Home | 2014 Interaction

<< Previous day | Next day >>

Time is not a factor in credit score utilization ratio

There is, indeed, a quick way to increase a credit score: Decreasing an account balance to lower its balance to-limit ratio (the so-called "credit utilization")

| By Greg Fisher

Lowering the balance of an account is a quick way to improve a credit score. That is because the history of balances is not a factor, and the current proportion of a balance to its limit is. In one FICO credit score version, for instance, Beacon 5.0 (Equifax), the so-called credit score utilization ratio has no history element; it is based on the balance as it is only at the moment the score is calculated. In fact, a history of balances does not even exist in Equifax credit files. There is no record of past balances. The only balance recorded and maintained is the current balance. Previous balances are replaced by the current one.

Time has nothing to do with it.

Despite that, an item on nasdaq.com states, "The only thing that will move your credit history (and therefore your score) in the right direction is a combination of good behavior and time," she [Jean Chatzky, Financial Editor at NBC's TODAY Show] said."




Copy and paste that questionable sentence into a document to make a point and you get this message along with it: "Read more: http://www.fool.com/investing/gene... "

Odd. It's not to Nasdaq.com. But even a fool (.com) knows, "The good news is that you can make a difference in your credit score in the very short term."

It gets even better. The Nasdaq page mentioned above states that the article originally appeared on something called WisePiggy (which is run by Quinstreet whose top person is Doug Valenti).

All that syndication/sharing/republishing should do this to your head:

  1. Make it spin
  2. Make you scratch it

@JeanChatzky blocks @creditscoring

Who has the burden to prove a statement (gone viral)?

The person making the statement, of course. Disproving a false statement is an onerous task. It is proving what is not (aka proving a negative; absence of evidence). Look for what is extant on this page provided by the FICO score company: http://scoreinfo.org/F.... Then, on the same page, look for what is not extant (history of balances). Of course, you will not find what does not exist.

There are, specifically, descriptions of "Proportion of balances to credit limits," and "Proportion of balances to loan amounts" (sans any mention of balance history; reason: impossible).

Certainly, the whole process of verifying something purported to be fact is no fun for the one who erred, but that's his problem. Simply asking the person making the claim to provide evidence or a source should be enough to sort truth and falsity into different piles.

And, it's great sport.

Ratio rapid rescore

The mortgage loan processing practice known as rapid rescore helps make the point.

"And it happens immediately," according to CBS New York.

A credit report provider will update "a balance or paid-in-full status" in 5 to 7 business days.

And, Experian (one-third of the consumer reporting industry oligopoly) advises, "If you are applying for a new loan and need accounts updated faster, some companies will respond to a special request for updates, commonly referred to as a 'rapid rescore' service."

The cat is out of the bag (see "Manipulation"). Still, a Fair Isaac (FICO score company) mantra is to "keep your balances low." However, keeping them low, month-to-month, does not affect a credit score. Start at a zero balance. Run it to 100% this month (expect the score to go down), and back down to zero next month. All things being equal-- the zero-balance scores are the same in both cases. The current balance is the only one counted.


Share on Facebook