| By Greg Fisher
Life imitates art. Credit score company Fair Isaac states, "Debt-to-limit ratio makes up 30% of your FICO Score."
Debt-to-limit ratio makes up 30% of your FICO Score. Learn more about how amounts owed affects your scores here: http://t.co/luaaT4vHhq— myFICO (@myfico) March 10, 2015
That is impossible because it is mathematically impossible.
And, it wasn't a one-time thing. Here is FICO, again:
Debt-to-limit ratio makes up 30% of your FICO Score. Learn more about how amounts owed affects your scores here: http://t.co/V4rEAscMmN— myFICO (@myfico) January 25, 2015
Don?t max out that card! Amount owed vs available credit is 30% of your FICO Score. A lower ratio can improve your scores. #myFICOtips— myFICO (@myfico) November 28, 2014
Background, Myth 7
Fair Isaac illustrates what is in FICO credit scores by putting credit report data into 5 categories. One of the 5 categories is called Amounts owed, and it represents 30 percent of the importance of FICO credit scores. Only one of the items in that entire category has anything to do with account limits.
Here is the official list of categories on the official website of the official company, Fair Isaac (aka FICO): www.myfico.com/CreditEduca... .
And, here is one of those categories, with its six items: www.myfico.com/CreditEducat... .
Only one of those items in that 30% category is "How much of the total credit line is being used and other 'revolving' credit accounts."
The category that is 30 percent of the illustration also includes:
"Whether you're showing an amount owed on certain types of accounts"
"How many accounts have balances"
neither of which have anything to do with limits.
Regarding a document it calls "Credit Score Disclosure (CSD) Notice," Fair Isaac itself, explains, "In the 'Key Factors' section you will find up to five brief remarks – commonly known as score reasons or score factors – that explain what aspects of your credit history most significantly influenced your credit score."
Fair Isaac's reason code list only contains two codes mentioning "limit" (as in "Debt-to-limit ratio" in its social media messages above):
- Reason code 10: "Proportion of balances to credit limits on bank/national revolving or other revolving accounts is too high"
- Reason code 62(M): "Ratio of balances to credit limits on revolving HELOC accts is too high"
So, if the entire Amounts owed category is 30 percent, and the "Debt-to-limit ratio makes up 30%," then the other five items in the category have to be zero. And if that is true, then they don't even belong there.
That is not the first time FICO presented questionable information about its own credit scores. Here is a Fair Isaac video scaring the daylights out of viewers saying that employers use credit scores (the relevant portion starts at 41 seconds into the video). However, in 2008, the three main credit report companies the the U.S. stated, emphatically, that they do not provide credit scores for employment purposes.
Score lore in the world of Dr. FICO
In 2013, a Fair Isaac employee, Tom Quinn said, "If you're a week, two, or three late on your installment obligations, then there's a high likelihood that you could be reported to the bureau as '30-day late.'"
Fair Isaac even promotes the podcast on which he said that on their website. Tune-in at about 29 minutes into the audio file.
Just about everybody in the world (except Quinn, apparently) knows that there is no such thing on a credit report as 1-day late (or 2, 3, 4, or 29).
Sequentially, the notations start with current. The next level is 30 days. Here is evidence of that, directly from the consumer reporting agencies (who actually partner with Fair Isaac, by the way).
- Pays as agreed"
- 30–59 days past the due date
- 60–89 days past the due date
- Paid As Agreed; Satisfactory; Current
- Pays 31-60 Days; Not More Than 2 Payments Past Due
- Pays 61-90 Days; Not More Than 3 Payments Past Due
- Current account/Zero balance
- 30 days past the due date
- 60 days past the due date
In FICO World, a week equals a month. But, don't worry, in the real world, a month is still a month.