I might be doing wrong. And sometimes if I have like 5 cards reporting balances, even very small ones, out of 14 cards, there will be a notation that there are too many cards reporting balances even with total util about 2%. So apparently someone finds something wrong with it.

 

If what you're doing is wrong, I don't want to be right. Your FICOs are my fantasy scores!

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I can only speak from my own experience. My scores soared as I added cards one, two, three and an installment credit builder loan. I have added 12 more cards and my scores have continued to climb each time. This is likely not due to the card reporting but something else going on in the background.

 

I had only one card for like a year and was shocked when I added #2 and #3 and saw how much my score jumped.

 

I think three cards is the bare minimum and five is great for those who don't want to manage too many cards. I'm at 15 now and that is too many. I think 10-12 is probably the most anybody should have to manage, but that's just my opinion. I feel like when people get up to 20+ cards it is so easy to somehow make a charge and miss a payment and get a 30-day late. It's actually stressful trying to keep them all active as well. JMHO.

 

Just sharing my experience.

 

+1 I had been cash-only for 5+ years before I started rebuilding last summer. I saw minimal lift with 1 card, 15-20pts with card 2 and an installment loan, another 15-20 with card 3. 4-8 were a spree, so I can't attribute to a specific card number - but after the first month with 6 cards reporting, my score was up 100 points from 6 months earlier.

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I did this by accident: had exactly three cards for years. Slow and steady. I didn't plan it. But by the time I discovered the "credit world" and wanted to get deeper into it, my 3 cards etc and perfect payment/history had me at mid 700 to high 700 scores etc. And everything I apped for I got and with great results.

 

But for rebuilding or building? If you do it my way, which was not being proactive, just having three cards and not being aggressive, you'll sit there with toy limits.

 

You have to do it slow and steady. Have three good cards, AGE, no messups, and keep increasing limits. It's all about increasing those limits.

 

 

But the 3 card rule makes sense. I ended up like that by accident, and seems to have served me very well. I think 3 cards is the minimum amount needed for success. Even without the science, it still seems logical.

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If you have 3 cards and leave a balance on one then your overall percentage of cards with a balance is less than 50%.

 

I thought the sweet spot for FICO was exactly one card reporting a balance.

 

I had not heard of "50% of cards reporting a balance" discussed as a FICO threshold before I started this thread.

And I'd like to apologize to CV for dismissing this notion earlier when he brought it up. :-)

 

 

So the 50% threshold could be an argument for having 3 cards instead of 2 cards

if you are going to let any balances report (e.g. the $2 trick).

 

I found a couple of earlier discussions of this, where people said "greater than 50%" reporting a balance.

 

For the special case of having only 2 cards, it is an important distinction

whether the FICO hit is for > 50% of cards reporting a balance (e.g. 2/2 cards w/ balance)

or for >= 50% reporting a balance (e.g 1/2 cards w/ balance)

 

 

http://creditboards.com/forums/index.php?showtopic=463366

 

yeah...more than 50% of cards carrying a balance is a hit to the score.

 

 

http://creditboards.com/forums/index.php?showtopic=446632

 

never let a balance report on more than 50% of your cards (in this case, one).

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