I'm new to this and I'm trying to figure out why low credit utilization on my cards is so important. Not that I carry a balance on three of them - I pretty much pay those off as soon as I make a purchase on them. And I don't make many purchases with those, as I like to consolidate my points on my primary card. I thought that the important thing when it came to credit cards was making your minimum payment (or more) on time every month. In other words, having a high balance even though you're making your payments is bad?
Here's exactly what happened:
August, September, October 2012 - I was unemployed, and my balance was pretty much at my limit of $800. My introductory 0% APR wore off not too long ago, and I was seeing some interest charges. Didn't make a payment for a bit, but I worked it out with Citi in the end as soon as I got employed. The account did go above my limit of $800 (due to interest charges and late fees), but Citi didn't file a bad credit report.
November 2012 through present - I've spent plenty of money (perhaps a little more lavishly than I should have), but at the same time lowered by balance each month by around $100 to $200 while avoiding interest charges. It's currently sitting at $75 after I made a big payment recently (think $500 compared to my limit of $800; the previous statement balance was $400 and the next will likely be $100 or less). From what I understand, that big payment probably bumped my score up by like 50 points? Yet my score would go right back down if I were to bring the balance back up to a high amount like $600 out of $800? Does credit really change that fast?
Thanks for the input guys.
YES it really changes that fast. Your credit changes everytime a report from a creditor is given to the CRA.
YES utilization is that important and accounts for about 30% of your FICO score, that is why it is so important to keep your UTL down if you are planning to apply for anything.
If you're consistently carrying large balances on your credit cards, and your utilization rate is high, this suggests that you may be living beyond your means. The formula's used for a lot of the credit scores seem to reward people who "manage" their available credit well. Don't get me started, the whole credit score industry is a joke, and the fact that people use these scores as a tool to help determine someone's mortgage, car loan, etc worthiness is beyond scary...but that's the game you have to play.