Thinking about moving abroad for a while? Going cash-only? Your FICO score may no longer be there when you need it.
FICO scores, which were designed to be useful to lenders, require recent credit activity. If you don’t have any, you may be unscorable when you later apply for a loan.
Here’s how you may lose your FICO score – and how to rebuild if you do.
What’s required for a FICO score
FICO’s algorithm mines your credit report for information to determine your three-digit score, says credit-scoring expert Nabil Captan. If you’re regularly using your credit cards or have active loans, FICO should be able to generate a score.
“The only way you can lose your credit score is when no score can be generated from the credit file,” Captan says.
So what’s the bare minimum for FICO scores? For the most recent version of FICO’s algorithm, in addition to not being deceased, here’s what you need, according to Can Arkali, principal scientist for analytics and scores at FICO:
- At least one account that’s at least six months old
- An account that’s been reported to the credit bureaus in the last six months
That second point can be confusing because accounts you may not have used in years (including closed ones) may still be listed on your credit reports. That doesn’t mean they alone can fulfill the minimum FICO standard.
The key is to note the “date of last activity” or “last reported” date on your credit report for that account, Captan says. Is it more than six months ago? That particular account isn’t counting toward the minimum requirements for generating a score (although that’s not a problem if you have other, active accounts reporting).
I pulled my own credit reports and found a card I haven’t used since 2014. It’s still on my reports, but the bank stopped reporting it just months after its last use:
Some banks may continue to update a card you’re not using, but, Arkali says, “This is a rare occurrence.”
So why aren’t dormant cards good enough for FICO?
FICO scores prioritize recent data. After all, Arkali says, the score was developed for lenders, who don’t want stale information.
“These minimum scoring criteria play an important role in ensuring the predictive strength of the FICO Score, which, in turn, ensures that lenders are making sound credit decisions, he says.
How to keep your score alive
It’s actually rare for someone to lose their FICO score, Arkali says.
“Our research shows that the majority of people who have had credit accounts but don’t have a FICO score have stopped using credit altogether, and for a number of years,” he says.
Yet that might occur if, say, you move abroad for a lengthy period of time and stop using U.S.-based credit products, or if you’ve have paid off all loans and go cash-only.
So use the six-month-activity benchmark described above to prevent your credit from atrophying.
If you’re abroad that means keeping your U.S.-based credit cards open if possible and using them every once in a while. Online shopping and bill pay should make that easy.
“Everything is now done via the internet, so there really is no excuse for somebody not to keep a credit line active,” Captan says.
If you’re going into a stage of life where you’ll use credit less actively, consider using a credit card to pay a recurring bill or expense (like gas). Then pay your card bill on time. That’s about all that’s required to ensure your score stays not only alive, but well.
“A lot of people think you need to know your credit score before you go to bed every night,” Captan says. “You really don’t need to. Only when you are in the market for some type of credit, then you need to check your score. Otherwise, leave it alone and maintain good payment habits.”
What to do if you become unscorable
For whatever reason, you fell off FICO’s radar due to inactivity. FICO has developed an alternative credit score called FICO Score XD, which uses data sources like payment history on cable and telco accounts for consumers who have “only stale information on the credit bureau file,” Arkali says.
The question is whether the lender you want a loan or card from will use that score. And, even if it does, re-entering the credit mainstream will give you the most options.
Fortunately, it’s relatively easy to jump-start your credit life again.
Captan, for example, spent 11 years in Africa and then three in London, returning to the U.S. with no credit history. He got a store credit card from Sears and made occasional purchases on it, building his credit.
If you follow that path, treat your new account well and your FICO score will regenerate.
“Just do these three things,” Captan says. “One, pay on time. Two, pay on time. And three, pay on time.”