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The Truth about Credit Card Utilization

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Valued Contributor

The Truth about Credit Card Utilization

Another post to add to my signature link of common questions and answers new members post!

 

Your FICO score is more than your overall utilization

This is a huge huge huge sentence to read, re-read, and memorize.

 

People working on raising the credit scores or complaining about a FICO score drop alert usually post their aggregate/utilization.  They'll say "But my utilization is just 10%!".  Great, that's useless data.  Stop doing that.

 

The reality is that FICO scores rely on more than just your overall utilization to make scoring decisions.  If you want to even bring up utilization, you have to be clear about what is hurting your score.

 

FICO Scoring and Utilization Points

The FICO Score 8 algorithm is totally trade secret.  Nobody who knows the actual equations can talk about it.  Still, with thousands of data points over many years, I myself have come up with a simple set of guidelines.  Note that FICO isn't a "one score fits all" algorithm.  Different profiles of people are on different "Scorecards" and each area of the score is measured differently.  My guidelines here below are just generic ones not making assumptions about what scorecard you are on.  You can't really tell anyway, but your mileage may vary.

 

We do know that FICO admits that "Amounts Owed" is about 30% of your FICO score.  You have 550 available points (300 is given to everyone for free just for having a 6 month old or older credit account).  30% of 550 is 165 points just for "Amounts Owed".  My own analysis tells me that there's more than 165 points available (closer to 180 points) but FICO offers some hidden overhead buffer for people with truly amazing credit.  You and I probably don't fall into that category.

 

Of the "Amounts Owed", the most important portion is amounts owed on credit cards.  Installment loans likely count for way less of this category -- about 30 points out of the 180 total points is likely for installment loans.  This leaves about 150 points for credit card utilization.

 

FICO Aggregate Utilization -- while this is the most important and largest part of "Amounts Owed", it's also just one factor.  I've analyzed many profiles and 3Bs and my magic spreadsheets tell me that Aggregate Utilization (overall) is worth around 90-100(overhead) points out of 150 left.  To calculate your aggregate utilization, you just add up all your credit limits (include chargeoff accounts at $0 but include them) and then add up all your credit balances (including chargeoffs).  The divide the second number into the first number to get a percentage.

 

The generic "value" I've personally given to aggregate utilization is:

  1. 9-29% utlization: subtract 10 points
  2. 29%-49% aggregate utilization: subtract 10 points
  3. 49%-69% aggregate utilization: subtract 10 points
  4. 69%-89% aggregate utilization: subtract 20 points
  5. 89%-99.9% aggregate utilization: subtract 20 points
  6. 100% or higher aggregate utilization: subtract 20 points

Again, these are just "averages" I've seen looking at a lot of reports until I'm blind.  But when I've told folks to pay down aggregate utilization, I've consistently seen returns of about that amount.  As you can see, carrying aggregate utilization hurts you a LOT, and the higher it goes, the more it hurts.  There may be a threshold at 19%-29% but I'm not 100% certain.  I'll be testing that myself.  Also note that within any given "threshold" you may get a few points back for being on the lower end versus the higher end.

 

But just counting aggregate utilization is NOT enough, because out of the 150 points probably set up for "Amounts Owed" for credit cards in FICO Score 8, another 50 points may be targetted to individual card utilization.  50 points is HUGE, and it's a make-or-break situation if you're on the edge of a better credit score tier.

 

Individual utilization:  this section is absolutely confounding to me because it seems to be valued based on how many credit cards you have, not just if one or two cards are high utilization.  I've been working on the analysis and math and doing recursive testing against a large data set, but so far it's too complicated for my simple math skills.  Still, I work on it weekly, and more data points helps me figure it out more!

 

It appears that individual utilization might be calculated based on these points as a percentage of your cards that are at that utilization.  This means someone who has 1 card at 90% individual utilization out of 3 total credit cards is hit much harder than a person with 1 card at 90% individual utilization who has 20 total credit cards.

 

Again, these are generic values I attribute to individual utilization, but they've fit my forecasts personally and with other folks I've helped:

  1. Individual card with 29-49% utilization: subtract 5 points (multiply by number of cards with utilization/total number of cards)
  2. Individual card with 49%-69% utilization:  subtract 5 points (multiply by number of cards with utilization/total number of cards)
  3. Individual card with 69%-89% utilization: subtract 5 points  (multiply by number of cards with utilization/total number of cards)
  4. Individual card with 89%-99.9% utilization: subtract 10 points  (multiply by number of cards with utilization/total number of cards)
  5. Individual card with 100%+ overlimit utilization: subtract 10 points  (multiply by number of cards with utilization/total number of cards)

I know those numbers only add up to 35 points instead of 50 points, but somewhere in there are what appears to be 15 points of overhead that vary a lot on the person's profile scorecard.  I haven't had enough data points to break it down as to why one person may get dinged up to 50 points for individual high utilization while another gets dinged 35 points.  The only thing that makes sense if the overhead is part of the scorecard in this section.

 

So what to do about utilization?

 

Obviously, you want to first target aggregate utilization by making sure if you're close to the lower threshold to pay a bit more to get below it.  It makes a huge difference.

 

But if you have any individual cards with high utilization, it makes sense to pay those down if you're close to a lower threshold to get back a few points.

 

One thing that people always tell me is that they want to "get more credit cards to help with utilization."  This absolutely works, but one thing to note is that it seems to help more with overall utilization and less with individual -- for whatever reason, my theory tells me that brand new cards may not count towards the "individual utilization multiplier" for a period of time.  I can't tell if it's 6 months, or 12-24 months, or some other value, but I have noticed that people get back magical FICO points well after getting new cards and those points don't make much sense even from aging perspectives.

 

These are all just guesses

Remember, these are just my personal guesses and not FICO fact or involved with anyone at MyFico forums.  But it's important for you to personally test your own credit score based on these factors.  Do not assume that just because your overall utilization is at 10% that you're not getting harmed for 20-30 points because of some accounts with very high utilization.  It's feasible that a person may have 10 credit cards and only carry 90% utilization on 2 of them, but if those cards have the lowest credit limits versus the rest, you may be dinged significantly for them.

 

You may have a $10,000 Lowes card with $0 balance, and a $8000 Walmart card with $0 balance, but if your $500 Capital One card is reporting $460 and your $500 Chase Freedom card is reporting $434, you may be dinged more than you'd realize even though your overall utilization is under 5%.  Those individual utilization matter, and in the case of maximizing FICO scoring, they may matter a lot.

 

One thing I do ask folks to do is please don't just post your overall utilization if you're asking questions about scoring, FICO drop alerts, etc.  Please make sure to post not just your overall utilization, but the number of total credit cards you have, any ANY credit card that utilizes more than 48% of its limit.

 

This helps us help you better, and it also goes to show that you've done your homework!

7 REPLIES
Frequent Contributor

Re: The Truth about Credit Card Utilization

I'm feeling like I should put this on the refrigerator or something. Maybe just on the wall in my office.

 

Thanks for all this great info!

Message 2 of 8
Valued Contributor

Re: The Truth about Credit Card Utilization

Just remember it's generalized data and may not apply exactly to YOUR profile.  But, if you have data points that contradict it, please report them.  Also if you have data points that agree, report them, too.  I just formulate flat charts based on lots of data points and look for people in the bell curve, but outliers are the ones that help me figure out those doggoned scorecards.

 

Playing the utilization game is frustrating at first, but once you figure out what "fits" your score goals, it's quite easy.  It also teaches us not to let balances report for long.

Message 3 of 8
New Member

Re: The Truth about Credit Card Utilization

Thank you for this post.  I was about to ask a question regarding individual utilization as it refers to credit score as I'm currently attempting to break into the 800's.  My scores range from 735 to 760 right now depending on the source or scale used.   12 cards with 5 with balances.  128k total limits.  Oldest card is 13 years 2 months old.  Newest is 1 month.  4 hard inquiries in the last 2 years.  2 in last 6 months.  Average age is 3 Years / 9 months.    About 24% overall utilization.

 

Using the data in your post above, I'm guessing I should concentrate on the accounts with the highest utilization and rotate large payments to the next highest utilization card in order to keep my score as high as possible while eventually paying down to zero.  Is this correct?  Any advice is greatly appreciated.

 

Amex:                          7,354 / 12,500   60%

Barclays Ring:            7,221 / 17,500   50%

Chase Freedom Unl: 6,788 / 11,300   60%

Citi TY Premier:         6,000 / 19,900   30%

Discover IT:                4,246 / 14,400   29%

Best Buy:                    0 / 600

Dell:                             0 / 6,500

Cap1 Quicksilver:      0/ 10,000

BofA Plat Plus:          0 / 10,000

Citi Simp:                   0 / 6,500

WF Propel:                 0 / 10,000

Citi Double Cash:      0 / 13,500

 

Message 4 of 8
Valued Contributor

Re: The Truth about Credit Card Utilization

Sorry for the late reply, I was in the Caribbean with poor internet.

 

The rule I came up with involves the following order of operations:

 

  1. If aggregate utilization > 89%, pay down aggregate to below 88.9%.
  2. If aggregate utilization > 69%, pay down aggregate to below 68.9%.
  3. If any individual card utilization > 89%, pay down that card to below 88.9%.
  4. If aggregate utilization > 49%, pay down aggregate to below 48.9%.
  5. If any individual card utilization > 69%, pay down that card to below 68.9%.
  6. If aggregate utilization > 29%, pay down aggregate to below 28.9%.
  7. If any individual card utilization > 49%, pay down that card to below 48.9%.
  8. If aggregate utilization > 9%, pay down aggregate to below 8.9%.
  9. If you have balances reported on more than 1/3 of your credit card count, get your card balances so that no more than 1 out of 3 cards shows a balance.  If you only have 5 cards, this means 1 card with a balance as 2 cards would be 2/5 which is greater than 1/3.
  10. If any individual card utilization > 29%, pay down that card to below 28.9%.
  11. If ALL credit cards report $0 balance, let ONE card report greater than $3 but less than 8.9% individual utilization.
  12. If any individual card utilization > 9%, pay down that card to below 8.9%.

You're not in bad shape, but having 3 cards over 48.9% individual utilization is hurting you, and 5 cards with balances out of 12 is also dinging you.  The less than 1 out of 3 cards with balance means out of 12 total cards, you want a balance reporting on only 3 cards or less (NOT 4 cards as 4/12 = 1/3, and you need it LESS than 1/3, so 3 cards or less).

Message 5 of 8
New Member

Re: The Truth about Credit Card Utilization

Thank you for the detailed explanation and answer to my question. I've since paid off and consolidated down to 2 cards out if the 12.

My Barclays Ring is at $16,255 of $17,300 and my City TY Pref is at $10,236 of $19,900. Everything else is at zero and both of these cards will be reported around the 24th of this month. The others will update around the 10th. I should be able to drop another 3k on to the Barclays by the 18th.

So these two cards have increased but I've also eliminated the others and dropped my overall balance. Curious to see what effect this will have on my score. Thanks again for your advice. I will do my best to follow it in my quest for 800+ credit score.
Message 6 of 8
New Member

Re: The Truth about Credit Card Utilization

Oh if only this applied to Fico 09 which for me is 30 point lower than FICO 08. I personally expect my 08 to be above 720 within the next 2 weeks after 5 revolving accounts were paid in full, but I don't have a clue what affects that will have on 09.

Message 7 of 8
Community Leader
Senior Contributor

Re: The Truth about Credit Card Utilization


CajunLTE wrote:

Oh if only this applied to Fico 09 which for me is 30 point lower than FICO 08. I personally expect my 08 to be above 720 within the next 2 weeks after 5 revolving accounts were paid in full, but I don't have a clue what affects that will have on 09.


I don't think there is any reason to believe that FICO 9 is substantially different from FICO 8 in terms of the ideal configuration of credit card balances.  As with FICO 8....

 

(1) Total Utilization: Under 8.99%

(2)  Individual Utilization: Under 28.99%

(3)  Number of cards reporting a positive balance: Most cards at $0 with one card showing a balance.

 

There could be lots of reasons that your FICO 8 is higher (or lower) than FICO 9, but in terms of practical strategy, CC balances shouldn't be one of them.  Keep most cards at zero and your utilization fairly low on the others.

Message 8 of 8