Questions about Utilization

Anonymous · ‎03-04-2011

Hey my first post so don't shoot me if this has been covered hundreds of times, (un-kay?) Yeah, I know I should go read through everything first.

First, one of the reps for a major repository is telling me FICO (score) is actually heavily weighted toward the Util on Revolving Accts on a MICRO level, not a macro level. Any thoughts?

Second, what happens to the 30% of my FICO score if there are no open active accts? Do I get a big fat 0 for this 30% of my scrore or is it just not counted, making the other 4 areas that much more relevant.

Third, does anyone know how Installments and Revolving are treated differently in the Amounts Owed?

If I only have one brand new car loan and no open active revolving lines, am I getting majorly punished on this part of my score? If I then add a cc with a $250 limit, but keep it under 10%, any thoughts on the how this part of my score will react?

llecs · ‎03-04-2011

Revolving utilization (e.g. CCs, LOCs, HELOCs) play a huge part in FICO scoring. Not only does FICO care about overall utilization, but it also looks at individual util as well as scores for $0 balances. Since everyone is in a different scoring bucket, the impact of low vs. high util will vary from person to person. Having a good mix of credit plays into it too. As a good rule of thumb, and certainly not fact or scientific, for every 10% in util you pay down, you can earn 10 points, with most of the score gain coming when you pay down below 30% or so. In other words, if 90% of your CLs were utilized given a great mix of credit, you can easily gain 90 points as you pay them down to $0. A good mix of credit would be 3-4 CCs with maybe one being a store charge card. You certainly wouldn't see these results if you only had one CC, for example. For max points, pay all of your CCs to $0 but one and get that one to report a balance of under 9% of the CL. I paid down around 85% last summer and gained over 70 on TU and over 100 on EQ.

If you have no CCs open, you may want to get one. Usually you'll get dinged for adding new credit, but I predict a very significant score boost if the first one or two report. It's tough getting that first, and I recommend a secured CC to start.

Revolving util and installment util are treated very differently. I wouldn't worry about loan balances other than to pay on time or pay early if you want to save interest. Installment util is a very teeny tiny part of FICO scoring that it isn't worth worrying about. And likewise, I don't recommend getting loans to help build your credit score, because IMO and IME, it doesn't help (except in the long term as the age gets older).

Yes, you are getting dinged in a big way for no CCs. If you add a CC, the CL doesn't matter...it's how you use it that counts. Ideally, get that one CC to report a small balance of under 9% of the CL for max points.

Anonymous · ‎03-04-2011

Thanks for the input Ilecs.

"Not only does FICO care about overall utilization, but it also looks at individual util as well.."

So do you have any thought about which one is weighted more?

Anonymous · ‎03-05-2011

"Not only does FICO care about overall utilization, but it also looks at individual util as well.."

So do you have any thought about which one is weighted more?

Everyone's credit scoring is different,, but I can tell you my experience's ... I app'd for a CITI Diamond Preferred back in 09',, I got it witha 6,800 CL,, I made a $6400 purchase at 0% for 12-mo on the card,, My FICO scores didn't change after nearly maxing out that card, in fact, My EQ score actually went up to 787 last fall after I paid that balance off before the 0% expired...

I do regularly use 4 of my now, 11 credit cards (total CL of 100-k),, I took out another 0% BT offer from USAA last fall after paying off CITI, My USAA card came with a 5-k limit (which they would not increase) I wrote myself a conveience check for 4800 , Again my EQ didn't change, Then came December and January,

I decided to use 7 of my cards to show some usage, And did that ever turn out to be a HUGE MISTAKE,, I've been following this board lond enough to where I shoud'a known better ...

First, I have my old Providian to WaMu to Chase card linked to my PayPal account,, I made $120 worth of eBay purchases, which I immediately paid off,

Second, I bought some $5500 worth auto parts on my BAC card,, another $6000 worth of building supplies on my C1 and spread another grand or so on the other 4,

I paid every card in full so I didn't pay any interest, however C1 and BAC reported 12-k worth of balances and the rest reported usage, but a zero balances my EQ FICO crashed,, First I lost 35-points for too revolving accounts with a balance,, then I lost another 30-points for revolving blances too high , and for some odd reason I lost another 7 points for 'you have been seeking credit recently' ... I have no idea where that one came from as I only had three EQ INQ's in 2010.

Then, I gained 22 points back for 'negative factor not hurting as much' I'm gusing the 2-INQ's from Ford Motor Credit last March turning 1-year old dropped off, then I'll be danged if I didn't loose another 8-points on my EQ score after BAC reported a 100% balance DECREASE from a 6,300 balance to a ZERO balance,,

Then as the rest of the statements started reporting zero balances, EQ finally caught up and I rebounded 43-points to 772 last week,

So to answer your question,, It is possible to 'max out' one credit card and not take a hit on your FICO scores,, as long as your over-all UTI is under 10% and you aren't using too many cards,

Conversely,, You will 'wreck your credit' by letting too many cards report a balance even if you've paid the damn things off ... I won;t be doing that again ...

.

Anonymous · ‎03-05-2011

Obviously, you learn a lot by doing and meticulously tracking the results. A lesson for everyone.

It's helpful to know that maxing out one card on a micro level didn't alter your score. However, having 10 other cards to mitigate the impact may explain why.

So, based upon your experience, you think that FICO is primarily weighted around the UTL on a Macro level, not a Micro level.

Here's a simple scenario to illustrate my question... 4 cards total.

3 cards $900 balance and $1000 limit - 90% UTL

1 card $4500 balanace and $5000 limit - 90%

Total $7200 balance and $8000 limit - 90%

Let's say I have $2400 to blow, I could pay the 3 cards down to $100 balance - 10% UTL

or I could pay the other card down to $2100 balance or 42% UTL

Either way the Total UTL is the exact same - 60%

If this part of my FICO score is heavily weighted around the TOTAL UTL, then it wouldn't much matter which option I chose.

However, if it is heavily weighted around the UTL on Micro level, then Option A would be a much better strategy.

Which option would you choose?

DezC · ‎03-06-2011

If this part of my FICO score is heavily weighted around the TOTAL UTL, then it wouldn't much matter which option I chose.

However, if it is heavily weighted around the UTL on Micro level, then Option A would be a much better strategy.

Which option would you choose?

This is what I wanna know! As you said, overall it is the same utilization but for those who can't pay down to 10% immediately there maybe a way we could possibly benefit more by being strategic in out payments.

Anonymous · ‎03-06-2011

I agree, understanding this better could help us make more strategic decisions. The short answer in my example is obvious. As Ilecs stated already...

"Not only does FICO care about overall utilization, but it also looks at individual util as well"

Maybe my example wasn't the best illustration.

Let's say I just have 3 cards w/ $900 balance and $1000 limit - 90% UTL

And I go down to the Quickie Mart and win $1400 playing Lotto.

Option A - Pay Card 1 down to $100 - 10% UTL

Pay Card 2 down to $300 - 30% UTL

Leave Card 3 at $900 - 90% UTL

Option B - Pay all three down to $433 - 48% UTL

Either way the total UTL is the same, but the effects could be dramatically different.

I know this is only my first post, but I don't think it's a ridiculous question.

MarineVietVet · ‎03-06-2011

@Anonymous wrote:
I agree, understanding this better could help us make more strategic decisions.   The short answer in my example is obvious. As Ilecs stated already...
"Not only does FICO care about overall utilization, but it also looks at individual util as well"
Maybe my example wasn't the best illustration.

Let's say I just have 3 cards w/ $900 balance and $1000 limit - 90% UTL
And I go down to the Quickie Mart and win $1400 playing Lotto.

Option A - Pay Card 1 down to $100 - 10% UTL
                 Pay Card 2 down to $300 - 30% UTL
                 Leave Card 3 at $900 - 90% UTL

Option B - Pay all three down to $433 - 48% UTL

Either way the total UTL is the same, but the effects could be dramatically different.
I know this is only my first post, but I don't think it's a ridiculous question.

Remember also that the total number of accounts reporting balances is a part of the scoring formula. The more balances you can get to zero the better off you are. So in your example I might pick:

Option C - Pay Card 1 down to $0 - 0% UTL

Pay Card 2 down to $480 - 48% UTL There are anecdotal stories of <50% utilization being a benchmark.

Pay Card 3 down to $820 - 82% UTL

Plus you need to consider the interest rates on each card. And then decide whether your priority is saving the most money by paying down the highest rate card first or raising your score by lowering utilization.

This is just my measly 2 cents. You'll probably have opinions totally different than mine but it comes down to whatever you think will work best for you.

From a BK years ago to:
EX - 9/09 pulled by lender 802, EQ - 2/11-816, TU - 2/11-782

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".