topic Re: How does CR's read utilization? in Understanding FICO® Scoring

How does CR's read utilization?

kyomagi — Thu, 16 Jun 2011 04:47:57 GMT

I know that under 50% utilization is good and will be positive on your score. But how does the credit reports read the utilization, by total utilization of all CC's or each individual basis?

I have 4 Credit cards

$500 - $0 Balance - 0% Utilization
$500 - $190 Balance - 38% Utilization
$320 - $190 Balance - 60% Utilization
$1000 - $300 balance - 30% Utilization

Total Utilization = 30%

it looked like it was total based on my TU report but i wanted to make sure. I was at 51% 2 weeks ago, now im at 30%, in two weeks i hope to be at 20%....

Re: How does CR's read utilization?

MarineVietVet — Thu, 16 Jun 2011 04:55:07 GMT

kyomagi wrote:
I know that under 50% utilization is good and will be positive on your score. But how does the credit reports read the utilization, by total utilization of all CC's or each individual basis?

I have 4 Credit cards

$500 - $0 Balance - 0% Utilization
$500 - $190 Balance - 38% Utilization
$320 - $190 Balance - 60% Utilization
$1000 - $300 balance - 30% Utilization

Total Utilization = 30%

it looked like it was total based on my TU report but i wanted to make sure. I was at 51% 2 weeks ago, now im at 30%, in two weeks i hope to be at 20%....

The utilization that is reported is overall utilization but FICO also looks at individual account utilization and also the number of accounts reporting a balance at any one time so keep all that in mind.

If you're looking to really tweak your scores everyone's situation is different and there is no one size fits all approach to this but what seems to work well for most people is to have only one of their cards report a small (<9% of it's credit limit) balance each month and then pay in full before the due date. You can use it as much as you want during the month but what's important is the reported balance because for most cards whatever is reported on the monthly statement is what is used to calculate utilization for the month.

You might have to play around with the percentages for a few months to see what works best for you. Some people say that 1-3% utilization helps the most. For others it might be 5-9%. As I said it's not one size fits all.

On any other cards always try and have them report a zero balance each month. That doesn't mean you can't use them just make sure that the desired zero balance on these accounts is achieved several days before their statements post.

From a BK years ago to:
EX - 3/11 pulled by lender- 835, EQ - 2/11-816, TU - 2/11-782

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

Re: How does CR's read utilization?

beamMEup — Thu, 16 Jun 2011 05:01:14 GMT

Hi kyomagi,

FICO looks at both overall utilization as well as individual utilization.

For highest FICO scores, the general mantra is to have all your CC's but one report a zero balance; with the one remaining card reporting a less than 9% balance.

FICO also looks at how many accounts are reporting a balance. One is a good number, YMMV and you can experiment and see if you're fine with an additional card or two reporting a balance - most generally folks recommend less than half of your accounts (at the most) report a balance. I generally stick with reporting a balance on only one card and keeping that one below 9% - it works swell.

And Congrats on your exceptional paydown! Nice work!

---I would definitely consider knocking the 60% utilization card down to zero as a high priority, then the 38% utilization down to zero; then the $300/$1000 card down to below 9%. Other folks will chime in with their thoughts. (Not that you asked, I'm just putting off going to bed, so I thought I'd just keep driveling on.... :smileywink:)

ETA: Out-typed by MVV. Dude! Do you ever sleep???? :smileyvery-happy:

Re: How does CR's read utilization?

kyomagi — Thu, 16 Jun 2011 14:32:22 GMT

Ok so what i did this morning was i paid off the highest utilization card down to 45% (320 Limit and 154 balance) and now all my CC's are under 50% and my total is 28%. Only thing is i have to have that $320 one reopened because its my oldest account (4 years) and i have a $15 mo payment. I may pay if off before i apply for my home lone and i dont want my score to drop. I closed it because of a $70 yearly fee. But i am considering reopening it now.

Re: How does CR's read utilization?

GregB — Thu, 16 Jun 2011 15:07:17 GMT

As far as I know no CCC will reopen an account. That whole idea disappeared a while ago. I believe Amex will open a new account and backdate it to the opening date of your previous account.

A balance showing on a CC that is closed will look bad. If not to FICO, then on review for a new account.

Re: How does CR's read utilization?

my-own-fico — Fri, 17 Jun 2011 13:24:43 GMT

A thing to consider in these days of signature and world cards is whether an account's credit limit or high credit is reported. If not, the account is not used for util. This includes accounts that report a high credit but whose account type is not credit (except for TU 98).

You can pay down $20,000 on such a card, and it will do nothing for your util. You can pay down $200 on a util card with a small credit limit, and it might lower the account's util from 50% to 5%, boosting your score considerably.

That's not to say that a high balance on a non-util card will not affect your score. It will; it's just not util-related, so the impact is a good deal less. Applying this, you can put non-util cards to use in a sweet way.

Re: How does CR's read utilization?

veracious — Fri, 17 Jun 2011 17:11:02 GMT

I hope this isn't a thread jack. I aplologize. I just wanted someone's input. I think I know the answer.

My question is about month- to -month utilization.

Before I got a second CC, my utilization would change by the balance I chose to report.

I always kept it at 1.6% or less and most of the time 0% was reported. Then one month I let 1.6% report

and the next month I let 2.2% report.. I lost points because of this. I don't understand ??

The comment given by EQ FICO was that my balance increased, but I had PIF the previous month.

My balance did not increase from the previos month, I only let a 1.6% larger balance report.

Is this the norm? I was trying to find the best utilization rate for only one CC. Now that I have another card, and my first

experiment didn't work, I'll probably have an even harder time finding the right balance to report.

The one thing I haven't tried is to carry a small balance for one month and a 0% balance the next, with two cards.

Why does FICO judge you by your last balance against your current balance when your utilization is miniscule?

eta: Thanks for any replies

Re: How does CR's read utilization?

GregB — Fri, 17 Jun 2011 19:42:41 GMT

It doesn't.

FICO only cares about the info on the report at that instant. The only way the previous balance on anything is factored is if it changed High Balance on a card that reports that instead of Limit.

FICO only knows the amount reported, which is virtually always the statement balance. It doesn't know, or care, if you PIF. The info on the actual payment amounts IS included by some lenders and is in your complete reports. I assume that might help or hurt in a manual review, such as done on a mortgage.

If that small a balance is changing your FICO, I can only assume you passed one of the steps. I do get the feeling that there are only around 5 steps total on utilization percentage that make a change to your score. One of them is $0, one of them is over 80%, one of them SEEMS to be around 50%.

Re: How does CR's read utilization?

beamMEup — Fri, 17 Jun 2011 20:09:06 GMT

GregB wrote:
It doesn't.

FICO only cares about the info on the report at that instant. The only way the previous balance on anything is factored is if it changed High Balance on a card that reports that instead of Limit.

FICO only knows the amount reported, which is virtually always the statement balance. It doesn't know, or care, if you PIF. The info on the actual payment amounts IS included by some lenders and is in your complete reports. I assume that might help or hurt in a manual review, such as done on a mortgage.

If that small a balance is changing your FICO, I can only assume you passed one of the steps. I do get the feeling that there are only around 5 steps total on utilization percentage that make a change to your score. One of them is $0, one of them is over 80%, one of them SEEMS to be around 50%.

And based on experience here at the forums, it varies from individual to individual and for each individual it varies over time. There's just a ton of variables in your report and there appears to be no iron hard cutoffs for utilization.

I can vouch that DH and I have had somewhat different results - but we both do well with only one card reporting less than 9%; and the others reporting zero. Sometimes when I anticipate a big score hit, I'm pleasantly surprised. And vice versa. It appears to be a very fluid cutoff line.

It's kind of like if you eat a donut and run 5 miles, exactly what will your weight change be? You know the general outcome, but the precise result varies depending on so many interacting factors.

Re: How does CR's read utilization?

my-own-fico — Fri, 17 Jun 2011 21:06:25 GMT

beamMEup wrote:

I can vouch that DH and I have had somewhat different results - but we both do well with only one card reporting less than 9%; and the others reporting zero.

DW and I too do well at less than 9%. But just as well at less than 10%. :smileytongue:

It's kind of like if you eat a donut and run 5 miles, exactly what will your weight change be? You know the general outcome, but the precise result varies depending on so many interacting factors.

Interesting. Just yesterday on the television, Dr. Oz noted that "How many minutes of dancing do you think it takes to burn off the 350 calories found in a glazed doughnut? You need to dance for 55 minutes." He didn't say 50 for some and 60 for others. :smileyvery-happy:

Re: How does CR's read utilization?

beamMEup — Fri, 17 Jun 2011 21:12:41 GMT

:smileyvery-happy:

And undoubtedly someone will ask the good Dr., "If I take off half the sprinkles, can I get away with only dancing 53.5 minutes?

Re: How does CR's read utilization?

veracious — Sat, 18 Jun 2011 01:26:57 GMT

GregB wrote:
It doesn't.

FICO only cares about the info on the report at that instant. The only way the previous balance on anything is factored is if it changed High Balance on a card that reports that instead of Limit.

FICO only knows the amount reported, which is virtually always the statement balance. It doesn't know, or care, if you PIF. The info on the actual payment amounts IS included by some lenders and is in your complete reports. I assume that might help or hurt in a manual review, such as done on a mortgage.

If that small a balance is changing your FICO, I can only assume you passed one of the steps. I do get the feeling that there are only around 5 steps total on utilization percentage that make a change to your score. One of them is $0, one of them is over 80%, one of them SEEMS to be around 50%.

Thanks for your reply GregB.

My confusion lies with the fact that FICO stated as the reason my score changed was because my balance had changed from the previous month.

If FICO only knows what the amount reported at that instant you pull your report, why then, does it comment about your previous balance?

Wasn't this anew report being pulled on the second month? FICO should only know that my utilization remained below some threshold.

Why compare it to the previous month?

I understand that FICO could care less if you pay in full but, why is it keeping track of your previous balance reported.

If FICO cares only about utilization, why was I penalized for showing a higher utilization ? I thought that if your utilization was

less than 9% you would be OK. The CC I am referring to is a regular vanilla Master Card.

Fico stated that my balance had increased from the previous month. Grossly Unfair if I have to keep using a lower utilization % every month.

Maybe FICO algorithms are looking at my personal report and judging my credit useage inaccurately.

I am I right on this point?

Thanks

eta: clarification.

Re: How does CR's read utilization?

GregB — Sat, 18 Jun 2011 03:38:29 GMT

I assume you are looking at a product that is tracking your FICO score like Scorewatch. I assume when you said "FICO" you meant Scorewatch from myFICO. There isn't anything like that on your Credit Reports, which also have your FICO score included, so I assume it is the tracking product that states the reason.

If you get a FICO score decrease because your utilization increased, lowering it to the previous amount will return your score to the previous score if nothing else changed.

I think it is very safe to assume that there is never any error in calculating your score from the information in your reports. If there is incorrect info in your reports, that is different.

Re: How does CR's read utilization?

veracious — Sat, 18 Jun 2011 14:59:42 GMT

GregB wrote:
I assume you are looking at a product that is tracking your FICO score like Scorewatch. I assume when you said "FICO" you meant Scorewatch from myFICO. There isn't anything like that on your Credit Reports, which also have your FICO score included, so I assume it is the tracking product that states the reason.

If you get a FICO score decrease because your utilization increased, lowering it to the previous amount will return your score to the previous score if nothing else changed.

I think it is very safe to assume that there is never any error in calculating your score from the information in your reports. If there is incorrect info in your reports, that is different.

Thanks for your reply GregB

I guess I was wrong in assuming the FICO score I purchased here was going to see a credit balance and utilization increase

no matter how slight---1.6% -2.2% and not make a score penalty, even though it was miniscule when compared to the credit line.

I mean, raising your utilization from 1.6% to 2.2% seems insignificant to me, but apparently FICO doesn't like for your credit usage to

rise at all. Hence you get a penalty even though you are using credit responsibly. On top of that, FICO penalizes you if you report a 0% usage.

So with all the talk on these boards about letting a small balance report and paying in full, which I do, how come no one mentioned that you

should report a lesser utilization rate each time or you will (may) see a point drop.

That's how it happens on my CR , but maybe my view is less than the complete picture.

Re: How does CR's read utilization?

beamMEup — Sat, 18 Jun 2011 15:20:27 GMT

veracious wrote:
I guess I was wrong in assuming the FICO score I purchased here was going to see a credit balance and utilization increase
no matter how slight---1.6% -2.2% and not make a score penalty, even though it was miniscule when compared to the credit line. There are so many factors involved in your FICO credit score that it's impossible (really) to earmark one factor and determine that it alone caused any FICO score change. FICO is an extremely complex algorithm. Having a balance change and a FICO score change on the same day does not equate to the balance change creating the FICO score change.

I mean, raising your utilization from 1.6% to 2.2% seems insignificant to me, but apparently FICO doesn't like for your credit usage to
rise at all. It's not a matter of FICO liking or not liking credit usage to change. FICO doesn't track the change in your utilization. It's a snapshot of your current utilization that FICO is looking at - and that snapshot includes a myriad of other factors. Hence you get a penalty even though you are using credit responsibly. On top of that, FICO penalizes you if you report a 0% usage. FICO is not a grading system with penalties for bad behavior. It's simply a risk assessment. Anytime a FICO score is generated it is assessing your risk based on boatloads of statistical data.

So with all the talk on these boards about letting a small balance report and paying in full, which I do, how come no one mentioned that you
should report a lesser utilization rate each time or you will (may) see a point drop. Because that's not true. On a regular basis, DH and I report miniscule-ishly larger utilizations and do not see a score change. FICO is looking at lots of info, but they are not tracking your change in utilization. ScoreWatch or other such programs can report a change in balance (dollars and/or utilization - which is why some may receive two alerts for one account having a balance change) and it will also tell you your FICO score at that point; but it does not mean the change in utilization creates the change in the FICO score.

That's how it happens on my CR , but maybe my view is less than the complete picture.

I think lots of folks have been confused by getting a scorewatch triggered by one of the factors that you can individually choose; and then feeling that the factor that triggered the ScoreWatch is the factor that triggered the FICO score change. You choose what triggers a ScoreWatch; and that ScoreWatch is a separate issue than the factors that trigger a FICO score change.

And remember that things are constantly changing on your accounts, time since new account reported, age of accounts, age of inquiries, and tons of other stuff. And sometimes an account reports something in a different way than it did before. There's lots of constantly moving targets on anyone's CR's.

Re: How does CR's read utilization?

my-own-fico — Sat, 18 Jun 2011 15:44:29 GMT

For people using credit, I have never come across a case in which a higher utilization resulted in a higher FICO score. It would indeed appear that FICO wants us to use credit, but as little of it as possible. It doesn't quite make sense that if you have a credit card account with a purchase limit of $10,000, it's more responsible use of that card to spend $20 monthly than $200. Then again, $200 can be viewed as riskier than $20, and it's not entirely unreasonable to assume that FICO goes by risk rather than by responsibility.

Re: How does CR's read utilization?

veracious — Sat, 18 Jun 2011 15:53:15 GMT

Thanks beamMEup.

I get it now, and I think that's what GregB meant in his post.

OK, I'll never again use the word penalize, from now on I'll just say "drops your score"

I'd just like the FICO score to settle down and quit changing all the time on my reports.

I've got an expensive vacation coming up, so I know the FICO engines will be humming, and I'll probably geta ton of alerts.:smileyvery-happy:

Re: How does CR's read utilization?

veracious — Sat, 18 Jun 2011 16:13:33 GMT

Thanks my-own-fico.

You are absolutely right.

I just forget from time to time that FICO scoring is nothing more than a risk assessment.

Like most people here on these forums, I use credit responsibly, and since FICO does not know me or anyone else,

they judge by risk behavior only.

Re: How does CR's read utilization?

GregB — Sat, 18 Jun 2011 16:48:02 GMT

An increase in utilization tends to decrease your FICO score but it does it in steps. Here is an example of a big increase not changing FICO. I have also had a 3 point drop from charging $18 on a card with a zero balance reported.

Re: How does CR's read utilization?

MarineVietVet — Sat, 18 Jun 2011 17:04:33 GMT

veracious wrote:
Thanks beamMEup.

I get it now, and I think that's what GregB meant in his post.

OK, I'll never again use the word penalize, from now on I'll just say "drops your score"

I'd just like the FICO score to settle down and quit changing all the time on my reports.

I've got an expensive vacation coming up, so I know the FICO engines will be humming, and I'll probably geta ton of alerts.:smileyvery-happy:

IME only this won't happen. Credit files are very dynamic and small changes in our scores (both up and down) are normal and part of the process.