Best,

James

Several brief points on FICO scoring that are in public domain are below.

General modeling: The purpose of a FICO score is to estimate the probability you will not pay your bills. Fair Isaac gathered a large amount of data for people who did and did not default on credit obligations and what was in their credit report. Using this data, they developed a model that is applied to your data. The model does not make value judgments and should be relatively unbiased, but it isn’t perfect because of variable choice and inaccuracies in training data. Also, the model may contradict what you logically deduce about credit scores including the less cards/lower limits is better fallacy.

Scorecards: You are assigned to a scorecard or sub-population based on information in your credit report including people with bankruptcies, no late payments, thin files, etc. Data in your file will be treated differently depending on your scorecard. For instance, someone may lose points when a bankruptcy is removed because they moved from the bankruptcy scorecard to a non-bankruptcy scorecard and compared to the new population they are predicted to be more likely to default. However, they may have a higher potential score in the future on the non-bankruptcy scorecard. Similarly, someone with a thin file scorecard may lose more points for inquires or utilizing a high proportion of their unsecured credit limits than someone with more established credit. The scorecards and models change continually to account for trends and improved modeling techniques.

Many banks have their own internal scoring models that may incorporate FICO score and other data they feel is not represented well with FICO, but are important to them including income, job type, zip code, and the number of doors on the car you drive. They may try to get this information from you and/or a database like ChoicePoint’s. Also, upon manual review they may ask you to do things that will lower your FICO score, but make them feel more comfortable like closing credit cards or lowering limits.

Now I have a Discover Gas(5% back on gas), an American Express Citi card(4% back, but I can use it at Costco, and it has something like 4-5% back at drugstores and grocery stores), and a Chase Freedom card. All of these save the Discover card also have a 1 point per dollar kind of thing for purchases that aren’t gas or drug or grocery stores.

I also have some other random cards that give me coupons regularly just for owning them(Victoria’s Secret and JCP), but I don’t usually use them.

Matt: Your assessment was the extreme that I was (I thought) humorously calling out: the only way to avoid impact to your credit score is to NEVER get your first credit card. If you ever get one then you would be hit with the penalty of having opened a new line of credit, right? You cited length of credit, but I think that applies to the aggregate not the individual line of credit. Maybe it’s referring to average credit length but that would not be likely, I think, as it would heavily skew against those with a new line of credit. You also called attention to the distribution of credit. I don’t know if that is based on dollars or number of credit lines? Maybe Credit could speak more to these matters and perhaps dedicate a blog to this matter?

Also, accuracy importance; you are right, the numbers don’t matter to you and maybe a good number of others. There is a recent blog entry on TSD covering left versus right-brained personal finance. This is potentially an example of the dialogue difference. Irritation at mathematical anomalies (notice, I’m not saying inaccuracies) are unimportant to you. It’s important to others, though, and to keep those people satisfied with this blog and driving revenue to TSD, that accuracy has to be present.
Maybe there could be a retractions/corrections section at the bottom of the entry?

As for this whole mess about the interest rate, the interest rate on that last card doesn’t matter. You can make it 1% (the worst rate you can get from Amex Blue – and if you were spending that much each month, you WOULD get better than that) and the argument still holds – the portfolio interest rate is still above 3% (3.17%). I arbitrarily made it 3% because the spending on that last card is going to be by far the most variable – you can’t pigeonhole it. Sure, you could come up with a calculation and pin it to some number between 1 and 5, but the argument still holds even at the minimum, so it’s basically pedantic.

“And with the credit card comment: It DOES make a difference what type of credit you possess. Credit reporting agencies care if you have a large amount of debt you can pull from, because revolving credit cards are easily accessible (and are hence a credit risk). I should know, I worked with credit card companies for 2 years.”

Yoth even put it down straight from the credit reporting agency: “10% on the mix of credit accounts you have (mortgages, credit cards, installment loans, etc.)”

The only way more credit cards with higher balances will improve your FICO score over time is if you’re comparing your score to what it was the minute after you signed up for all these credit cards… since, from yoth again: “15% on the length of your credit history.”

And the point about the math was that people would rather focus on whether $6000/month or $7200/month or whatever per month is accurate, instead of the fact that the logic was sound. I mean, you might as well argue that Trent suggesting $1500/month spent on a credit card per month is $18000/year (anyone want to correct my math?), which is ridiculous and I’d be surprised if even 5% of credit card users hit this mark.

And @CallingItOut… thank you so much for telling me what this site is. I had no idea that a blog called TheSimpleDollar wasn’t a professional financial website. Thanks for the update!

For me, using two cards that give me the best rewards for the bulk of my purchases is a lot easier and safer. I guess it all depends on your risk/reward personality.

I read alot as a hobby and use the $25 certificates to purchase books.

I joined Amazon Prime to get the 2 day shipping free.

I also buy a lot at Amazon.

The $25 certificates go a long way to paying for the Prime membership and getting me free books.

One is the Chase PerfectCard, which gives 3% cash back on gas. There is no need to accumulate points or a certain amount of money, you just get 3% back on your next statement (even if it’s only $0.50, which has happened).

The other is the Chase Freedom card, which someone else mentioned. I generally spend enough to max out the $600 cap on the 3% cash back. I’m doing the $250 for $200 thing so the effective rate is 3.75%. Of course, anything over $600 is only 1% cash back. That’s the reason I got the gas card.

So I pretty much get around 3% cash back. Since both cards are with Chase, there’s only one website to visit to pay bills. There’s also the option to automatically pay the full statement balance without having to log in, but I prefer looking over it anyway.