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Utilization and timing question

Member

Utilization and timing question

Does utilization have any historical aspect to it, or does it only matter what your utilization is at the time your credit is run and scored? In other words, if I am only concerned about what my score will be a year+ from now, is there any difference between getting the utilization down now vs a year from now (other than interest charges)?

Message 1 of 9
8 REPLIES
Established Contributor

Re: Utilization and timing question


crg2007 wrote:

Does utilization have any historical aspect to it, or does it only matter what your utilization is at the time your credit is run and scored? In other words, if I am only concerned about what my score will be a year+ from now, is there any difference between getting the utilization down now vs a year from now (other than interest charges)?


No, but you should still try your best to avoid interest charges regardless, that is what's the most important.

Message 2 of 9
Member

Re: Utilization and timing question


oldman87 wrote:

crg2007 wrote:

Does utilization have any historical aspect to it, or does it only matter what your utilization is at the time your credit is run and scored? In other words, if I am only concerned about what my score will be a year+ from now, is there any difference between getting the utilization down now vs a year from now (other than interest charges)?


No, but you should still try your best to avoid interest charges regardless, that is what's the most important.


Agreed, sorry I should have explained a little more. I have two high balance cards that I will be paying off over the next year. One is a 16%+ APR AmEx, the other is an 8% Wells Fargo card. Both have similar balances. The AmEx (higher APR) card is not on my credit report (business). I won't need any new credit until 2019, so I was planning to pay off the AmEx first but since it is not on my report I would see no score benefit until I paid off/down the WF card.

 

I am just trying to make sure that all that matters is the utilization at the time the credit report is run and as long as I get the WF card paid off by the time I start applying for new credit in 2019, it wouldn't have mattered if my utilization was low for one month vs many months.

Message 3 of 9
Established Contributor

Re: Utilization and timing question

Credit issuers will not know what happened prior to the report, just make sure you give it enough time so that the payment is reflected on the report.
Message 4 of 9
Community Leader
Senior Contributor

Re: Utilization and timing question


crg2007 wrote:

Does utilization have any historical aspect to it, or does it only matter what your utilization is at the time your credit is run and scored? In other words, if I am only concerned about what my score will be a year+ from now, is there any difference between getting the utilization down now vs a year from now (other than interest charges)?


You are basically right, but with a couple caveats.

 

(1)  A card with a very high utilization can be seen as such by other creditors.  Moreover, if that card supplies what are called trended data, the other creditors will be able to see if you are only making the minimum payment.  Consumers with a nearly maxxed out card who only make the minimum payment are much more likely to default than people for whom this is not true.

 

When creditors see this they therefore often take what is called Adverse Action or AA against you.  Remember that your other creditors are likely pulling your reports at least once a month to see what your report looks like.

 

To reduce the risk of AA, make sure that a highly utilized card is always reporting < 88.9% at all times  Never let it cross over that mark.  (If you can keep it under 68.9% even better.)  Furthermore, always make sure you are paying more than double the minimum payment... never pay only the minimum payment.

 

(2)  No one knows for sure whether trended data will become widely reported.  (Google that if you want to read more about it.)  If that does happen, future models will almost certain use these data, in which case those models will certainly be able to see your payment history over time.  If so the old emphasis on "utilization at an instant" will matter much less.  Instead, models will become very interested in whether you have been carrying a balance month to month at any point in the last 24 months, which is highly correlated with risk of default.

 

My feeling here is that you should do what feels makes the most financial sense right now.  But plan to move toward a pattern of CC use characterized by always paying your statement balance in full after it prints, which will help you if TD become a thing and which also saves you a lot of money.

Message 5 of 9
Member

Re: Utilization and timing question

Thanks for the info everyone!

Message 6 of 9
Valued Contributor

Re: Utilization and timing question

Your question was vague and the answers given were very short-sighted.

 

Does utilization have a history on FICO scoring?  No.  That's an easy answer.

 

Does utilization have a history on other forms of credit-worthiness calculations?  Yes, absolutely.  Experian, TransUnion and Equifax all offer trending report data to lenders -- as does Fannie Mae's "DU" product which looks at 24 months of credit history.  A consumer is allowed to request their reports from the bureaus for this data but I've personally never tried it.

 

In addition, a lender who has the option to inquiry your reports (permissible purpose) can also keep an internal record if they want to based on soft pull data.  Most lenders likely don't, but some do.  The FCRA doesn't let a consumer have access to internal notes and credit histories and federal law doesn't mandate that a lender who performs AA provide a consumer with every reason for AA, but just a reason.

 

So if you carry high utilization, FICO scores won't see the history/trend, but lenders may and there are at least 70 products out there that I am personally aware of that are available today to trend a consumer's recent credit usage.  I've been asked not to post links to my blog here so I am looking to see if I can find another blog that I can link to per the forum rules that list all of these products and the companies that provide them.

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Message 7 of 9
Member

Re: Utilization and timing question

As always, nothing is ever as simple as it seems! Thanks so much for this information. I was already leaning towards paying off the WF card even though it has a lower interest rate, but with all this grey area it seems to confirm that decision. The difference is about $100 per month in interest but I need to do everything I can to get a good refi in 2019 as it may be my last one. After a year I will be able to pay off the AmEx that is not on my credit report, so we are only talking about a $1200 difference in hopes that pays off in the long run.

 

So do you think the AZEO approach could have similar historical implications? I wonder if that is worth doing over the next year.

Message 8 of 9
Valued Contributor

Re: Utilization and timing question


crg2007 wrote:

As always, nothing is ever as simple as it seems! Thanks so much for this information. I was already leaning towards paying off the WF card even though it has a lower interest rate, but with all this grey area it seems to confirm that decision. The difference is about $100 per month in interest but I need to do everything I can to get a good refi in 2019 as it may be my last one. After a year I will be able to pay off the AmEx that is not on my credit report, so we are only talking about a $1200 difference in hopes that pays off in the long run.

 

So do you think the AZEO approach could have similar historical implications? I wonder if that is worth doing over the next year.


I think it makes almost no sense for a lender to worry about trending history for small values of credit -- why would they want to pay costs for these enhanced reports if we're only talking about $20,000?  

 

I also doubt secured credit lenders will pay for it -- a refi is a secured loan not an unsecured loan, so I think AZEO is perfect and don't open any new accounts 7 months before applying so you don't have a new account penalty.

 

Trending data for credit worthiness is probably more important for large unsecured lines or maybe easily "lost" secured lines like car loans that could end up going missing to foreign countries.

 

But...if the refi is with a lender you do business with already, it's feasible they do keep SOME trended data from their PP soft pulls but I doubt it would have any effect on a secured loan refinance.  I would be stunned if it did.

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Message 9 of 9