Understanding how CC usage impacts score

[Anonymous]

I recently added 2 CC (a rewards Amex and a PenFed Rewards VISA, both with 10k limits) to a CapOne card also at 10k limit. Adding the 2 cards lowered by 802 avg score down by 20 points to 782 avg.
what is a good strategy to getting those 20 points back? Will it rise over time assuming I don’t carry a balance on those cards? I’ve been using all 3 cards to pay for routine expenses to gain rewards dollars- but is that actually hurting or helping even if I pay them off in full every month?
With my CapOne card it seemed like it helped my score to keep a very small running balance like $20 on the cards vs. paying in full but that tactic doesn’t seem to help me recently. I can’t seem to figure out to use the cards to leverage rewards dollars but not hurt my score because it seems usage gets reported as a debt balance increase (even if I pay in full every month)

[Adkins]

You'll regain the points back once the new accounts start to age a little bit. Let one card report a small balance (greater than 1% but less than 9%) and then pay it once the statement cuts. You'll get the maximum FICO points every month that way. (It's called the AZEO method.)

[Adkins]

Forgot to add: leaving $20 on a $30K limit is probably showing as a zero balance to the computers since it's so tiny. You probably need to let a higher amount cut - it'll take a few statements to figure out your sweet spot. 

[Meanmchine]

Back when my scores were 650ish, I opened a new Visa account and my scores went up 10 points. I remember thinking that if I opened 9 more accounts, my scores would go to 750. If it only could have been so simple.

[HeavenOhio]

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@Adkinswrote:

Forgot to add: leaving $20 on a $30K limit is probably showing as a zero balance to the computers since it's so tiny. You probably need to let a higher amount cut - it'll take a few statements to figure out your sweet spot. 

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$5 will do for almost all cards. (If you have Bank of America's Better Balance Rewards card, it'd be better to leave $10.)

The reason for leaving at least $5 is that most lenders will forgive small balances rather than bothering to bill you. If they forgive your balance, they'll report a balance of zero to the credit bureaus.

The reason that $5 is sufficient is that FICO rounds all percentages up. If your utilization is 0.000001%, it'll be rounded up to 1%. The front-end software for some of the monitoring services, such as Credit Karma's, will round percentages down despite the fact that scoring systems don't do that.

[Anonymous]

Thanks for the replies. So question about the AZEO method mentioned - am I to leave a balance less than 8% per card, or a balance less than 8% of my total credit across the 3 cards? If I read correctly - The last person who replied almost suggests I could keep a $5 to $10 balance on each of the 3 cards each month i’d be in good shape. True?

[HeavenOhio]

Let one card report a small balance with the others reporting zero. As soon as the statement cuts on that one card, pay the balance.

If you have a Chase card in the mix, it's easier to use a different card to report the small positive balance. That's because in addition to reporting the statement balance, Chase will report zero whenever you pay to zero. You may as well have this policy working for you rather than against you.

[Anonymous]

Very helpful thanks. My only remaining question is the distinction between when a card company reports the small balance versus when they cut the statement. I had it in my head that they did both at same time - no? If not, Which typically happens first? Does the company instead create a statement- wait some amount of time to allow the person to pay and then report any balance outstanding ? Basic question I know but I’ve never paid attention to the process of statements and reporting at this detail. Timing seems to be key here

[Kforce]

Credit card usage does impact your scores, and the "AZEO" method helps, however you score loss is mostly from 2 new accounts not usage.  The inquiries from your 2 new cards fall off in a year (fico scoring).  The new cards will lower your AAoA.  It takes time for your "Fico" scores to grow again. With 3 cards, a higher total CL, and some time your scores should pass where you were with just 1 card. The time this will take depends a great deal on how much of a hit your AAoA took.  The good news is, it should improve your scores in the future and your current scores are high enough for excellent car/personal loans, etc.  Just use the cards, PIF,  and be patient. If you want the last few points the "AZEO" method is good, but I feel that the main issue here is "AAoA and Inquiries".

[Anonymous]

Based on my own data point, you won't get those points back until the inquiries and the youngest account reaches the 1 year mark, few points lost to AAoA might take longer depending on your profile.