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Optimal Utilization??

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theheater30
Contributor

Optimal Utilization??

Okay so I know that I should carry a small balance... but how much? My Fiance's score dropped quite a bit because he let his only card with a balance report $0. So whats the best way? He has 2 Cap one cards, 1 Chase Freedom, and a few store cards he doesn't plan on using. Also which card should he utilize? Just one or switch them around? We are building credit for a home loan so every point matters!

Message 1 of 6
5 REPLIES 5
Anonymous
Not applicable

Re: Optimal Utilization??


@theheater30 wrote:

Okay so I know that I should carry a small balance... but how much? My Fiance's score dropped quite a bit because he let his only card with a balance report $0. So whats the best way? He has 2 Cap one cards, 1 Chase Freedom, and a few store cards he doesn't plan on using. Also which card should he utilize? Just one or switch them around? We are building credit for a home loan so every point matters!


For the best UTI portion of your scores, let one card report a small balance of less than 10% of it limit. All other cards report $0 balance. Let the same card report each month, don't try switching them around.

 

Also it should be noted that you really do NOT need to do this every single month - just in the month or two before a large app like a mortgage, in order to peak your scores.

Message 2 of 6
theheater30
Contributor

Re: Optimal Utilization??

Thank you so much for the response! So for the card of choice... does that matter? Should it be the oldest card? The card with the highest limit? Or are certain cards better to use?

Message 3 of 6
Thomas_Thumb
Senior Contributor

Re: Optimal Utilization??


@theheater30 wrote:

Okay so I know that I should carry a small balance... but how much? My Fiance's score dropped quite a bit because he let his only card with a balance report $0. So whats the best way? He has 2 Cap one cards, 1 Chase Freedom, and a few store cards he doesn't plan on using. Also which card should he utilize? Just one or switch them around? We are building credit for a home loan so every point matters!


The Fico credit scoring models do want to see some credit use every month. If you show no use, a score drop of 20 to 30 points is rather typical. The good thing about this and revolving card utilization is the score is instant in time with no memory. So, you start fresh every month (or more accurately every time data is pulled to generate a score).

 

There are three revolving credit components related to scoring:

1) Aggregate credit card utilization (combined balance on all cards/total credit limit all credit cards combined). This factor carries the most weight. Ideally, keep this utilization under 5% but most say anything under 9% gives optimal results.

2) Individual card utilization. Most say that any card reporting a balance should not exceed 9% utilization (same as aggregate). That is safe and conservative advice. My experience is score won't be hurt as long as card utilization is under 30% with aggregate utilization under 9%.

2a) Individual card max out condition. You can lose points for this apart from high utilization. Experian defines max out as 90% and above.

 

Plus Score Credit Usage.gif

 

3) Number of cards reporting a non zero balance. This factor has more weight than one might expect. Best to report a balance on only one card for top results. Whether it is the same card or a different one month to month is your call. Really, if you are not seeking new credit "near term", no harm in allowing balances to report on multiple cards if it makes life easier. Just understand score may drop temporarily until you go back to just one card reporting.

 

You do want to actually put charges on all your cards periodically (at least once every 3 to 4 months) to keep them from going inactive. You run the risk of a credit line decrease (CLD) and even account closure if a card is not used for more than 6 months. You may want to consider using secondary cards periodically but then paying off balances before statement cuts so a zero balance gets reported to the credit bureaus.

 

Again, use credit to build credit history and feel free to allow multiple cards to report small balances up until 2 or preferably 3 months before seeking a home loan

Fico 9: .......EQ 850 TU 850 EX 850
Fico 8: .......EQ 850 TU 850 EX 850
Fico 4 .....:. EQ 809 TU 823 EX 830 EX Fico 98: 842
Fico 8 BC:. EQ 892 TU 900 EX 900
Fico 8 AU:. EQ 887 TU 897 EX 899
Fico 4 BC:. EQ 826 TU 858, EX Fico 98 BC: 870
Fico 4 AU:. EQ 831 TU 872, EX Fico 98 AU: 861
VS 3.0:...... EQ 835 TU 835 EX 835
CBIS: ........EQ LN Auto 940 EQ LN Home 870 TU Auto 902 TU Home 950
Message 4 of 6
theheater30
Contributor

Re: Optimal Utilization??

Awesome! Thank you so much for the information!! I don't know why I am just seeing this now!!

 

One question, why only allow multiple cards carry a small balance until 2-3 months prior to applying for a home loan? Will this just maximize the points?

Message 5 of 6
Anonymous
Not applicable

Re: Optimal Utilization??


@theheater30 wrote:

Awesome! Thank you so much for the information!! I don't know why I am just seeing this now!!

 

One question, why only allow multiple cards carry a small balance until 2-3 months prior to applying for a home loan? Will this just maximize the points?


Yes, the "one card with a <10% balance" rule is just to peak your scores, nothing more.

Message 6 of 6
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