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Question on how to manage balances for best scoring

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raggamuffin
Established Member

Question on how to manage balances for best scoring

Hi,

 

I'm not sure if this belongs in rebuilding or credit cards.  I started rebuildng this time last year and have paid off all my debts except for my student loan which is in good standing.  I have a few paid collections (2) and paid chargeoffs (2) that should fall off in the next 2-3 years.

 

I applied for and got two credit cards in December and January.  One is a Navy Fed card with an 8k limit and the other is a Southwest card from Chase with 3k.  I don't owe anything on the Southwest card.  I understand that you should only be using under 9% of the balance on one card while keeping the others at zero to get the best FICO scoring.  When I started the rebuilding process, I'm sure my scores were either sub-400 or just above 500.  So naturally I was excited two weeks ago when I got alerts from this website showing that my Equifax score reached 665 and my Transunion is exactly at 700.

 

I don't want to take any steps backwards, but others on this site say that you get the best scoring if you have a small balance on the statement date.  If I have $400 on my Navy Fed card, wouldn't my scores plunge back downwards?  Shouldn't I always carry a zero balance to avoid this?  Thanks.

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1 REPLY 1
MarineVietVet
Moderator Emeritus

Re: Question on how to manage balances for best scoring


@raggamuffin wrote:

Hi,

 

I'm not sure if this belongs in rebuilding or credit cards.  I started rebuildng this time last year and have paid off all my debts except for my student loan which is in good standing.  I have a few paid collections (2) and paid chargeoffs (2) that should fall off in the next 2-3 years.

 

I applied for and got two credit cards in December and January.  One is a Navy Fed card with an 8k limit and the other is a Southwest card from Chase with 3k.  I don't owe anything on the Southwest card.  I understand that you should only be using under 9% of the balance on one card while keeping the others at zero to get the best FICO scoring.  When I started the rebuilding process, I'm sure my scores were either sub-400 or just above 500.  So naturally I was excited two weeks ago when I got alerts from this website showing that my Equifax score reached 665 and my Transunion is exactly at 700.

 

I don't want to take any steps backwards, but others on this site say that you get the best scoring if you have a small balance on the statement date.  If I have $400 on my Navy Fed card, wouldn't my scores plunge back downwards?  Shouldn't I always carry a zero balance to avoid this?  Thanks.



Everyone's situation is different and there is no one size fits all approach to this but what seems to work well for most people is to have only one of their cards report a small (<9% of it's credit limit) balance each month and then pay in full before the due date. You can use it as much as you want during the month but what's important is the reported balance because for most cards whatever is reported on the monthly statement is what is used to calculate utilization for the month.

You might have to play around with the percentages for a few months to see what works best for you. Some people say that 1-3% utilization helps the most. For others it might be 5-9%. As I said it's not one size fits all.

On any other cards always try and have them report a zero balance each month. That doesn't mean you can't use them just make sure that the desired zero balance on these accounts is achieved several days before their statements post.

Along with individual and overall utilization, FICO also scores the number of all types of accounts reporting a balance.at any one time Making sure less than half of all your accounts report a balance helps most people.

Now this approach really isn't necessary if you're not looking to apply for any credit in the near future or unless you are trying to tweak your score for maximum effect but some folks do this as a hobby just to see how high they can get their score.



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