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What actually is the "sweet spot"?

Valued Contributor

Re: What actually is the "sweet spot"?

I am going to say this for anyone else who worries about utilization...it is a point in time metric, and therefore really only important when an employer or creditor pulls your report. If the only thing that is pulling your score down is utilization of say 60%, and that is the case for every day except the day they pull your report...but on that 1 day your utilization is 5%, your score would be the same as if it had been 5% the whole year. Utilization does not have a history as far as the fico score is concerned.




TU fico08=820 11/10/17
EX fico08=812 10/25/17
EQ fico08=818 10/25/17
Garden since 4/5/2017
Message 21 of 58
Valued Contributor

Re: What actually is the "sweet spot"?


Taggerung wrote:

I'll be honest, I didn't even know you could make multiple payments.

 

Is this more of a good habit or will help build good credit? I do understand the synonymity, but honestly I just need to build good credit as quickly as possible.

I really don't even need a credit card. I've payed for every major purchase myself since 17. But I've either done it on a payment plan without credit history or payed it in cash.


I make multiple payments on every card I use every month....but I do want to caution you, if this is your first and only card. Some credit card issuers will red flag a new credit card user for making multiple payments every month at first. Supposedly it is an activity that is used to defraud the issuers, and also might indicate MS...which is that which we can't talk about. I would wait till I had the card a while to do multiple payments.




TU fico08=820 11/10/17
EX fico08=812 10/25/17
EQ fico08=818 10/25/17
Garden since 4/5/2017
Message 22 of 58
Valued Contributor

Re: What actually is the "sweet spot"?

Taggerung, which card do you have and what's its limit?

Message 23 of 58
Member

Re: What actually is the "sweet spot"?

Oh wow, thank you for telling me that Sarge! I'm not sure what the latter part is, but it's obviously bad.

 

And thank you for the information about the utilization credit history!

Message 24 of 58
Member

Re: What actually is the "sweet spot"?

I have about the only credit card that I think I could have gotten. The Discover It Student card. My credit limit is $750. When I first applied last year they turned me down and it would have only been $500. I think the only thing that changed was increased savings.

Message 25 of 58
Valued Contributor

Re: What actually is the "sweet spot"?

That's a great start. Besides avoiding some awful companies, you've begun with a very good one, and you've avoided secured cards altogether. Plus, you have a limit that's fairly usable.

Message 26 of 58
Super Contributor

Re: What actually is the "sweet spot"?


Taggerung wrote:

I just received my first credit card. After seeing my siblings and family struggle and have to deal with bad credit, I decided I'll be nothing like them.  I'm not much of a spender anyway.

I don't know any credit analysts and have gotten a few answers in person and online, so I decided to come here.

I've heard that 30% of your credit line is the sweet spot for optimal credit. I've also heard that 25% is. I want the best credit possible as soon as possible. What really is the sweet spot for optimal credit?


There's no one sweet spot. There are different parts of credit scores, and there are different scoring models.

 

For credit cards it's best to have overall utilization below 10%, no individual card with utilzation over 29%, and the majority of cards reporting zero balance when statement cuts. In almost all cases "utilization" is based on statement balances.

 

For installment loans overall utilization sweetspot is 9% of initial loan amounts of all open loans.

 

For inquiries and new accounts the sweet spot is none.

 

For average age of accounts the sweet spot is the older the better.

 

I can speak with confidence about the FICO 8 scoring model, but less so with mortgage scores.

FICO8 EQ 725 TU 752 EX 736 Total revolving credit 454300
Message 27 of 58
Super Contributor

Re: What actually is the "sweet spot"?


Taggerung wrote:

Thank you for replying!

To be perfectly honest, I am so confused about the utilization. Just because a banker told me 33%, a man on creditcards.com (http://www.creditcards.com/credit-card-news/credit-utilization-30-percent-rule-myth-1586.php) says 25%, you say 9%, some people say 20%, and so much more. This site says the 30% is a myth (http://www.creditscoring.com/myths/utilization-ratio/fair-isaac.html). It seems like it's 100% subjective. :/ But there must be objectivity in it somewhere. 

I have $750 credit line. I don't truly even need a credit card. I always pay everything with my debit card and I'm normally fine. I just need to build credit and build it fast. I'll graduate with my IE degree in 2019 and I need to have good credit for an engineering job. :/

 

I guess the truth would lie with the people who invented the new scoring or the people with 800+ scores.

 


Rule #1 - ignore what bankers tell you

Rule #2 - ignore what a man on creditcards.com tells you

Rule #3 - there is no subjectivity here; there are wrong answers and right answers. We are giving you the right answers.

Rule #4 - you can't really build credit fast, because as you add a few credit lines you get inquiries & new accounts which in the short run lower your score

Rule #5 - with only 1 credit card, no one really knows what's best for your score; different profiles react differently. If you had 3 cards it's clear that 2 at zero, and the third at 29% or less, is the best... but you can do fine with 1 or 2 credit cards alone

FICO8 EQ 725 TU 752 EX 736 Total revolving credit 454300
Message 28 of 58
Valued Contributor

Re: What actually is the "sweet spot"?


Taggerung wrote:

Thank you so much for replying Sarge12! 

And I definitely had no idea of that. That's incredibly interesting. Kind of sad in a way too.

I really wanted to know from someone who is at the very top of it all.

Do you have any advice for someone who is beginning credit? Or for someone very young...


Yes...the most important thing for your credit report is paying on time every single month. The second is AAoA...which only time will help, and third is having a good credit mix. That is why you shoot for 3 cards and 1 installment loan. Utilization has a high impact also, but being a point in time metric...just make sure it is good when applying for credit or a job. Read the learn about scores section above...it lays out each catagory, what percentage of your score that involves, and what exactly is in that catagory...look at each section...what is in a score and what is not. Many people believe income is in a score...it is not...but can be, and usually is considered in lending decisions. If you have no income...your score can be 850, and you can be denied credit....but your score will not change due to income, or employment history.




TU fico08=820 11/10/17
EX fico08=812 10/25/17
EQ fico08=818 10/25/17
Garden since 4/5/2017
Message 29 of 58
Senior Contributor

Re: What actually is the "sweet spot"?


sarge12 wrote:



Yes...the most important thing for your credit report is paying on time every single month. The second is AAoA...which only time will help, and third is having a good credit mix. That is why you shoot for 3 cards and 1 installment loan. Utilization has a high impact also, but being a point in time metric...just make sure it is good when applying for credit or a job. Read the learn about scores section above...it lays out each catagory, what percentage of your score that involves, and what exactly is in that catagory...look at each section...what is in a score and what is not. Many people believe income is in a score...it is not...but can be, and usually is considered in lending decisions. If you have no income...your score can be 850, and you can be denied credit....but your score will not change due to income, or employment history.


I disagree with you weighing AAoA and credit mix above utilization with respect to importance.  Yes, you are correct in saying that utilization is a point in time metric, but it's still makes up a slice of the pie that's greater than both AAoA and credit mix combined. 

 

What's important to understand is that utilization over time data is being compiled as we speak and will be used in future FICO models.  The behavior of a Transactor that pays in full every month and keeps utilization down will be far more favorable than a Revolver that carries balances, even if they aren't huge percentages.  Those that exhibit the behavior of a Transactor are much less risky than Revolvers out there... so while today utilization may be a 'point in time metric" without question in the upcoming years it will be looked at over a length of at least 12, if not 24+ months.  The point is, keep your utilization low not just for now, but for the future.

Message 30 of 58