How do revolving accounts impact my FICO Score?
How someone manages their revolving debt is an important factor considered in the calculation of FICO® Scores. With revolving credit, like a credit card, the lender will set a credit limit. The credit limit is the maximum amount you can charge to that account. When you make a purchase, you'll have less available credit by the amount of that purchase. Similarity, when you make a payment, your available credit generally goes back up by the amount of that payment.
Revolving credit accounts are open ended, meaning they don't have a certain end date. As long as the account remains open and in good standing, you can continue to use it.
FICO® Scores consider revolving account information reported on your credit bureau report in a number of ways:
- How long the revolving account has been opened.
- The balance on the revolving account.
- The payment history on the revolving account (are there any late payments for example).
- How much of your available revolving credit limit is being used (also referenced as revolving utilization percentage). For example:
$4,000 credit limit
25% utilization percentage
When developing the FICO® Scores our analysis consistently shows that the higher the revolving utilization percentage for a consumer, the greater the risk of that consumer not paying credit obligations as agreed. As such, people should try to keep their revolving credit utilization as low as possible.
Interestingly, the analysis also shows that having no revolving balances being reported (and thus having 0% revolving utilization), is slightly more risky than having a small balance/low revolving utilization reported. So, if you have low revolving utilization in your credit report this month and that gets updated to reporting $0 revolving balances (0% revolving utilization), you might see your score drop holding all else constant.