Why aren't FICO scores based on the number of months you pay off your

credit cards in full?

Isn't that the best test of financial responsibility and ability to pay?

The fact that people get higher scores because they have lots of cards with high limits is completely warped and encourages bad behavior.

Congress really needs to look at this.

Is lack of discipline on the part of the card holder.

Lack of discipline (or emergency) causes user to spend more. balance goes up. balance relative to limit increases and FICO score goes down.

You are mistaken if you think high limit improves score. balance/limit is what drives the score.

Do they measure them well? Lenders seem to think so. If they didn't, they'd use some other method of determining creditworthiness.

stooge then it works very well.

It's not designed to help consumers, it's a tool lenders use to determine whether they're going to lend you money or not.

It's not how responsible you are, but how profitable you will be for them.

My credit score recently went down, apparently because a credit card company shut down one of my cards I hadn't used in a long time. How that makes me less credit worthy, I don't know. My credit score is still good, but it pisses me off that I would be penalized for not using a credit card.

If lenders want customers with high FICO scores, wouldn't explaining how to get a high FICO score increase the number of "qualified" borrowers?

The score should be a bell curve.

The riskiest people should have a 600
The middle risk people have a 600-700
The low risk people have 700-760
The ultra low risk people have a 760

If everyone had a 760 it wouldn't help the banks at all.

Now the system isn't perfect because it uses a limited amount of historical data to predict the likelyhood of default in the future.

One risk factor for default is high balances.

Based on decades of historical data people with high balances (balance relative to the max) tend to be more likely to default.
They are living beyond their means and like the stock market eventually will crash.

So one factor FICO uses is balances/limits.

A side effect though is when an account closes.

Say you have $1000 in debt and total limits of $10,000.
utilization % = 10% (1000/10000).

Now one of your cards is closed ($3,000 limit).
utilization % jumps.
same $1000 but now over $7000 = 14% (1000/7000)

utilization went up so score goes down.

FICO works with incomplete data. It doesn't know how/why your utilization went up only that it did.
People with 14% utilization default more likely than people with <10%.
Sometimes it gets it wrong but historically over the long run it is pretty good predictor of default rates.

in a time of unusual circumstances.

Now people are being subjected to the random cancellation of credit cards based on the financial health or risk posture of the bank they got their credit card from.

FICO scores will be lowered based on events caused by financial institutions, not on the underlying person's circumstances or ability to pay.

That is screwed up.

However even in this chaos people who are more at risk are affected more.

Person A
$10K in debt, $50K limit. 20% util%. CC cuts limits from $50K to $20K. now 50% util.

Person B
$1K in debt, $50K limit. 2% util%. CC cuts limits from $50K to $20K. now 5% utilization

A change in util from 2% to 5% is couple FICO points.
A change from 20% to 50% is a lot (maybe 80 points).

That person raking up and holding on to $10K in debt is more of a credit risk.

a person with 3 or less.

But I do agree that for a bank looking for late fees, the 30 card person is a much better bet.

High limits don't increase credit score.

Utilization is what matters.

i.e.
total limits $5000
total balance $200
$200/$5000 = 4% = boost to FICO

total limits $5000
total balance $3000
$3000/$5000 = 60% = hit to FICO

the thinking is....
if someone trusts you w/ $5K in credit and you max it out you likely are living off the credit and are a risk.
if someone trusts you w/ $5K in credit and you use only a tiny % of it you are living within your means and are less of a risk.

Now you can "game" the system a little by simply:
1) asking for credit line increase you don't need. I have a $20K card that is cut up. I routinely asked for CLI from $5K to $10K to $12K to $16K... etc
2) when you stop using a card DONT CLOSE IT. Just cut it up

Inactive accounts get closed.

some lenders do close inactive accounts but some borrowers don't have the willpower to let a $20K limit sit with $0 balance.

It really depends on the lender & credit score.

I have card w/ USAA I haven't used in a year and card w/ capitalone that I haven't used in three.
If they close it "oh well" but I will NEVER use that CapitalOne card again.

and its from my credit union who is pretty conservative in their limit.

On the other hand I swear my sister said she has 30!

So she has way more debt than I do but her FICO score is better than mine. And she has a mortgage while I have savings and investments.

I don't get it.

She has a mortgage? How long? Payments on time.
A mortgage with couple years of on time payments is considered a very strong + factor.

Having 30 cards is not helping her but having only one isn't helping you.
FICO likes to see multiple lenders trusting you.
If you want to boost you score try getting a gas card also.

The "perfect" FICO score would be
* long history (oldest account 10+ years old)
* long average history (average account 5+ years old)
* no late payments in last 7 years.
* no public records in last 10 years (bankruptcy, judgement)
* no collection accounts
* mortgage paid on time for multiple years
* low credit card utilization %
* multiple lenders (3-4 revolving + 1-2 fixed)

the closer you are to matching that the higher your score.

Then I know exactly what my debts are.

And I know what would be good for my FICO score, I simply resent this encouragement of what I consider to be unsound practices.

Without potential to do the wrong thing there is no way to know if you will do the wrong thing in the future.

Maybe it isn't fair but FICO isn't about FICO.
FICO has one purpose and one purpose only.
It measures the likelyhood of default in the future.

Nobody has given you $50,000 credit line so FICO (and I am not making a personal judgment here) doesn't know what you would do.
Will you still be responsible if you had $50,000 credit line? Maybe? Maybe isn't a good answer for a default prediciton model.

You are a risk not because of your actions but because of lack of information.

You have 2 options:
a) accept that is the way it is. It isn't a race. You don't need the "best FICO".
b) do something to improve your score.

Even asking for a credit line increase will change the ratio between debt & limit.

Which goes back to the assumption that because a person had 10 credit cards with $15,000 balances, that they could afford that $700,000 house.

How helpful were FICO scores to the banks then?

I have a feeling that the current situation will lead to a reexamination of what makes a loan a good bet. They may find FICO scores measured the wrong things or gave too much weight to irrelevant data and too little weight to the relevant.

As someone who lived that lifestyle for too long and paid down $40K in CC debt and another $20 in other debt trust me I saw my FICO rise every month as I paid off that debt.
I am less risky borrower now than when I had $60K in debt choking my cashflow.

Someone with $15K in balances has a LOWER FICO. When their CC provider gets scared and cuts their limit they will have an even LOWER FICO.

The person with the $15K balance already hung themselves.

The credit line was the rope.
a) use it responsibly = good FICO
b) max it out for junk & vacations = bad FICO

Your FICO score is ultimately about your tendency to score profits for lenders. People who pay alot of interest and fees will score very high. But you have to actually pay them, so other considerations come into play about both your ability and willingness (as well as documented history) to make the payments. People with "lots of cards" may have them because of an extensive ability and willingness to pay.

10,000 limit (ONE card) with 7500 charged & minimum paid & balance rolled over is not as "valuable" as THREE cards (each with $10K limits) & 7500 spread out between them..still with minimum paid & balances rolled over..

they want you IN DEBT up to your eyeballs.

This isn't about responsibility. It is about controllability.

for credit cards. That is infuriating. Why did we ever let them pass these usurious fees in the first place??? were we sleeping?

Everyone assumed it wasn't them.

The cap was raised not the required rate.

"Oh those higher rates are so people w/ bad credit can get a card at a higher rate than me".

Slowly CC companies (except my USAA card) have raised everyones rates closer to the new cap.

Thats me. I just don't use them.

Am I behaving badly?

Don

You are actually behaving responsible hence a boost to your FICO.

It is flawed thinking by the OP to think low limits should be high FICO.
FICO essentially is the likelihood one will repay debts based on previous history.

If someone has no or low limits they can't "mess up" because they haven't been given an option to.
If suddenly they did have a high limit how would they react. Unlike someone who has limits and low balances we don't know.

Take someone with 1 card $500 limit no other credit.
Suddenly give them 10 cards with total limits of $50,000.
What will they do:
a) max it out, can't repay, file for BK?
b) don't use them

Since the FICO score can't separate a from b the b people get no better score than a ones.

On the other hand someone who has high limits, multiple cards, and keeps no (or low) balance has proven themselves.
Their past actions show that they know how to handle credit. Historical data shows people like that are less likely to default hence they have higher FICO.

who own our homes and cars outright and intentionally carry a balance on our cards instead of paying the balance off monthly. If I didn't I wouldn't have any recent credit history.

Who is more credit worthy the person who has a mortgage and a car payment and no credit card balance or the person who owns their home and car and has a credit card balance?

Me thinks your logic is a bit flawed.

That data is not on your credit report.