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Utilization - per card or overall?

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Hevj1119
Regular Contributor

Utilization - per card or overall?

Hey all

 

I'm having a hard time figuring out how badly a few balances are affecting my credit score.  I have 2 cards with very high utilization (51% and 87% respectively) but since they are 0% financing for 12 months, I am not in any rush to pay off the balances - just making 12 equal payments.  

 

Overall though, I have 8 other accounts with 0% utilization (with relatively high limits) so my average utilization is only 16%.  

 

So is credit karma correct?  Has my score tanked from the high 700s to the mid 600s because of these 2 cards having high utilization?  Or does FICO look at my OVERALL utilization and not per card?

 

 

Message 1 of 63
62 REPLIES 62
olehammer
Frequent Contributor

Re: Utilization - per card or overall?

I'll take first crack...

 

To optimize scoring you generally want (1) one card reporting <30% util, (2) remaining cards report 0% and (3) overall util between 1-9%. If you aren't looking to secure new credit then your current scenario doesn't really impact you.

 

Utilization doesn't have a memory so if you needed say a mortgage you could just pay everything down 60 days out of applying.

 

There are some thoughts that for 2016 and beyond there will an impact with respect to paying your balance in full each month for mortgage apps. If you're in the market for a house in the next couple of years I would recommend not carrying balances.


Message 2 of 63
Anonymous
Not applicable

Re: Utilization - per card or overall?

Great response by OleHammer.  Make sure you understand his central point, which is that your credit score only matters if you need it for something.  The harm that your high utilization on one card is doing to your score is very temporary.  If you don't plan to buy a car or a house in the next six months you are fine.

 

Per card utilization does matter for FICO scores, but it tends to have a big effect only when the card has a VERY high utilization.  Once you get your cards paid down to below 50% you will be fine.  Frankly, you may find that much of the impact goes away when they are both under 70%.

Message 3 of 63
Thomas_Thumb
Senior Contributor

Re: Utilization - per card or overall?


@Hevj1119 wrote:

Hey all

 

I'm having a hard time figuring out how badly a few balances are affecting my credit score.  I have 2 cards with very high utilization (51% and 87% respectively) but since they are 0% financing for 12 months, I am not in any rush to pay off the balances - just making 12 equal payments.  

 

Overall though, I have 8 other accounts with 0% utilization (with relatively high limits) so my average utilization is only 16%.  

 

So is credit karma correct?  Has my score tanked from the high 700s to the mid 600s because of these 2 cards having high utilization?  Or does FICO look at my OVERALL utilization and not per card?

 

 


Given a 120 to 130 point drop, it appears you may have something else going on here becides a high utilization on a couple cards . Really, 51% is not all that high for the 2nd card - worst case 10 point impact depending on profile. However, 87% is in "max out" territory. Even so, I don't see a "max out under 100%" on an individual card  dropping score more than 40 or 50 points (even for VantageScore 3.0) . Taking aggregate utilization from 16% to under 9% may be worth 10 points.

 

The high card utilizations would appear to account for less than 50% of your score drop. It kinda appears that some data is missing in this equation given your reasonably low overall utilization (16%) and relatively high card count (8 + 2 = 10)

Fico 9: .......EQ 850 TU 850 EX 850
Fico 8: .......EQ 850 TU 850 EX 850
Fico 4 .....:. EQ 809 TU 823 EX 830 EX Fico 98: 842
Fico 8 BC:. EQ 892 TU 900 EX 900
Fico 8 AU:. EQ 887 TU 897 EX 899
Fico 4 BC:. EQ 826 TU 858, EX Fico 98 BC: 870
Fico 4 AU:. EQ 831 TU 872, EX Fico 98 AU: 861
VS 3.0:...... EQ 835 TU 835 EX 835
CBIS: ........EQ LN Auto 940 EQ LN Home 870 TU Auto 902 TU Home 950
Message 4 of 63
Anonymous
Not applicable

Re: Utilization - per card or overall?

I have seen score drops just for going to 20% utilization on a single card and for going over 5% total utilizing. Smell impacts at those levels, but if you are trying to squeeze every point out worth noting.
Message 5 of 63
Hevj1119
Regular Contributor

Re: Utilization - per card or overall?

Thank you everyone for your time, answers and insight.  It's good to remind myself that since we won't be house shopping or car shopping anytime soon, I have time to let my score "recover".

 

Thomas_Thumb, you make a very valid point that I've only painted part of the picture for you.  I've realized since reading your post that I'm 'comparing" apples and oranges.   Creditkarma has never reported my score in the "high 700s"...  CK has always shown high 600s maybe low 700s.  The "high 700" number I'm pulling from is actually lender provided scores.  So the statement of " Has my score tanked from the high 700s to the mid 600s" is inaccurate and should read  "has my score tanked from the high 600s to the mid 600s"  Smiley Happy  

 

olehammer, can you go into more detail about what the impact may be with respect to paying balance in full each month?

 

 

Message 6 of 63
Thomas_Thumb
Senior Contributor

Re: Utilization - per card or overall?

Thanks for the clarification.

 

So, to re-state the situation, your VantageScore 3.0 as reported by Credit Karma has dropped for the high 600s (say 690) to the mid 600s (say 650 or 655). Overall drop in the neighborhood of 35 to 40 points. That is more in-line with your reported utilization increase. Here is a guestimate on point deducts:

 

1) card reporting 87% => 20 point deduct

2) card reporting 51% utilization => 5 to 10 point deduct

3) Aggregate utilization at 16% => 10 point deduct

 

Each scoring model scores utilization differently so your shift in Fico 8 score will likely not be the same as VantageScore 3.0. 

Fico 9: .......EQ 850 TU 850 EX 850
Fico 8: .......EQ 850 TU 850 EX 850
Fico 4 .....:. EQ 809 TU 823 EX 830 EX Fico 98: 842
Fico 8 BC:. EQ 892 TU 900 EX 900
Fico 8 AU:. EQ 887 TU 897 EX 899
Fico 4 BC:. EQ 826 TU 858, EX Fico 98 BC: 870
Fico 4 AU:. EQ 831 TU 872, EX Fico 98 AU: 861
VS 3.0:...... EQ 835 TU 835 EX 835
CBIS: ........EQ LN Auto 940 EQ LN Home 870 TU Auto 902 TU Home 950
Message 7 of 63
Anonymous
Not applicable

Re: Utilization - per card or overall?


@Hevj1119 wrote:

 olehammer, can you go into more detail about what the impact may be with respect to paying balance in full each month?

 


Olehammer, would you like me to take a crack at answering this?

Message 8 of 63
takeshi74
Senior Contributor

Re: Utilization - per card or overall?


@Hevj1119 wrote:

I've realized since reading your post that I'm 'comparing" apples and oranges.   Creditkarma has never reported my score in the "high 700s"...  CK has always shown high 600s maybe low 700s.  The "high 700" number I'm pulling from is actually lender provided scores.  So the statement of " Has my score tanked from the high 700s to the mid 600s" is inaccurate and should read  "has my score tanked from the high 600s to the mid 600s"


It's really "Have my VantageScores tanked from the high 600's to the mid 600's".  Always keep the specific scoring model in mind.  Creditors do not all use the same scoring model and FICO has many models used by creditors (see also the stickies in this subforum).

Message 9 of 63
Anonymous
Not applicable

Re: Utilization - per card or overall?

To the OP:

 

You wanted someone to expand a little on the advantages of Paying In Full of PIF.  Olehammer mentioned that this might have some very particular advantages of its own.

 

First it's good to be clear about what how we are using the phrase.  In what follows I am going to assume that, to pay in full means to make charges, allow them to report on your monthly statement, allow the statement to post (where there will be an "Amount owed"), and then AFTER the statement posts but before it is due, pay the amount owed in full.  E.g. if the amount owed listed on the statement is $425, then you pay $425.  Note that in this example the credit card company (CCC) will have reported your $425 balance to the three credit bureaus.  Note also that by the time you pay the $425, your balance may be higher than $425, because you may have made more charges.  That's no problem and is normal.

 

Finally, note that this definition of PIF is not the same as paying your balance down to $0 BEFORE the statement posts.  In that case, you have no balance, no Amount Owed on your statement, and therefore nothing you must pay.  To pay in full means to pay the amount owed in full.  To PIF therefore typically refers to allowing your statement to report a positive balance and then in the next few weeks, to pay that amount.

 

So what are the advantages?

 

First of there are the obvious financial advantages.  It you PIF, then you never pay any interest.

 

Second, you create a payment history.  Your credit reports now record what your balance was every month for many months in a row.  (Until recently, they only recorded your most recent balance.)  More than that, for each month, your reports record how much of that balance you later paid.  That means that future lenders will be able to see whether you tend to always PIF.  People who adopt that style are known as transactors.  At the other end of the spectrum are people who rarely PIF.  These people only pay a part of the total amount owed.  They carry the remainder over to the next month.  (This is called carrying a balance.)  People who often carry a balance are known as revolvers.

 

In the last several years, analysts have studied the risk levels posed by people who always PIF (transactors) vs. people who often carry a balance (revolvers).  It turns out that revolvers are far more risky, far more likely to default, for example, than transactors.

 

Current and past FICO models never incorporated this transactor-revolver distinction into credit scores, but that's only because until recently the credit bureaus weren't collecting that long term payment history.  (As I mentioned, until recently, they only collected the most recent balance.)  But future credit scoring models very well may consider this, which is why people who begin establishing a history in their accounts as being transactors will have an advantage. 

 

Furthermore, this change is happening far quicker than many of us expected.  Fannie Mae is requiring all mortgage lenders to begin factoring this in to their decisions (starting next year).  Other lenders may already be doing that.  Here is an article that explains more of what will be happening as early as next year:

 

http://mobile.nytimes.com/2015/10/25/realestate/a-focus-on-credit-history-formortgage-approvals.html...

 

Let me know if that helps!

Message 10 of 63
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