Recent myFICO Forums questions for April

Does having the highest limit on your oldest credit card help your FICO® Scores?

In short, this is not true.

There is no logic in FICO® Scores that evaluates your credit limits or available credit based on the age of the accounts.  So trying to ensure that the “oldest” credit card in your wallet has the highest credit limit will not likely increase your FICO® Scores.

Is a small change in a FICO Score (such as 1 or 2 points) significant?

FICO® Scores are dynamic and can migrate when the information on a credit report changes.  The degree of the change in score will depend on what information in the credit report has changed, along with the overall composition of your credit information.

For example, a newly reported 30-day missed payment will have a much greater impact on a FICO® Score if this is the only negative item on the credit report versus a newly reported 30-day missed payment hitting a file where there is already a history of missed payments being reported.

The relevance or significance of the degree of score change depends on each individual’s unique situation and lender use of the FICO® Scores.

  • A change of 2 points at the higher score ranges, going from 817 to 815 for example, is less significant as most lenders are going to consider both 817 or 815 as exceptional scores and not likely change their credit decision based on that 2-point difference.
  • A change of 2 points around a lender’s cutoff score criteria for new credit approval or where the lender sets its interest rate tier can have a meaningful impact on one’s access to and cost of credit.

For example, assume you need to get a new car and will be financing that purchase with a $20,000/5 year loan.  In the below table, you can see that a small three-point change in score results in a meaningful savings opportunity for the individual.  The reason is that the interest rate changes at a FICO® Score cutoff of 660.  Getting approved for the auto loan with a score of 660 versus 657 results in interest payment savings of $1,748 over the life of the loan.

FICO® Score

APR

Monthly Payment

Total Interest Paid

657

10.236% $427 $5,636
660 7.223% $398

$3,888

Source: https://www.myfico.com/credit-education/calculators/loan-savings-calculator/

So it’s a good idea to check your FICO Scores to see where you stand if you know you will be applying for new credit in the near future.  Then take actions to try and increase your scores so you can potentially reduce your cost of credit.

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Tom Quinn

Tom Quinn is the Vice President of Business Development for myFICO and has over 25 years of experience working with consumers, regulators, and lenders regarding credit related questions and initiatives.