Rebuilding Optimal Credit Utilization

[Anonymous]

I'm sure this has been discussed before but im having a hard time finding the exact answer I'm looking for. 

I've currently just begun the rebuilding process, had some derogs back in college than i'm taking care of and are starting to fall off now. Credit scores are all in the mid-high 500s. I just recently got a capital one secured card at $200 and a Victorias secret cared at $350 through the SCT this month. 

My question is what is the best way to optimize usage of these cards? I want to grow my credit as fast as i can, I understand that ~7% is about where i want to keep my total utilization. Is it better to keep 7% on both cards every month? Or can i just charge the $38.50 (total 7%) on my secured Cap1 card and not use the VS card? Or some other way im not thinking about?

Again, im new at this and any help is appreciated. Sorry if its been answered 100000 times 

[Anonymous]

AZEO method.  Type AZEO in searchbar.

You want at least 3 total credit cards open and reporting positively for maximum "free" FICO boost.

How much you use the cards doesn't matter -- what matters is how much REPORTS to your credit reports.  Most credit cards report on statement date, but some may report on the 1st of the month.

AZEO means "All Zero Except One" -- all your cards should report $0 except for one which should report more than $0 and less than 8.9%.  After letting ONE card report a balance, pay it off immediately so you're not charged interest.

[HeavenOhio]

When you have only two cards, let one report the positive balance that ABCD mentions while the other reports zero.

[Anonymous]

ok great, thanks for the info!

Now that one card reporting less than 8.9%, that is of the TOTAL credit utilization of all cards correct? Not just 8.9% of that one card?

I am planning to add the Discover IT secured card as well. 

[Anonymous]

8.9% of the ONE card's credit limit, not your overall (aggregate) limit.

If you have a $500 credit limit on the card you will REPORT a balance on, let it report no more than $44.  Also note if you ever are charged interest it will be added to that statement balance, so you want to make sure to let the balance be less than 8.9% if any interest might post.

Let the $44 report, then immediately pay it to $0 to avoid interest next month!

[pizza1]

Gardener88....Id like to welcome you to the forums!! Don't worry about asking questions, even if you think its been answered "a dozen times before". Lots of folks here glad to help out!

[Anonymous]

One thing I should mention if you're new to it all is to get a good credit monitoring habit monthly -- even free sites like CreditKarma can be useful for monitoring statement balances.

Then, once you're good with monitoring your reports, change the balance you let report every month.  So one month let $44 (<8.9%) report, then the next month let $36 report, then go back to $44 the following month.  This will help you see the statement balance changing on your credit monitoring site (versus always letting $44 report).

[Anonymous]

Thanks for all this great advice! I do have an account with credit karma and credit sesame. I know its not 100% accurate, but its a good measuring tool to see where I'm at. 

What is the benefit of only leaving a balance of 8.9% on one card, as opposed to the aggragate total? Wouldn't is show a lower overall utilization compared to your total CL?

[Anonymous]

ABCD is a super guy and the architect of a very helpful thread on how to save money.  He's given you some awesome advice here.

The only tweak I would make to what he's saying is that, as far as the veterans here are aware, there's no advantage to keeping each card's individual utilization under 8.99%.  That 8.99% breakpoint is for total utilization.  FICO does indeed penalize people for having high individual utilization, but you have to get much higher before that individual penalty kicks in.  Some people thing it doesn't happen till 49%, but even the most conservative folks agree that < 29% is safe.

Thus:

     Total Utilization < 8.99%

     Each individual card < 28.99%

     With most cards at $0 (but with one showing a positive balance)

That will enable you to squeeze out every additional extra point in the 40-day runup to an important credit pull.

I also note that our OP describes himself as in the rebuilding process (which is a thing a person does over a long period) and that he asks:

"I want to grow my credit as fast as i can."

As ABCD knows, I am a big proponent of AZEO (All Zero Except One) any time someone is preparing for a loan or any other credit app.  But just to make sure our OP understands, AZEO and ultralow utilization will not help him grow his score over the long term.  It helps if you are trying to get some extra points in a very short time.  But it won't help the OP improve his scores long term.

Of course, it won't hurt him either.  But to the extent that he is focused on the long game, he has the option of a more relaxed approach.  Which would be to use his cards naturally, let them report balances, then always pay those in full after the statement prints.  (He can even use autopay to do that.)  He still should watch his utilization and keep it always under 29%, just because he's rebuilding and wants to show creditors that he's always being a very good scout.

If he wasn't rebuilding he'd have even more freedom, which would be to allow his utilization get as high as 48% or so without worrying about it.  But since he is in rebuilding mode, I'd keep each card always < 29%.

If a total util of 28% makes him nervous, then he can keep his total at < 8.99%.  But AZEO won't help him in his goal of growing his score.  (Nor will it hurt.)

[Anonymous]

Because FICO considers both individual utilization AND aggregate utilization in scoring.

If you want the BEST FICO score possible, it's AZEO with the one under 8.9%.

If you are carrying balances over 8.9% on one card, then you want to spread it out so no cards are over 8.9% and overall aggregate utilization is also under 8.9%.

But putting 15% on one card and 0% on the other card to get 7.5% scores FICO lower because one card is over 8.9%.