High monthly balances on my credit card is a negative?

[Anonymous]

I just signed up for myFico and reviewed my actual credit score for the first time. The only negative was described as carrying a "High amount on my revolving credit line". Solution was to pay it down. My question is that my credit card charges average over $3,000 per month and have for 3 or 4 years and if the entire balance is paid off each month and I incur no finance charge, why is that a negative? If I understand your explanation correctly, if I happen to check my credit score right after I had paid off the balance and very little had been charged to my credit card, my credit score could go up another 15 to 25 points? It seems the revolving balance should have no bearing, but the payment history and making payments in excess of the minimum should reflect as positive to my credit score? The amount of the balance should be only a reflection of the card holders ability to charge and pay. Someone who only pays the minimum required payments and incurs finance charges should have his credit score reduced no matter what the balance is on his credit card? What am I missing?

[haulingthescoreup]

The only data available for FICO scoring is the amount reported to the credit bureaus by your credit card companies. If you have a $10K CL card, and a balance of $9K reports every month, this is interpreted as your having a maxed-out card. Paying after it reports doesn't help, because the new lower figure doesn't get reported. The company reports again the following month, when your balance is back up.

The way around this is to pay off a bit earlier than usual. Most (not all!) CC companies update to the bureaus on your statement date. If you pay off your balance 4 or 5 days before the statement drops, suddenly your usage ("utilization" or util) looks a whole lot lower.

If you decide to do this, make sure that one card does report a bit less than 10% of its balance. Oddly enough, you lose points for having NO credit card debt. Of course, once it reports, you can go ahead and pay it off.

While this does seem a bit lunatic, it's how to work with the existing scoring formula so that you do get credit for your financial responsibility.

[MidnightVoice]

In essence, this is only important at times your score is important - ie when applying for credit.

This is why many of us make sure our CCs report a practically zero balance (by paying early) when we are about to apply for credit in any form.

FICO like to see utilization less than 10%.  This is all somewhat counter-intuitive, but true

[SmartCookie]

Call all of your card issuers and see if they can give you a CLI without a hard INQ (soft INQ or account review).  That will give you more wiggle room and is another way to improve your UTI painlessly.