How to balance credit cards?

[SomeGuyOnTheWeb]

So I was just recently approved for the Discover It card with a $7,500 credit limit. That brings my grand total of credit cards to... two.

I'm not a big spender by any means. My goal is to simply raise my credit scores. Anyway, I'm a little confused on optimal utilization and how it works. From what I understand, you only want to show one card carrying a balance. So $50 on both cards is "worse" than $100 on one card? Furthermore, is there a benefit to showing a balance on the card with the larger CL than the smaller one, or does it not make a difference? Finally, and this may be an odd question, but assuming only one of the following options, which do you think would be best? Applying for another CC or trying to raise the CL on my smaller one (the bank rep I talked to said she couldn't guarantee a soft pull, so I'm wary about doing both).

And, yes, I intend to PIF each month.

[user5387]

If you have N cards, typically you want to let one of them report a small balance, with the others at $0.

Per-card utilization is looked at as well, so you don't want a balance on a card if the CL is so low that the utilization for that card would be 10% or more.

A corollary to this point is that if you need to carry a balance, carrying it on one high-CL card is often the best way to optimize utilization, so long as you don't max out the card.

[bobebob]

---

@SomeGuyOnTheWeb wrote:
So I was just recently approved for the Discover It card with a $7,500 credit limit. That brings my grand total of credit cards to... two.

I'm not a big spender by any means. My goal is to simply raise my credit scores. Anyway, I'm a little confused on optimal utilization and how it works. From what I understand, you only want to show one card carrying a balance. So $50 on both cards is "worse" than $100 on one card? Furthermore, is there a benefit to showing a balance on the card with the larger CL than the smaller one, or does it not make a difference? Finally, and this may be an odd question, but assuming only one of the following options, which do you think would be best? Applying for another CC or trying to raise the CL on my smaller one (the bank rep I talked to said she couldn't guarantee a soft pull, so I'm wary about doing both).

And, yes, I intend to PIF each month.

---

It is slightly worse.  If Fico doesn't have anything better to complain about, they will say "you are carrying balances on too many CC's".

Only if your balance would make the utilization on the smaller card greater than 10%.  Other than that, it wouldn't really matter.  And the 10% figure is only to max out score and get those last couple of points if you are trying to get into a better range for a specific short-term reason (like to get a better rate on a mortgage you are applying for in the near future).  Since the CS is just a moment-in-time snapshot, going through the process of squeezzing every last point out of your score is a waste of time if you don't have a specific reason to at that moment.  Most of the time we should have better things to do with our time. 

I tend to think very long-term about any new cards I get.  I have one each of different flavors (Visa or Mastercard, Amex, Discover) because they aren't all accepted everywhere.  I also make sure that none of the cards I get have an annual fee so if I don't use them regularly, I'm not paying every year just to have them.

My point is to make sure you will have a long-term need for every card you get.   Then obtain those cards as early as is practical so that the short term affects of Inquiries and new accounts will fall off sooner.  I think that this is the quickest way to get the credit cards that will serve you the best in the future while minimizing the short-term affects to your score.

[takeshi74]

---

@SomeGuyOnTheWeb wrote:
Furthermore, is there a benefit to showing a balance on the card with the larger CL than the smaller one, or does it not make a difference?

---

The standard generic advice applies.  For optimal scoring only allow a balance to report on one card with 10% or less utilization.  That's all there is to it.  Credit limit doesn't matter as it's factored into utilization (balances/available credit).

---

@SomeGuyOnTheWeb wrote:
From what I understand, you only want to show one card carrying a balance.

---

For optimal utilization.  I don't bother and all 10 of my cards have balances reporting.  My latest TU FICO from Discover was 794.  It could certainly be higher if I had fewer cards with balances reporting but that's good enough for me.  YMMV.

Also, you don't want to show one card carrying a balance.  You only want one to report.  Report and carry are two different things.  You'll pay interest for carrying a balance.  You can avoid interest by allowing a balance to report and paying in full.  Reporting typically happens at statement end though some cards report at other times.

---

@SomeGuyOnTheWeb wrote:
Finally, and this may be an odd question, but assuming only one of the following options, which do you think would be best? Applying for another CC or trying to raise the CL on my smaller one (the bank rep I talked to said she couldn't guarantee a soft pull, so I'm wary about doing both).

---

As always, best is subjective and you really haven't provided enough information for us to answer for your specfic case.  Always keep the usual factors that affect credit scoring in mind.  Applying for a new card means you'll take on another inquiry and your AAoA will be rediced by the new account.  You can calculate the change in AAoA and you need to consider that change and the inquiry affect your credit.  Thicker credit profiles are generally better able to absorb such changes without much affect.  Thinner profiles will see more of an impact.  We know nothing about your credit so you'll need to assess this yourself.

A CL, on the other hand, doesn't affect AAoA.  It can affect inquiries if the creditor requires a hard pull for the CL.

Both will also affect utilization.  This is another item where you can perform before and after calculations to see the change though we really can't tell you that you'll get X points for Y improvement in utilization.

---

@bobebob wrote:

I also make sure that none of the cards I get have an annual fee so if I don't use them regularly, I'm not paying every year just to have them.

---

Each has to determine his/her own criteria in selecting cards but I generally recommend not using AF avoidance (which seems to be very popular) but considering total cost/benefit.  I have several AF cards where the benefits greatly exceed the AF's.  YMMV, of course.

[vanillabean]

---

@bobebob wrote:

If Fico doesn't have anything better to complain about, they will say "you are carrying balances on too many CC's".

---

It's a pity though that FICO doesn't know what "carrying balances" means. Many, such as Liz Weston, fortunately do.