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Registered: ‎11-26-2012
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How much does OTL account affect credit score

I'll be applying for a student loan through a private lender who only looks at Equifax. However, I'm worried that my credit score will be lower because one of my two credit card accounts is over the limit (OTL). Although I have made all minimum payments, I'm worried about utilization. 


Credit card 1: 20% used

Credit card 2: 110% used


As of today I have enough cash to bring one of the accounts down by 10% and I was wondering which one is best to pay off first? Any other tips would be much appreciated.


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Registered: ‎04-15-2011
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Re: How much does OTL account affect credit score

Anythibg 90% or higher util on a card is considered maxed out.  You need to pay that util down quickly.  Be careful that you don't get balance chased as you pay it down, that will sometimes happen when you max and carry a balance.

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Re: How much does OTL account affect credit score

It appears as if the scoring of % util in FICO is not linear.  In English, that means that the same % increase from, say 80% to 90%, hurts more than the same 10% increase from, say 10% to 20%. 

Additionally, FICO scores both overall % util and the util of each card.  While the distribution amongst cards is averaged out in overall % util, that is not the case when looking at individ % util.  If you accept the premise that higher utils have proportionally more negative impact than the same interval at lower utils, the effect can be significant.

Thus, purely from a FICO perspective, one would concentrate on the highest % util cards.


However, from a financial perspective, paying down the highest APR cards would reap result of less $$ out of pocket.  Thus, two often-conflicting strategies.

Advice on which to pay first is dependent upon your individual need.... improve FICO score, or decrease interest expenditure.


That is apart from any manual review issues.  Creditors dont usually base their decisions only on a three digit number.  While paying down a high util card will remove the negative effect next month, balance history is also recorded in consumer files, and is available to creditors.   Seeing a lengthy period of very high balances vs CL may raise some concern.  And, of course, creditor keep their own history data, and extended periods of high util may trigger review of your current credit limit.

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