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Ambiguity

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cowboyguy
Regular Contributor

Ambiguity

In calculating FICO score, does the timing matter? Consider these 2 scenarios:

1) Currently I carry a balance of $5,000 & my utilization ratio is 70%. Every month I pay the minimum balance & my utilization after 2 years is 60%. At that time, I pay off almost the entire balance & bring my utilization down to 2%.


2) Currently I carry a balance of $5,000 & my utilization ratio is 70%. I pay off almost the entire balance today & bring my util down to 2%. I keep my util at 2% for 2 years.

After 2 years, will my FICO be the same in both the scenario? Assume all other factors stay the same i.e no impact of inquiries, no payment delay etc.

P.S: This question is very important for me so please answer only if you're sure. Thanks!
Walmart Discover $10,000... Chase SW $8,500... Freedom $7,000... CSP $6,000... Amex Delta $3,000... Amex BCP $2,000... Local CU $1,500...
Message 1 of 22
21 REPLIES 21
b_seeker
Frequent Contributor

Re: Ambiguity

As long as all payments are on time, FICO scoring does not account for utilization history, only current utilization. So, in theory, both scores would be the same or very close (Once the statement cuts and the new balances are reported).



|| Barclaycard Rewards Visa $5500 || AMEX BCE $2000 || Discover IT $3000 || Amazon Rewards Visa $1800 ||
|| Chase Freedom $2700 || CSP $5000 || Chase Marriott Premier $7500 || Sallie Mae MC $3800 ||

FICO Scores: EX 752 (3/13/13) || EQ 782 (10/4/13) || TU 724 (1/18/13)

In the garden as of 10/12/2013
Message 2 of 22
bs6054
Valued Contributor

Re: Ambiguity


@b_seeker wrote:

As long as all payments are on time, FICO scoring does not account for utilization history, only current utilization. So, in theory, both scores would be the same or very close (Once the statement cuts and the new balances are reported).


Yes.  No-one here (probably) knows the exact calculation used to create the actual score, but it IS based on the data in the credit report, calculated each time it is pulled.  You can see that there is no utilization history in the report.

Message 3 of 22
dddewdrop
Valued Contributor

Re: Ambiguity

   They should both be all things equal the same for your score. There is no memory in the score. So it is the same to pay it all now and keep it at 2% for 2 years and to keep it at 70% for 2 years and pay it off a month before as far as util%. As the poster before stated, it is a snapshot that is scored, not some sort of cumulative average of utilisation %.

Message 4 of 22
MovingForward_2012
Valued Contributor

Re: Ambiguity

+1, your score should be the same in both scenarios, theoretically. But there are other factors that will play a role 2 years from now that may result in a higher score in 2 years from now, such as an increase in good payment history. So if you pay it down to 2% now, you will have X score. In 2 years, you will have X score plus 10-20 pts for history. If you wait 2 years to pay it down, you will have X score plus 10-20 pts for history. Same thing if nothing else on your report changes.
Cards: Orchard Bank ($1100) | Cap1 Cash Rewards ($2500) | Chase Freedom ($1000) | Best Buy ($2500) | Discover It ($1000) | Barclay Rewards ($2500) | Current scores: EX FAKO: 684, CK TU: 649, FICO EQ: 680, FICO TU: 698, FICO EX: 658 Happy Homeowner Since 2/6/13! Smiley Happy Last App: 4/5/13 Gardening until July 2014
Message 5 of 22
cowboyguy
Regular Contributor

Re: Ambiguity

So saying "keep util low" isn't always true, correct? I mean I can take advantage of balance transfer offers offering 0% interest, carry a balance in low interest cards all the time... And whenever I intend to apply for new credit or CLI, I simply pay off my balances.

Why not take advantage of free interest?

So I can stay in the garden with high util?
Walmart Discover $10,000... Chase SW $8,500... Freedom $7,000... CSP $6,000... Amex Delta $3,000... Amex BCP $2,000... Local CU $1,500...
Message 6 of 22
MazdaSpeed
Contributor

Re: Ambiguity


@cowboyguy wrote:
So saying "keep util low" isn't always true, correct? I mean I can take advantage of balance transfer offers offering 0% interest, carry a balance in low interest cards all the time... And whenever I intend to apply for new credit or CLI, I simply pay off my balances.

Why not take advantage of free interest?

So I can stay in the garden with high util?

as long as you stay in the garden you will be unaffected, before you want to apply for something else, pay down your debt and make sure it reports the lower balance before applying, could take a month or 2 to update

fico 747
Message 7 of 22
cowboyguy
Regular Contributor

Re: Ambiguity

Sounds great 😃
Walmart Discover $10,000... Chase SW $8,500... Freedom $7,000... CSP $6,000... Amex Delta $3,000... Amex BCP $2,000... Local CU $1,500...
Message 8 of 22
bs6054
Valued Contributor

Re: Ambiguity


@cowboyguy wrote:
So saying "keep util low" isn't always true, correct? I mean I can take advantage of balance transfer offers offering 0% interest, carry a balance in low interest cards all the time... And whenever I intend to apply for new credit or CLI, I simply pay off my balances.

Why not take advantage of free interest?

So I can stay in the garden with high util?

Yes, there is lots of talk about keeping util low, but as a few posters do point out, this only matters if you are going to apply for something.   The only reason I can think of for always keeping util low is just in case a great very limited time offer comes out (so you can't wait a month to fix util) but this is unlikely.

 

So, yes, taking advantage of 0% offers makes sense (but carrying a balance on any non-zero card doesn't, if there is an alternative).  And, as a smaller effect, PIF before the due date is also losing any interest the money might earn, and doing it before the statement cuts magnifies this.  (One of the selling points of ccs originally was the float it gave you!)

Message 9 of 22
MazdaSpeed
Contributor

Re: Ambiguity

Also remember that on this forum most people believe having all of your cards besides 1 report a 0 balance and the 1 remaining card reporting at between 1 and 9 percent utilization

fico 747
Message 10 of 22
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