topic Re: Credit Card Utilization? in Credit Cards

Credit Card Utilization?

Anonymous — Wed, 11 Feb 2015 00:44:49 GMT

How much does CC Utilization matter when you have such a low limit. Me and DH both have Capital One Secured Master Cards, I pay off balances every 2 weeks. I make sure, I am on top of it. Now, since we have a low limit. I was wondering how much our utilization really matters. DH has had his about one month, and have had mine about 3 weeks. I know not long, but we are rebuilding credit to get our lives in the right place financially, to buy a house. DH also just got a car. It was neccesary purchase to get him back and fourth to work. His old car wasn't doing so great, and it was due to break down anytime.

We have high utilization, Mine is bit higher, just due to the me paying bills with it factor. DH mostly uses his for gas for the car, and a smaller bill. Once in a while food if I send him to the store. We don't purchase anything we don't have the money for. Or any extra fun things.

But at this point, so early how important is utilization?

Re: Credit Card Utilization?

Pway — Wed, 11 Feb 2015 01:03:52 GMT

@Anonymous wrote:
How much does CC Utilization matter when you have such a low limit. Me and DH both have Capital One Secured Master Cards, I pay off balances every 2 weeks. I make sure, I am on top of it. Now, since we have a low limit. I was wondering how much our utilization really matters. DH has had his about one month, and have had mine about 3 weeks. I know not long, but we are rebuilding credit to get our lives in the right place financially, to buy a house. DH also just got a car. It was neccesary purchase to get him back and fourth to work. His old car wasn't doing so great, and it was due to break down anytime.

We have high utilization, Mine is bit higher, just due to the me paying bills with it factor. DH mostly uses his for gas for the car, and a smaller bill. Once in a while food if I send him to the store. We don't purchase anything we don't have the money for. Or any extra fun things.

But at this point, so early how important is utilization? Utilization is important. Although what are your limits on your secured cards?

Re: Credit Card Utilization?

CH-7-Mission-Accomplished — Wed, 11 Feb 2015 01:39:37 GMT

So here is the deal: When you ask about "utilization," you need to be clear what you are talking about. In terms of FICO scoring, "utilization" is the percentage of your total available revolving credit being used. And FICO likes to see that as low as it can be, so 1% of the crdit limit. Lots of folks just let $2 report, which is the lowest dollar amount to keep it reporting since some lenders writeoff balances of $1 to not pay to send out a statement.

Also utilization is only a snapshot, so if your utilization is high on this month's statement, if you pay the card down to 1% next month, your scores will go back up.

The other general meaning or the term "utilization" is how much you put through a card every month as seen by the credit card lender. CC lenders would love it if you put through as much money as possible during a month -- they make their swipe fees on each transaction (like 2%).

So people are always doing a little dance with their credit cards; they want to put as much through the card each month to make the lender happy so they will ultimately give you a nice fat increase in your credit limit, but to keep FICO happy they make sure to pay off all but $2 right before the statement cut date.

With secured cards, however, Cap 1 will only give one small CLI with the card. So if you have a $500 secured card, and you pay it on time, they will likely raise the limit to $700 in 6 months. But that's it.

So to make a long story short (way too late now, I know -- LOL) but for a secured credit card just let some small $2 or $5 charge post each month and call it good. You are not going to get a big CLI by using that card heavily. So just pay with cash or debit cards and let one item chrage each month -- like a Netflix charge, or one trip to the store or one tank of gas, and then pay if off either all but $2 before the statement cycle date to see a high FICO that month, or just let a small $5 - $10 charge post to your statement and pay it by the due date.

With low limit secured cards the important part is to pay on time. If you have a $500 limit and this month your statement cycles for $100 you will be at 20% utilization (not great, but not bad) and next month you have $5 report (1%), your FICO wil be lower this month and go back up next month.

When you get unsecured cards, then it's time to use the heck out of them so the lender will you give CLI's, but still pay off most of the balance right before the statement cuts so you can enjoy a nice FICO score that month.

30% of FICO scoring is utilization. That means 150 points up for grabs. You could max out your cards this month and lose 150 points, pay them off and get that 150 points back next month. There is no memory.

Hope that helps.

Re: Credit Card Utilization?

NRB525 — Wed, 11 Feb 2015 03:25:01 GMT

I'm sorry, that isn't helpful to OP in this situation.

They only just got their first cards. They need to be using the cards regularly and paying them frequently. Utilization on a $500 card, when it is your only card, should never be factored in someones decisions to limit use of the card while building credit.

OP: use the cards. Pay them frequently, let balances report on the statement, never go over the limit, NEVER miss a payment due date, and as these first few months go by, those months of usage will be cha-chinging on your credit report like pennies from above. You want to be showing usage of these cards. These first few months are the launching of your credit journey. Do not worry about utilization levels yet. That is for much later.

You will gain much more now by just letting your history build with usage reporting every month in perfect payment fashion, and not worrying about any optimization of FICO scores.

Good luck!

Re: Credit Card Utilization?

Anonymous — Wed, 11 Feb 2015 03:55:06 GMT

Thank you, this was very helpful. We each only have $200 limits on our secured cards. I know utilization is important, but I didn't know at what stage. My first statement hasn't posted yet. But DHs did and did pay it in full. We don't rely on our CC at all. But we do use it for the neccesities and we do stay on top of all of our finances. I let myself get behind when I was 20, and I will not allow that to happen again. I always make sure everything is paid in full. I make payments every week to two weeks. Everytime money comes in I pay, to keep things as low as possible. I never go over. The most amount of my avaliable credit that I use is 75%. I never go over that. Just incase. So according to what you said. I should be fine, for now. When is the time to really worry about utilization? At what limit should I be concerned.

Re: Credit Card Utilization?

CH-7-Mission-Accomplished — Wed, 11 Feb 2015 04:08:56 GMT

I'm sorry, that isn't helpful to OP in this situation.

You will gain much more now by just letting your history build with usage reporting every month in perfect payment fashion, and not worrying about any optimization of FICO scores.

Good luck!

Actually, my friend, you are mistaken! FICO doesn't gives a rat's derriere whether you put $1 on the card or $20,000 on the card. It only cares about on time payments and % of available credit used. You get NO BENEFIT for using the card for more than one transaction a month. If you think you do, please explain it to me? FICO doesn't care. Cap 1 doesn't care becasue it is secured. You are dead wrong.

You are not being helpful to the OP by asking them to do a bunch of useless transacting that will have absolutely NO BENEFIT to the OP.

Re: Credit Card Utilization?

CH-7-Mission-Accomplished — Wed, 11 Feb 2015 04:12:20 GMT

You should be concerned about utilization at any moment when your FICO score is important to you - so when you are applying for credit. As I pointed out in my detailed posting, you can have the card maxed out all you want and pay it down to 1% and you will get back all your FICO points lost for over utilization.

FICO doesn't keep track of whether you were running the card up and paying off multiple times per month. FICO doesn't know about that.

And as I said, you don't have to wow Cap 1 because they are not going to give you a big CLI on a secured account. Just pay on time for six months and then apply for the QS 1 and/or the Platinum -- both unsecured.

Re: Credit Card Utilization?

CH-7-Mission-Accomplished — Wed, 11 Feb 2015 04:14:03 GMT

Why on earth do you owe 46K in revolving debt? This is all wrong. Pay off your credit cards and your scores will rise. You are getting nothing out of your technique except pissing away money on interest.

Re: Credit Card Utilization?

Anonymous — Wed, 11 Feb 2015 04:30:43 GMT

@CH-7-Mission-Accomplished wrote:
Why on earth do you owe 46K in revolving debt? This is all wrong. Pay off your credit cards and your scores will rise. You are getting nothing out of your technique except pissing away money on interest.

I don't know if this was directed towards me, but I don't owe 46K. I could not fathom owing that much money. To simplify, I just use my cards and pay it down each time my husband gets paid. It helps me keep control of finances, I pay all my bills in two installments. It just helps me stay in control of everything better. I just make sure, I pay full amounts on statements.

Re: Credit Card Utilization?

NRB525 — Wed, 11 Feb 2015 04:39:01 GMT

@CH-7-Mission-Accomplished wrote:
Why on earth do you owe 46K in revolving debt? This is all wrong. Pay off your credit cards and your scores will rise. You are getting nothing out of your technique except pissing away money on interest.

The reason for saying don't worry about utilziation on a $500 card is, it is a fools errand to try to control utilization on such a small limit. People need to live. A $500 card is intended to be a transaction instrument that you can charge a bit, pay it off, start showing payment history, and later on get larger limit cards. At that point, if you note in my post, then utilization can be watched.

My open balances are not really the topic here. But I'll bite anyway. I show them in my signature to provide as much context about my situation as possible. The balances are actually down from $117,000 in August 2008, so I think I'm doing great!

You are correct, my scores will rise when I get them paid down to $20k.

What you may not realize is, even with the open balances at the levels they have been, my FICO scores in the last many years have always been in the range of 690 - 735 (maybe even 750 if I believe certain Reasons letters) and that is because I have never ever missed any payments on any debt product. And, while I've been denied two cards that I wanted in the last several months, in the last year I got another AMEX, US Bank Travel Rewards, two Chase cards, Diners Premier, US Bank Fred Meyer, all at nice limits. That is the basis for my recommendation so often that people not get too wrapped up in micromanaging utilization levels, especially when starting out with a low limit card. The most important factor in your FICO score, bar none, is never ever missing any payments. Utilization levels are just an icing on the cake. Your relationship with the banks that issue your cards is something to be taken seriously and they will like you as a customer.

Cheers!

p.s. I paid an average of $104.49 in interest in November, December, and January.

Re: Credit Card Utilization?

TURNERHOOVER — Wed, 11 Feb 2015 04:45:39 GMT

@Anonymous wrote:
How much does CC Utilization matter when you have such a low limit. Me and DH both have Capital One Secured Master Cards, I pay off balances every 2 weeks. I make sure, I am on top of it. Now, since we have a low limit. I was wondering how much our utilization really matters. DH has had his about one month, and have had mine about 3 weeks. I know not long, but we are rebuilding credit to get our lives in the right place financially, to buy a house. DH also just got a car. It was neccesary purchase to get him back and fourth to work. His old car wasn't doing so great, and it was due to break down anytime.

We have high utilization, Mine is bit higher, just due to the me paying bills with it factor. DH mostly uses his for gas for the car, and a smaller bill. Once in a while food if I send him to the store. We don't purchase anything we don't have the money for. Or any extra fun things.

But at this point, so early how important is utilization?

Apply for more credit. More credit = lower util

Re: Credit Card Utilization?

CH-7-Mission-Accomplished — Wed, 11 Feb 2015 04:51:52 GMT

Hey NRB:

I don't know how to make it so the person I'm replying to's message appears in my reply so people know who my comments are directed to.

I was in a similar situation to you. I had tons of revolving credit, all prime lines, platinum cards, lots of mileage cards, etc. I never had a late payment but I always carried balances and over time they got bigger. Then I got cancer. I'm self-employed so I couldn't work (much). I worked enough to pay my health insurance, the balances went up, and in November 2012 I had my first ever 30 day late payment in my life. I had had a few mortgages, auto loans, and a ton of high quality credit cards.

November 2012 - First 30 day late in my life.

12/2012 - 6/2013 - Various accounts 30, 60, 90 days late ...

07/2013 - AMEX charges off my platinum card (18K) and sues me.

08/28/2013 - Filed BK 7. Nearly 200K in unsecured revolving debt.

Now I am blacklisted by just about anybody you would want to have a card with. I have managed to get my FICO's up to the 690s in 14 months post discharge, and I have about 40K in new unsecured credit, so I'm doing well.

But I will never, ever, ever, EVER carry a balance on a card again. If I am desperate for money I will try to get an installment personal loan from my credit unon and lock up my cards until that loan is paid off.

Great credit is wonderful but sleeping at night and not worrying to death is priceless.

Sounds like you have got your path thought out. Good luck. (I mean that!)

Re: Credit Card Utilization?

NRB525 — Wed, 11 Feb 2015 04:49:49 GMT

@TURNERHOOVER wrote:
@Anonymous wrote:
How much does CC Utilization matter when you have such a low limit. Me and DH both have Capital One Secured Master Cards, I pay off balances every 2 weeks. I make sure, I am on top of it. Now, since we have a low limit. I was wondering how much our utilization really matters. DH has had his about one month, and have had mine about 3 weeks. I know not long, but we are rebuilding credit to get our lives in the right place financially, to buy a house. DH also just got a car. It was neccesary purchase to get him back and fourth to work. His old car wasn't doing so great, and it was due to break down anytime.

We have high utilization, Mine is bit higher, just due to the me paying bills with it factor. DH mostly uses his for gas for the car, and a smaller bill. Once in a while food if I send him to the store. We don't purchase anything we don't have the money for. Or any extra fun things.

But at this point, so early how important is utilization?
Apply for more credit. More credit = lower util

They've had the cards for, what, about a month? Another secured card is probably the only option open right now.

OR, not worry about utilization and just use the card and pay in full by the due date at the latest.

Re: Credit Card Utilization?

NRB525 — Wed, 11 Feb 2015 05:01:17 GMT

@CH-7-Mission-Accomplished wrote:
Hey NRB:

I don't know how to make it so the person I'm replying to's message appears in my reply so people know who my comments are directed to.

I was in a similar situation to you. I had tons of revolving credit, all prime lines, platinum cards, lots of mileage cards, etc. I never had a late payment but I always carried balances and over time they got bigger. Then I got cancer. I'm self-employed so I couldn't work (much). I worked enough to pay my health insurance, the balances went up, and in November 2012 I had my first ever 30 day late payment in my life. I had had a few mortgages, auto loans, and a ton of high quality credit cards.

November 2012 - First 30 day late in my life.

12/2012 - 6/2013 - Various accounts 30, 60, 90 days late ...

07/2013 - AMEX charges off my platinum card (18K) and sues me.

08/28/2013 - Filed BK 7. Nearly 200K in unsecured revolving debt.

Now I am blacklisted by just about anybody you would want to have a card with. I have managed to my my FICO's up to the 690s in 14 months post discharge, and I have about 40K in new unsecured credit, so I'm doing well.

But I will never, ever, ever, EVER carry a balance on a card again. If I am desperate for money I will try to get an installment personal loan from my credit unon and lock up my cards until that loan is paid off.

Great credit is wonderful but sleeping at night and not worrying to death is priceless.

Sounds like you have got your path thought out. Good luck. (I mean that!)

When you reply to a post, there is a Quote button in the upper right corner, that brings in the text of the post you are responding to.

Your situation is, unfortunately, a common type of issue here. Unforseen issues can derail any of us. That is why, when I give out advice, it is only to bring the advice to a usable level. I would never recommend anyone take out as much debt as I had, but in the context of the Debt Bubble, the banks were literally giving away the money, so a bunch went into cash balances. The truth about debt is, it does need to be paid back, and that is the portion of the cycle I am on now. The upside of my relationships with my banks is, they are now seeing fit to send me regular BT 0% and low interest offers, and that makes my payments more reasonable.

Each of us has a complicated story that has led us to this moment in our lives. What we are trying to discuss here is, what are the common themes we all need to understand to work with credit? The common advice frequently seen here that someone should always have 1% reporting, is not appropriate in all situations. The experience of many when they push the limit on a card by charging up high utilization percentages ( I've done it many times) and find they get a credit line increase, is one of those arguments against 1%.

Also, one of the key purposes of credit is to enable people to borrow more money than they have today, on the promise they will pay it back. Most of the time that works out well. Your case is an important, cautionary story that people need to understand, but it is not something that we can plan for, only know that we have to find the strength to deal with it. The great thing about this nation is, we have bankruptcy laws in place that make it possible for people to get out from under debts that they really can't pay. Yes, there's a cost to that, a cost in terms of rebuilding credit, but it's better than other countries where you would never get past that debt, it would require payment however long that took.

Cheers!

Re: Credit Card Utilization?

Anonymous — Thu, 12 Feb 2015 01:20:23 GMT

Credit utilization is a big deal. When you are rebuilding or starting over your limits are really too low to use. On a $300 limit card using more than about $75 a month or $125 on a $500 card will raise your utilization.

I'm going through that myself with 75% utilization but with my newly approved cards and those of my au, will be back at 30% in a few weeks. My score dropped from 727 to 644 per Discover.

Once you are able to get about $50,000 in cards, you can carry a $10,000 balance when and if needed and still be well under the 30% threshold and probably over a 700 score. Under 20% is best. A lot of people on here have rebuilt with waaay more credit lines than they need so they can charge a lump sum if needed and keep low utilization and high scores.

I don't know what your scores are or if you have derogs and collections.

You could use some more accounts to raise your credit lines, charge less than 10% on them and pay them off in 2 payments over 60 days so some activity will show on your reports.

Do you have an au with no debt to add you on 2 cards? Have you tried the shopping cart trick for sp's? Get a couple more tradelines anywhere you can keep your debt ratio low, get your scores over 650, and some unsecured cards may come your way with $500-$1000 limits. 6 months of cards like that and some $1500-$2500 cards will be available to you.

Re: Credit Card Utilization?

NRB525 — Thu, 12 Feb 2015 02:57:37 GMT

@Anonymous wrote:
Credit utilization is a big deal. When you are rebuilding or starting over your limits are really too low to use. On a $300 limit card using more than about $75 a month or $125 on a $500 card will raise your utilization.

I'm going through that myself with 75% utilization but with my newly approved cards and those of my au, will be back at 30% in a few weeks. My score dropped from 727 to 644 per Discover.

Once you are able to get about $50,000 in cards, you can carry a $10,000 balance when and if needed and still be well under the 30% threshold and probably over a 700 score. Under 20% is best. A lot of people on here have rebuilt with waaay more credit lines than they need so they can charge a lump sum if needed and keep low utilization and high scores.

I don't know what your scores are or if you have derogs and collections.

You could use some more accounts to raise your credit lines, charge less than 10% on them and pay them off in 2 payments over 60 days so some activity will show on your reports.

Do you have an au with no debt to add you on 2 cards? Have you tried the shopping cart trick for sp's? Get a couple more tradelines anywhere you can keep your debt ratio low, get your scores over 650, and some unsecured cards may come your way with $500-$1000 limits. 6 months of cards like that and some $1500-$2500 cards will be available to you.

Your score didn't drop from 727 to 644 with only one card of ~$500, right? You've got larger balances on more cards than that, am I right? How long have you been building credit? Which cards, limits, and open balances do you have? Was there some other change or loss of an AU positive in your profile as well?

OP situation, with only the one card is starting out with a low FICO (presuming a FICO even calculates yet) because of short payment history, not any utilization effects that would be noticeable.

Re: Credit Card Utilization?

Anonymous — Thu, 12 Feb 2015 03:54:25 GMT

I have a score, a 562 per transunion, which isn't awful. But I am paying off all my debts, its something I am working on. I am doing it one at a time, hoping to have everything paid off in 6 months. I am in the middle of writing some disputes, that I am not responsible for. I am 25. I screwed up my credit when I was 19. After my debts are paid off I hope to put another deposit on my secured card to raise it. I really only pay bills and buy food with my credit card.

Re: Credit Card Utilization?

Anonymous — Thu, 12 Feb 2015 06:01:04 GMT

When I had a $500 student card, it was always easily maxed out and I had to make many payments per month. It's annoying but still managable. And an auto CLI would occur soon with such heavy usage for most banks.

Just pay off everything before statement closes, so it reports 0 and you don't need to worry about ultilization.

Re: Credit Card Utilization?

takeshi74 — Thu, 12 Feb 2015 14:05:47 GMT

@Anonymous wrote:
How much does CC Utilization matter when you have such a low limit.

Limit doesn't matter. Utilization is a ratio that factors in limit. It's balance(s)/limit(s).

As for how much it matters, look at the Amounts Owed slice:

http://www.myfico.com/crediteducation/whatsinyourscore.aspx

@CH-7-Mission-Accomplished wrote:
The other general meaning or the term "utilization" is how much you put through a card every month as seen by the credit card lender.

Usage is generally the word used for that. Utilization is generally used to mean revolving utilization.

@NRB525 wrote:
I'm sorry, that isn't helpful to OP in this situation.
They only just got their first cards. They need to be using the cards regularly and paying them frequently. Utilization on a $500 card, when it is your only card, should never be factored in someones decisions to limit use of the card while building credit.

Utilization always matters. One in a situation like the OP's doesn't need to worry about optimizing utilization by allowing only one balance to report at 10% but utilization is always a significant risk factor. While one can limit spend to control utilization one can also make payments to reduce reported utilization.

@NRB525 wrote:
The most important factor in your FICO score, bar none, is never ever missing any payments. Utilization levels are just an icing on the cake. Your relationship with the banks that issue your cards is something to be taken seriously and they will like you as a customer.

That's misrepresenting it. Payment History is certainly the biggest factor but utilization is not "icing on the cake". It is the next biggest factor -- see link I provided. HP's and Mix are closer to being icing and even so HP's can be cited as a denial reason for thin profiles. Optimizing utilization (1 balance at 10% or less) could be considered icing on the cake but that doesn't mean that utilization in general doesn't matter.

Prolonged high utilization can lead to adverse action. High utilization can prevent approvals and even if approved severely restrict the limits and APR's that one can qualify for. These are not negligible impacts.

That said, all factors matter as one's entire credit profile is assessed and not just one factor on its own. You can't just pick the biggest factor and ignore the rest.

@CH-7-Mission-Accomplished wrote:
I don't know how to make it so the person I'm replying to's message appears in my reply so people know who my comments are directed to.

This may not be an option on the mobile site but if you're on the full site hit the Reply button under the message you want to quote. In the editor hit the Quote button and the entire message will be quoted. Trim off any irrelevant text.