Keeping the balance 0 all the time

[Anonymous]

Does FICO system like to see 0 balance on the reports? Should I keep the balance 0 all the time? I heard that banks don't like to see 0 balances. I always use my accounts and pay them off before the billing cycle ends to show 0 balance on my reports? Is this a good practice or no?

[haulingthescoreup]

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@Anonymous wrote:

Does FICO system like to see 0 balance on the reports? Should I keep the balance 0 all the time? I heard that banks don't like to see 0 balances. I always use my accounts and pay them off before the billing cycle ends to show 0 balance on my reports? Is this a good practice or no?

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Most people have found that if they let one card report a balance of under 10% or under 5% on one card, their scores are better. Strange but true.

If you're not heading for a credit application within the next several months, you might let one of your accounts report $5, and then pay it off after the statement drops. I'd do this with one of the majors that are good about updating regularly (Citi, Chase, BofA, etc.) Don't do it with American Express because they report the previous month's balance, and so there's a lag for turn-around.

Give it a week or 10 days for all 3 bureaus to update the reports, and then pull a score. If you have a credit monitoring service like TrueCredit or something similar that allows you to pull refreshed reports daily, you can tell when the new balance hits all three reports.

Please let us know what happens! Most do report better scores with one CC reporting, but there might be an exception for those with very high scores.

[MattH]

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@Anonymous wrote:

Does FICO system like to see 0 balance on the reports? Should I keep the balance 0 all the time? I heard that banks don't like to see 0 balances. I always use my accounts and pay them off before the billing cycle ends to show 0 balance on my reports? Is this a good practice or no?

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Hmmm, I'm no expert but from what I've read here, it seems like there's a certain catch 22 here:

Big balance = not good

Many nonzero balances = not good

No regular activity on revolving credit = not good

BUT the only way for activity to enter into the FICO formula is via that card showing a balance, since they only get one number per month on the CRAs, so paying in advance looks the same as leaving it in the sockdrawer.

I've also read that TransUnion cares more about how many revolving accounts show a balance at all, Equifax cares more about the total dollars owed on all revolving accounts, and Experian cares more about percent utilization, dollars owed on all revolving accounts divided by total credit limit.

I suppose the utterly optimal strategy based on the above might be, each month pick ONE card, not the same one every time, to be the card that will show a small nonzero balance in this month. On the designated card, make TWO payments, the first one before billing date is a little less than the total balance, to make the balance on billing day small but nonzero, and then make a second payment after the bill arrives for that balance in order to avoid any finance charges and/or late fees. On all other cards, make one payment just before billing date of the exact balance so that just one account will show a nonzero balance this month. Mathematically, that should ensure that (1) each card has recently shown nonzero balances in recent months, so it doesn't look like you sockdrawered them, keeping everybody happy, (2) only one revolving account shows a nonzero balance in this month, keeping TU happy, (3) the total on all revolving accounts is small but nonzero, keeping EQ happy, and (4) the percent utilization is small but nonzero, keeping EX happy.

[Anonymous]

BUT the only way for activity to enter into the FICO formula is via that card showing a balance, since they only get one number per month on the CRAs, so paying in advance looks the same as leaving it in the sockdrawer.

I've also read that TransUnion cares more about how many revolving

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Matt,

Actually you do not need to report a balance for a card to appear active. Active is a separate status reported by the CCC. Thus, a used card that is paid before the statement date will not look like a sockdrawered card.

[Anonymous]

I went years without using my credit cards....Then once I started to let one report a small balance I saw a 20 point increase across all 3 reports.

I thought just because I had credit cards and an installment loan that I would get the good mix of credit....but apparently you have to use the credit cards too in order to get the extra points for that (I guess that makes sense)

[RobertEG]

It is the absolute irony of the credit scroring system.  You gottta show at least the use of credt to be evaluated on how you use it!

But by simply reading these forums, you know that you dont have to carry debt or accrue interest to show that you use revolving debt. 

Many anecdotally report the magic "1-9%" util as being optimal.  Once at that level, it is no longer a consideration that would cost me the loss of count of sheep at night.

Message Edited by RobertEG on 06-29-2008 12:22 PM

[Anonymous]

In the credit report there is a column for high balance and another column for recent payments. Do those columns affect FICO score even though the balance is 0 ? In other words, will the card look like in the stockdrawer with 0 balance even if recent payments and high balance columns in the report show a big number?

I know that Chase bank (circuit city) doesn't like to see 0 balances and they decline even with high score (750+)

I hope high balance and recent payment columns in the credit report are considered highly even with 0 balance

[Anonymous]

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aden wrote:

In the credit report there is a column for high balance and another column for recent payments. Do those columns affect FICO score even though the balance is 0 ? In other words, will the card look like in the stockdrawer with 0 balance even if recent payments and high balance columns in the report show a big number?

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FICO will know that the card is active but, oddly enough, will not give you any "credit" (no pun intended) for using your revolving credit unless you show a balance, as the others have described above.

The High Balance and Recent Payments fields don't factor into FICO scoring at all, under normal circumstances.  (The only exception is when a CC does not report a CL, in which case the High Balance is used in its place.)

As others have said, for optimal FICO scoring in the "amounts owed" category, allow one revolving account to show a balance of no more than 9% of its CL (some say 4%), and allow the rest of your revolving accounts to report $0.

[Anonymous]

The bottom line here is that the lion's share of the points to be gained via revolving accounts can be had simply by keeping your utilization under 10%. Do that, and you're reaping about 90% of the benefits there are to reap.

If you want the other 10% of the FICO boost you can get, my advice is to let some of your cards report a balance while keeping the rest paid off. Stagger your usage of your cards so that each card is used at least once every three months. That way, they report as active and count under the "number of accounts paid as agreed" total (which works for you).

[RobertEG]

I would LOVE IT if FairIsaac would tell us all definatively if keeping a %util on an active account (used within the last six months) at 1-9% util scores, is better in FICO than doing a PIF before reporting date each month, and thus scoring at 0% util at reporting if the accont is used an active each month.

The general, although only anecdotal, consensus on this forum seems to be that FICO loves 1-9%, but hates 0%.

I await the FairIsaac solution to this debate, in absolutum.