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Credit Card Utilization

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Anonymous
Not applicable

Credit Card Utilization

I have "good" credit according to FICO, but what is really keeping my score down is that I have a significant amount of credit card debt.  Thankfully, I am presently in a position to really start paying off my credit cards, which I know will have a significant improvement on my utilization.  For example, I will be able to pay off 1 card entirely (nearly $5000 of debt) before the end of the year.

 

My "plan of attack" is to pay the one with the highest interest rate first, then go to the one with the 2nd rate, etc.

 

This is my concern.  Because my score is totally impacted by my debt, is it better to report a "tiny" utilization than to have a total $0 balance on my cards?  I originally thought that having about 3% utilzation overall (over all of my cards) would be ideal, but now I'm not so sure.  I'm really hoping to not use 1 card ever again (it's not a rewards card, it has a high rate, etc).  I just want to keep the card because I've had it for a long time, and it has a nice credit line associated with it as well. 

 

I was just curious what some of the more seasoned experts would do in that situation?

 

Thanks :-)

Message 1 of 6
5 REPLIES 5
cobaltnv
Established Contributor

Re: Credit Card Utilization

Congrats on being able to attack your credit card debt. I have been cc debt free since 2002 and it is a great feeling. Ideally, you would like less than 1/2 of your cards reporting a balance. Personally, I try to let only 1 maybe 2 report (although it does not make too much difference if up to 3 report for my file).

 

Keep in mind that the balance that is reported is your statement balance (in some cases it is an end of month balance). If you pay off by the due date no interest will be charged. I pay all but one or two of my cards off online right before the statement cuts. Then I pay off my last card right after the statement cuts. This allows a small %utility to report (usually 1-3%) and I pay no interest.

 

If you have an old card you want to keep active be sure to use it every 3-6 months for something small then pif right away. This will, in general, prevent the ccc from closing your account. I put a small recurring charge on teh cards I do not use, but want to keep alive.

Good luck 

TU 810: EQ 813: EX 814 (9/16/09--Loan officer pull)

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Message 2 of 6
Anonymous
Not applicable

Re: Credit Card Utilization

I can't imagine being out of CC debt for over 7 years already - that's an amazing accomplishment.

All things being equal, by the end of 2010, I will have PIF 2 of my credit cards, and I will have about 40% utilization on my 3rd card. 

 

You've given me a good plan to help keep the cards active (I'm sure a small $50 - $100 charge every 6 months on both of those cards will be all too easy to do).

 

I've already paid down $500 on one balance.  And I am planning on paying off another $700 or $800 this month on that card.  It's amazing how quickly the util can really go down.

 

Thank you for the tips!

Message 3 of 6
cobaltnv
Established Contributor

Re: Credit Card Utilization

Sounds like you have a great plan. Keep up the good work and you will soon be free....

 

You will be surprised how much more $$ you have once you pay off your cc debt. I used my extra to pay off my car loan. THe only interest I pay now if my mortgage and my student loans.

Cheers 

TU 810: EQ 813: EX 814 (9/16/09--Loan officer pull)

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Message 4 of 6
RobertEG
Legendary Contributor

Re: Credit Card Utilization

Financial management and FICO scoring are totally different animals, and often at odds.

Here is how I address what to pay, and when.

My first consideration, always, is when do I expect to apply for new credit.  FICO %util has NO memory.  It is only the recent % util right before you apply for new credit.  So the impact of indiv card util is meaningless until about two months before anticipated app for new credit.

So I pay the higher interest rate cards first, for they have the greatest inpact on money out of pocket.  Regardless of % util.

I pay attention to the fine-tweaking of all cards under 10% util, and over half the cards reporting zero balance, at that point.

Until then, it is all just academia.

 

 

Message 5 of 6
marty56
Super Contributor

Re: Credit Card Utilization

These days I would conisder a 3rd variable.  AA.  You would need to look at your CC accounts and determine which one might be subject to AA and which account is the one you want to keep the safest.

 

I would treat my 25 year old Chevron card much differently than my 3 years old National City Visa card and if I had to choose between the 2, Chevron would win hands down.

1/25/2021: FICO 850 EQ 848 TU 847 EX
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