Utilization: Aggregate Only?

[Anonymous]

I have a question about utilization in regards to revolving credit. Is the calculation based on all potential credit limits (i.e. is it the sum of all balances divided by the sum of all limits)?

As a follow up, then does the amount of utilization on a per credit card basis have an effect on your score? For instance, having one credit card with a utilization of 70% and two with 0% that results in an aggregate of 15% - would this be the same as having three at credit cards at 15% utilization resulting in an aggregate of 15%?

[Rain77]

FICO takes both into account - utilization of all cards combined and separately

[dddewdrop]

ya to expand on that, you lose points of individual cards are utilised to the point of being maxed out. Also there are certain dollar amounts that are significant going over which you lose points. One example was  over 99 dollars or over 499... individual buckets may vary as far as thresholds. Also taken into account is how many accounts have a balance vs. accounts that have no balance. They like to see some accounts having no balance. 

[axxy]

I would like to be able to pay all my credit cards in full each month automatically, without worrying about scores.  But the only way to pay them automatically requires that they have statement balances, which get posted as debts.  My aggregate util is less than 1%, but some of my cards are over 50% by the time they get paid automatically after the statement balance posts.  If the credit scoring algorithm claims I'm a deadbeat just because I pay my cards in full each month automatically, something is very wrong.  This is one of many reasons why I think credit scoring should be controlled by the government and people should have the right to appeal their scores.  It should be like small claims court, but on the internet instead of in a real courtroom.

[RobertEG]

Regulating credit scoring butts heads directly with federal trade secret law.

By choosing not to apply for a patent, the owner relinquishes patent protection in exchange for the ability to maintain the algorithm as a trade secret, and thus potentially keeping the exclusive use of the algorithm forever.  Patents require full disclosure of the algorithn, and have an expiration date.

If others can reverse engineer their algorithm on their own, they dont have patent rights to fall back upon.

To dig into their trade secret would become a violation of the assurances afforded them when they decided not to apply for a patent.

Regulation of credit scoring would require a complete revision of intellectual property laws.  Aint gonna happen.

[p-]

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@axxy wrote:

I would like to be able to pay all my credit cards in full each month automatically, without worrying about scores.  But the only way to pay them automatically requires that they have statement balances, which get posted as debts.  My aggregate util is less than 1%, but some of my cards are over 50% by the time they get paid automatically after the statement balance posts.  If the credit scoring algorithm claims I'm a deadbeat just because I pay my cards in full each month automatically, something is very wrong.  This is one of many reasons why I think credit scoring should be controlled by the government and people should have the right to appeal their scores.  It should be like small claims court, but on the internet instead of in a real courtroom. 

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I'm not sure involving the government would make credit less complicated....  It would probably go the other way around.  You would end up with a huge bureaucracy like the SS office with people who don't care being responsible for your fate.

What your usage actually shows is that you are using a lot of different credit cards, which puts you in a risk pool along side other people who do the same thing.  Unfortunately, many people who use a lot of different cards or have multiple cards with balances go on to default.  It's guilt by association.

Imagine if every time you walked by a redhead they sneezed in your face.  How long before you start avoiding redheads?  Banks look to patterns and avoid the people who are likely to spit on them.

The good news is now you know what to do to...  The information here should help you dissassociate yourself with the bad crowd.

[axxy]

In reply to this sentence, and its context:  "Imagine if every time you walked by a redhead they sneezed in your face.  How long before you start avoiding redheads?  Banks look to patterns and avoid the people who are likely to spit on them."

To simplify and illustrate your logic:  People who are hard to reach by phone are more likely to default on their debt.  Deaf people are hard to reach by phone.  Therefore deaf people are deadbeats.

It would be consistent with existing federal law to make it illegal to take into account any factors other than whether the credit score victim pays his bills on time.

If a trade secret is used for discrimination, and if it's hard to tell how much of that discrimination is legal, because the trade secret hides the evidence, then that trade secret should not exist, because it's too convenient to hide unfair and/or illegal activity behind it.

[p-]

axxy wrote: To simplify and illustrate your logic:  People who are hard to reach by phone are more likely to default on their debt.  Deaf people are hard to reach by phone.  Therefore deaf people are deadbeats.

Actually, Federal ADA laws specifically protect the rights of deaf and disabled.  In fact, there are provisions that specifically address TDD, or telephone systems for the deaf.  But that was amusing.  Thanks.

As far as your other point, as much as we might dislike the FICO algorithms, they don't discriminate based on any federally protected status like race, etc.  In fact, they don't even consider income or zip code.  The algorithm looks at a number of factors including how much experience you have with credit, whether you pay on time, and how much of your available credit you are using.

Look, none of us are big fans of the credit scoring machine. And nobody said you were a deadbeat, even if you are deaf.  The reason we all get together here is to figure out how to weasel around the sticking points of those algorithms.  And it works.  If you pay off all of your cards except one, and keep your base utilization around 3%, you'll see optimum scoring.  And remember, that only matters when you are going to apply for credit. You don't have to obsess about utilization, even though many of us here do.

[axxy]

That was just an example to illustrate my point, that credit scores should only be based on your history of on-time payments, and not on whether you're a deaf non-deadbeat, a readhead who spits on bankers, or any other such factors, protected by law or not.

Maxing out one card, and getting punished by FICO for it, is one of lots of examples of unfairness.  If you have $500,000 in available credit, and you put $990 on a $1000 credit card, and your total debt is $1500, you're obviously not a risk, and should not lose any points at all for putting the $990 on the $1000 card.  Therefore, once again, credit scores should only be based on your history of on-time payments.  Basing them on other factors is motivated by a desire to provide fancier information to compete in the credit scoring business.  And that kind of competition is why credit scores should be calculated by the government.  Nobody should ever be put into a position of competing to see who can be fanciest and most unfair.

[axxy]

In any case, it turns out that it really is aggregate after all.  So this whole argument is meaningless.  My score went up from 727 to 813 from dropping a 7-year-old derogatory and/or other such factors, and then, when a $1000 credit card reported a balance near $900, it went down to 810, giving me a score alert for that just now.  That's such a small drop in score that it was most likely from the aggregate total rather than from the almost 90% on one card.  My aggregate total of credit card debt reported is usually about $200-300.

Or maybe maxing out one card affects your score only if your score is low.  Maybe it leaves high scores alone and makes low scores lower.  That would make sense because people with low scores, when they max out a card, are more likely to be in trouble.  But it still wouldn't be fair, because people should have the right to max out a card if they want to.  It's like free speech in a way.  If people are afraid of getting arrested, they're less likely to speak their minds, and therefore free speech is suppressed even if nobody actually does get arrested.  If using your credit freely the way it's advertised can cause you to get punished by FICO, it's an unfair suppression of freedom.  For us to live in a free country, we need to make sure the people that oppress us don't have the right to oppress us arbitrarily, based on secret rules.  That's why all the factors that affect a credit score need to be in public rules, available to all, and based on the rule of law, not on arbitrary decisions made for business reasons to profit at the expense of other people's freedom.