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I understand what utilization is, and how it is calculated. What I don't understand is the reason creditors report high balance. What affect does this have in the long run? If I have, say, $500 limit, and I run up to $490 several times a month and PIF several times a month, does this hurt my score? Or is it just a reference (among others) for other banks determining if/how much credit to grant me?
I'm not aware of any effect on scores.
Individual creditors may like or dislike what they see in the high balance field.
If you have a $500 card, and spend $1450 on it one month, and pay it down twice, and then let the last $450 report before PIF, you will end up with a maxed card, and this is hard on scores.
Older FICO score models use the high balance as a CL for CCs that don't report one, like some signature cards, or charge cards.
@pizzadude wrote:Older FICO score models use the high balance as a CL for CCs that don't report one, like some signature cards, or charge cards.
It's true for current FICO models for NPSL cards which do not report with a Term = 1 month and likewise do not report a limit... though thankfully these cards are going the way of the dinosaurs.
It used to be that nobody reported limits and high balance is what everyone had to go on: historically it was a lot more important than it is today, and with the reported payments now becoming common it's not hard to easily back-of-hand math out the usage over time from an underwriting perspective so it might go away in the future but I suspect it's here for now for a while as pulling something out of the data set is a lot harder than putting something in from a reporting perspective.
Additionally, while not shown on most commercial credit reports, your credit file also records monthly balances back to approx. 24 months.
A complete credit report could thus show not only highest balance, but monthly balances.
Long periods of high balance could imply overuse of discretionary credit in a manual review.
@RobertEG wrote:Additionally, while not shown on most commercial credit reports, your credit file also records monthly balances back to approx. 24 months.
A complete credit report could thus show not only highest balance, but monthly balances.
Long periods of high balance could imply overuse of discretionary credit in a manual review.
That's interesting; I had thought the reports we received from annualcreditreport.com were effectively identical (or at least complete) in the information that was presented to a lender on their pulls... do they see this information, or if not, in which commercial-use reports is it displayed? The few commercial side reports ("hey, may I please see that?" to the loan officer) I've seen didn't have anything like it at least.
Doesn't surprise me that information is recorded explicitly: certainly for the past near two years EX and the other bureaus have been tracking reported payments, and it's easy to calculate balances looking backward for a given tradeline based on that.
Thanks!
I've just looked over my reports, and on all three theres a spot where the revolving account show that has "High Balance" - EX, TU, "High Credit" - EQ in addition to "Credit Limit". I'm just not sure why. Does anyone frequently use their cards to the limit, and PIF? I don't understand why a creditor would care as long as you PIF every month. It's pretty tough to keep less than 10% or whatever on a card that only has a $300 limit.
Again, I understand utilization when it comes to your statement date, and I'm all for it, especially to maximize your score. But does it matter if you're not?
@xsvspd wrote:I've just looked over my reports, and on all three theres a spot where the revolving account show that has "High Balance" - EX, TU, "High Credit" - EQ in addition to "Credit Limit". I'm just not sure why. Does anyone frequently use their cards to the limit, and PIF? I don't understand why a creditor would care as long as you PIF every month. It's pretty tough to keep less than 10% or whatever on a card that only has a $300 limit.
Again, I understand utilization when it comes to your statement date, and I'm all for it, especially to maximize your score. But does it matter if you're not?
Suppose that a year ago you were totally maxed out on credit, and today, your utilization is 1%.
FICO utilization scoring will give you high marks, but some creditors may wish to know what life was like in the bad old days.
@user5387 wrote:
@xsvspd wrote:I've just looked over my reports, and on all three theres a spot where the revolving account show that has "High Balance" - EX, TU, "High Credit" - EQ in addition to "Credit Limit". I'm just not sure why. Does anyone frequently use their cards to the limit, and PIF? I don't understand why a creditor would care as long as you PIF every month. It's pretty tough to keep less than 10% or whatever on a card that only has a $300 limit.
Again, I understand utilization when it comes to your statement date, and I'm all for it, especially to maximize your score. But does it matter if you're not?
Suppose that a year ago you were totally maxed out on credit, and today, your utilization is 1%.
FICO utilization scoring will give you high marks, but some creditors may wish to know what life was like in the bad old days.
Flip side is true too: if someone doesn't use their card (ignoring Annual Fees for this discussion) the lender doesn't make any money. The higher the high balance, the more use the card has seen, the more money someone made off that customer... and possibly you (the lender) might as well.
High balance isn't all negative by any stretch of the imagination, I still routinely max out my high balance on a given card (becoming harder to do as my tradeline size increases admittedly in a single month) and this used to be standard practice in the old days where limits weren't reported anyway.
Additionally, high balance can demonstrate responsible use of credit: who's more trustworthy in a lender's eyes, someone who never used the card for much of anything, or someone who used it heavily, and then paid it off without lates or any derogatories? In my estimation it's the second category, combine that with being more profitable, and I don't see the negative bit at all... negatives are covered by all sorts of derogatories on payment history, high balance isn't a derogatory item.
I travel for work frequently, (every other week), and pay for my expenses, hotel, car rental, food, etc. and charge everything to my credit cards. As soon as I return, the company I work for reimburses me, and I PIF. Then a week later, I do it again. Is this a bad thing in the eyes of creditors? I'm looking to get a rewards card soon to take advantage of the cash back.
My annual expenses (paid for by my company) are around $80k. But spending $80k on a CC with a 3k or 5k limit can't be done without getting close to maxing out the card. I get to keep the rewards, since it's my card. My company has no problem with this. Am I hurting myself in the long run, credit wise?