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Frequent Contributor
Posts: 312
Registered: ‎08-16-2011
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Ideal utilization for carrying balances?

Ok so I understand that the ideal situation would be to keep all but 1 card at a $0 balance and let the 1 card with a balance report at around 9%. I've been trying to pay off some debt here lately but won't be able to pay all but one card off, or even let just 1 report at 9%.

 

That being said, what is the ideal % to try and keep cards under? I've heard 30%? I'm not app'ing for anything anytime soon, just trying to see where I need to aim for next. Right now I have 1 card at 16%, 2nd at 32%, 3rd at 63%, the 4th at 97% and the other 2 are paid off. I will have card 1 & 2 paid off by next month, and will start tackling card 3. I know I need to get the 4th card paid down fast asap too (at least under 90%), but of course this is the card that has the lowest rate for me (8%) so I'm trying to knock out all the 30%'ers.

 

Again, not app'ing for anything anytime soon so getting these numbers down is just a personal goal of mine.

05/31/2013 672 EQ (Fico), 03/08/2012 697 TU (Fico)

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Moderator Emeritus
Posts: 10,932
Registered: ‎12-30-2011
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Re: Ideal utilization for carrying balances?

[ Edited ]

FWIW I'd work at making more than the minimum on all your cards, and take one of a few approaches longer term.

 

(honestly except for possible AA your interstitial FICO score / revolving utilization are absolutely meaningless between applications, with the possible exception of automatic CLI chances)

 

1) Get the highest percentage balance down some, lenders frown on anything "maxxed out" for extended periods, which is generally considered 90% or higher utilized.  Probably 80% is better honestly from an underwriting perspective.  After that it doesn't matter too much.

 

2) Pay off your highest APR first.  This makes the most financial sense regardless, albeit the difference may be somewhat trivial in some cases but the more money you don't have to pay next month, is more money that can be used towards paying down your balances that month.

 

3) Pay off the smaller balances first to $0.  Some people find this helps them in terms of a progress indicator towards getting out of debt.  Debated this colors inside the margins too with regards to FICO improvement, though to reiterate I think interstitial utilization metrics aren't worth focusing on if more important things (like one's life) necessitate carrying a balance for some period of time.

 

I think I'd do a combination approach, 1 then 2; however, TBH, with the exception of application time, I wouldn't worry that much about revolving utilization as a general rule, though as stated extended periods being maxxed on a card isn't where you want to be.  Ideally you kick as much free cash as you can towards paying down your balances, as typical CC APR >> most investment income instruments.  

 

Since there's very little that a credit card can't cover as an "emergency fund" I tend to consider cash reserves as overvalued in the current economy vs. simply paying down your credit card debt with that.  Glaring exceptions are rent and mortgage presumably for most people.

Starting Score: EQ 561, TU 567, EX 599* (12/30/11, EX lender pull 12/29/11)
Current Score: EQ 04 693, EQ 8 685, TU 705, EX 709 (02/27/15)
Goal Score: 700 on EQ 04 (01/01/16)


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