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Loan officer says to keep a small balance on my credit cards to raise my score.

Super Contributor

Re: Loan officer says to keep a small balance on my credit cards to raise my score.


letsclique wrote:

I think that might be why my scores has started to level off. Because I was paying the minimum payment, but carrying the remaining balance.


Paying the minimum is b.a.d.

FICO8 EQ 721 TU 772 EX 777 Total revolving credit 500k
Message 11 of 21
Community Leader
Senior Contributor

Re: Loan officer says to keep a small balance on my credit cards to raise my score.

Hello LC!  Is it feasible for you to always pay your credit card statements in full?  That is far FAR better than paying only the minimum payment.

Message 12 of 21
Moderator

Re: Loan officer says to keep a small balance on my credit cards to raise my score.


letsclique wrote:

I think that might be why my scores has started to level off. Because I was paying the minimum payment, but carrying the remaining balance.


Utilization is a point in time calculation; scores tend to level off as they age and get thicker.  

 

The posters here are right, the LO not so much; optimal is 1 card reporting a balance on all FICO models (there's some variance possible but 1 card works for literally everyone) and this absolutely includes the scores used for the mortgage process.

 

FWIW LO's while well intentioned, unless they're on here or a number of other credit sites in my experience, often have the typical conventional wisdom view of the algorithm.  Not their fault, this is a seriously niche community and the voices on the Internet touting credit expertness are much much louder and unfortunately not always accurate.  Also paying the minimum means you're paying the maximum in interest over time too, giving the bank more of your cash no bueno.

Starting Score: EQ 5 561, TU 98 567, EX 2 599 (12/30/11)
Current Score: EQ 5 771, TU 4 758, EX 2 758, EQ 8 795, TU 8 762, EX 8 786 (7/28/17)
Goal Score:    EQ 5 750, TU 4 750, EX 2 750, EQ 8 800, TU 8 Blah, EX 8 800 (01/01/18)


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Message 13 of 21
New Member

Re: Loan officer says to keep a small balance on my credit cards to raise my score.

I don't know how true that is but, I paid all my credit cards in full before the statement dropped and my Fico score dropped 20 point with experian, 16 point on Equifax and 18 points on Transunion. I have come to the conclusion that you should always close out each statement  with a small balance if you are in the rebuilding stage concerning your credit. I had a discharged bankruptcy in October 2015, built my credit scores to 702 with equifax, 685 with experian and 680 with transunion in less than 12 months from my discharge date, I had a balance of 40.00 dollars on one credit card, paid it in full last month and all my scores plummed by the numbers I have shown. My advice is to always close each billing cycle with a small balance then pay them in full  by the due date to avoid score damage.

Message 14 of 21
Valued Contributor

Re: Loan officer says to keep a small balance on my credit cards to raise my score.


Fling46 wrote:

I don't know how true that is but, I paid all my credit cards in full before the statement dropped and my Fico score dropped 20 point with experian, 16 point on Equifax and 18 points on Transunion. I have come to the conclusion that you should always close out each statement  with a small balance if you are in the rebuilding stage concerning your credit. I had a discharged bankruptcy in October 2015, built my credit scores to 702 with equifax, 685 with experian and 680 with transunion in less than 12 months from my discharge date, I had a balance of 40.00 dollars on one credit card, paid it in full last month and all my scores plummed by the numbers I have shown. My advice is to always close each billing cycle with a small balance then pay them in full  by the due date to avoid score damage.


All cards at $0 will drop your score. You should have at least 1 card showing a balance.

 

Don't worry, your score will go up as soon as 1 card report a smal balance. See what card will cut in 3-4 days, and buy something with it at let it report.

Message 15 of 21
Established Contributor

Re: Loan officer says to keep a small balance on my credit cards to raise my score.


letsclique wrote:

jjking54 wrote:

First, you might want to check out the Rebuilding section .... lots of great information there. 

 

Here's what you'll hear over there. 

 

To maximize your FICO scores, you want to have at least three revolving trade lines ... ie, credit cards. Me personally, I have a Cap 1 unsecured card, a Discover secured card, and an Overstock card. With those cards, you want to show a zero balance on two of the three, and a balance of no more than 9% of your total available credit. 

 

For example, you have three cards. Each has a $1000 credit limit, so your available credit is $3,000. When the statement cuts on your cards, you'll want two of those cards to show a zero balance. On the last card, you want to report NO MORE than $270 on your statement, which reflects 9% of your total available credit. (as an aside, it would be even better if you showed only a 9 percent balance on your last card, so a $90 balance instead of a $270 -- that will net the MOST points, but that's not absoltutely needed until you're trying to maximize your points -- like when you apply for your mortgage)

 

Here's what I do. My statements are cut like this: 

Capital One - the 2nd of the month

Overstock - the 9th of the month

Discover - the 20th of the month

 

So let's say, my cards reflect the same limits in the example above. 

On the 1st of the month, I want my Capital One card to show NO MORE than a $270 balance. 

On the 8th of the month, I want my Overstock card to show a zero balance. 

On the 19th of the month, I want my Discover card to show a zero balance. 

 

Then, after the Capital One statement cuts on the 2nd, I want to pay off the $270 balance. The way I have my budget set up, I immediately pay off the balance when I get paid on the 5th of the month. That way I know two things ... one, I won't incur any interest charges, but two, and most importantly, I will ensure my monthly payment is MADE. Can't stress that enough ... you MUST make your payments on time, every month, especially if you want to get a mortgage. 

 

Now, all that said, that's not to say you can't USE all the cards. In fact I generally use my Discover card every month as well. The way I use it, I have at least two bills that are due immediately after my statement date, total is $40. Sometimes I'll put gas on it too, HOWEVER, every month, before the statement cuts on the 20th, I pay it off in full, so that it reports a zero balance. 

 

This accomplishes two things ... one, you use the card, which keeps the card grantor happy and ideally leads to credit line increases. Two, you're making monthly payments, even if you're not paying it after the statement reports a balance. 

 

Last month I needed a pair of hiking shoes, so I bought a pair on Overstock, and just paid it off before the staement cuts. 

 

 

My final advice:

 

Get and stay organized ... you have to know your budget, when you have income coming in, what is going out to pay bills, etc.

NEVER NEVER NEVER miss a payment ... especially if you have your eyes on a mortgage. I cannot stress that enough. Having a year of on time payments on your credit report will show a nice score improvement and make your loan officer happy. 

Don't use your card to pay for things you cannot afford. My rule is, if I can't pay it off before I would incur interest charges, I can't put it on my card. 

Don't apply/get cards you don't need. 

And NO applying for new credit six months before you apply for a mortgage. 

 

Hope this helps Smiley Happy 


Thanks for the help! Do you know of any spreadsheets that might help me with this, or something else you use to track your budget?

 

I keep a Desktop Sticky Note of all my bills, and due dates, and I use Mint too.


Sorry I didn't see your follow up post ... was a busy weekend. 

 

Anyway, I just created my own spreadsheet. I keep it in Google sheets (which I use daily for work so I'm already in the program) ... 

 

On the left side of the page is listed ALL of our bills in a month. On the far left column is the date due for that month, the next column is the entity the bill is paid to, and the next column the usual amount. In the next column I note where the bill is being paid from (I pay some of our bills with my credit cards each month, and then pay them off -- so bills are either paid from our checking account, my Cap 1 card or my Discover).

 

Then I skip a column. In the next three columns I list income for the month. First column, the date the income comes in in the month, the second column, where the income is coming from (wife payday, my payday, etc) and the third column the amount. 

 

Then, I create three "boxes" based on income dates. I always get paid the 5th and 20th (unless they fall on a weekend, then it's a day or two earlier). My wife also gets paid twice a month, but her dates fluctuate. Lastly, my stepdaughter receives Soc Security because her father died when she was six. 

 

At the top of each box is the date and the total amount coming in. Under that, I list the bills that are coming out of that income. 

 

On payday, if the bills aren't set to auto pay, I pay the bills listed under the appropriate payday. When they clear the account, I strikethrough the bill/amount to know it's taken care of. 

 

Hope that helps and the description is understandable

Message 16 of 21
New Contributor

Re: Loan officer says to keep a small balance on my credit cards to raise my score.

i haven't touched my profile in over a year and paid my cards off except one last year.  just recently i decided to use a couple cards that have been sitting for a while for a bunch of purchases.

 

looks like i took a few points hit for each one when one card hit 15% util and the other 20%  with my overall way less than 10%  

 

 

Message 17 of 21
Valued Contributor

Re: Loan officer says to keep a small balance on my credit cards to raise my score.

Two things may be impacting score - neither of which relate to utilization.

 

1) An increase in # of accounts reporting a balance. How many cards do you have and how many reported balances?

2) Using a card that has been inactive more than 5 months. Some have reported a score drop when a "long term" inactive account 1st reports activity. The drop was short term and score rebounded the next reporting cycle.

 

It is highly unlikely that a card balance under 30% would cause a score drop unless aggregate UT % (all cards combined) crossed over a threshold.

Fico 8: .......EQ 850 TU 850 EX 850 (3/2017)
Fico 9: .......EQ 850 TU 850 EX 850 (3/2017)
Fico 4 .....:. EQ 804 TU 823 EX 830 (3/2017) EX Fico 98: 839 (3/2017)
VS 3.0:...... EQ 832 TU 832 EX 832 (3/2017)
Fico 8 BC:. EQ 887 TU 899 EX 900 (3/2017)
CBIS: ........EQ LN Auto 940 EQ LN Home 870 TU Auto 902 TU Home 950 (4/2017)
Message 18 of 21
New Member

Re: Loan officer says to keep a small balance on my credit cards to raise my score.

It is obvious you are not rebuilding your credit, because I can assure you, that if you pay-off all your cards to zero, your score will drop like a rock. as I mentioned earlier in this thread; I had a total credit card balance of $40.00 on accross all of my credit cards,  I paid my balance in full, my score dropped 20 points. Since that episode I left a $10.00 balance on my last credit reporting cycle and my score went back up 20 points. The  system has made a believer out of me. Leave a balance, no matter how small at the end of your statement and this will help your score if you are rebuilding  your credit. then after your statement drop pay it in full to avoid interest charges. You must have some usage to show utilization, this is an important factor in determing your credit score.

Message 19 of 21
Super Contributor

Re: Loan officer says to keep a small balance on my credit cards to raise my score.


Fling46 wrote:

It is obvious you are not rebuilding your credit, because I can assure you, that if you pay-off all your cards to zero, your score will drop like a rock. as I mentioned earlier in this thread; I had a total credit card balance of $40.00 on accross all of my credit cards,  I paid my balance in full, my score dropped 20 points. Since that episode I left a $10.00 balance on my last credit reporting cycle and my score went back up 20 points. The  system has made a believer out of me. Leave a balance, no matter how small at the end of your statement and this will help your score if you are rebuilding  your credit. then after your statement drop pay it in full to avoid interest charges. You must have some usage to show utilization, this is an important factor in determing your credit score.


If you're talking about a $10 or $40 balance on ONE of the cards, fine.

 

If you're talking about a $10 or $40 balance on EACH of the cards, that would not be optimum.

FICO8 EQ 721 TU 772 EX 777 Total revolving credit 500k
Message 20 of 21