topic Re: Credit Utilization Percentages in Credit Cards

Credit Utilization Percentages

CreditPhoenix — Mon, 11 Jan 2016 04:44:42 GMT

Hi All,

I just got a second credit card for no good reason, a Citi Double Cash. (Although, I do look forward to 2% on all purchases.) I have a 770 score and want to get up to the 800's. Even though I pay every single bill in full and on time every month, I appear to carry a balance of $800 to $1K (credit limit is $7K on the card). So I just got a second card in the $7K range. I'm now up to $15K in cards.

Question: How much credit limit do I need until $1K or less is seen as the lowest and most positive utilization level? In other words, should I get a third card, taking my limit up to $22K? (I don't want this many cards in my wallet.) What's the percentage they're after? 5%?

Also, any update on when FICO might be getting "paid in full" data? I can't wait for that as I believe people who pay all bills in full should have the highest scores, period. If I'm lending and I see someone who always pays all bills on time and in full, I'd consider them the most likely to pay me back. I'd give them the highest FICO. But that's not the world we live in. Is it coming any time soon?

Re: Credit Utilization Percentages

creditguy — Mon, 11 Jan 2016 04:52:38 GMT

I understand a minimum of three credit cards would be your best option for maximux scoring potential. As far as utilization goes, as long as you keep it under 10% you should be perfectly fine, of course keeping it lower is fine too. Just remeber to keep something reporting for utilization and you should be good. The other thing you have to remeber is mix of credit use when calculating scores, Do you have any installment loans on your CR?

Re: Credit Utilization Percentages

CreditPhoenix — Mon, 11 Jan 2016 05:33:53 GMT

Hi Credit Guy,

I have a mortgage. I own my car in full. So, it's only mortgage and credit cards.

I have my BofA card giving me 2% on Groceries and 3% on Gas, and then an additional 25% bonus on the reward if I apply it to my checking account. I just got the Citi Double Cash for all non-Groceries and non-Gas. Now I'm thinking that I should get the AARP Chase card which gives 3% on restaurants. Is there anything else better for restaurants without an annual fee? Can I get the AARP even if I'm below 50 and don't have an AARP number?

Also, does anyone else have an update on "Paid In Full"? I really hope this industry factors that in soon, along with utilities. It feels absurd and less safe to have my credit extended into two extra directions, unnecessarily, in order to make me look more "credit worthy"!?! Absurd. But I guess I don't mind getting all the cash back that I can.

Re: Credit Utilization Percentages

creditguy — Mon, 11 Jan 2016 05:41:06 GMT

You might want to go for the AARP just to round out the three card category plus it seems to fit your needs, your more than qualified for it so I don't see any reason not to go for it. I know the sam's club MasterCard also offers 3% cashback on restaurants but other than that I know of no others off the top of my head. Don't worry about age for the AARP card that is not a requirement.

Re: Credit Utilization Percentages

OmarGB9 — Mon, 11 Jan 2016 06:11:58 GMT

Scoring wise, the "rule of thumb" per se is to keep all cards at $0 balance (meaning PIF BEFORE statement cut) and just let ONE card report a balance, and that balance should be between 1-9%. The "sweet spot" for UTIL reporting varies by credit profile, so while 5% may work for you, 3% might work for someone else (just throwing out random examples). You have to play with your profile and see what gives you the results you want.

As far as when FICO (I guess you mean the CRAs?) gets your PIF data, they won't necessarily get that until next statement, unless, as I stated above, you PIF prior to statement cut. The bureaus get your updated balances upon statement cut, then it takes a couple of days for it to reflect in their systems/on your reports.

Re: Credit Utilization Percentages

Aahz — Mon, 11 Jan 2016 06:24:12 GMT

@CreditPhoenix wrote:
Also, does anyone else have an update on "Paid In Full"? I really hope this industry factors that in soon, along with utilities.

Despite what one prolific poster constantly states here in the forums, I have found no actual reports that FICO is considering factoring "Paid In Full" accounts into any future models.

It took the current model (FICO 8 - introduced in 2009) more than two full years to be adopted by most credit card companies.

FICO 9 was just released late last year (six years after FICO 8), so figure it will be in widespread use around 2018.

So, Should FICO 10 will probably be released around 2019 or 2020 and be widely adopted around 2022. But, again, I've seen no actual FICO whitepapers or news articles implying it will incorporate "Paid In Full" as a plus for scores.

In other words, I wouldn't hold my breath.

ETA: Oh, and utilities aren't credit so don't really fit into FICO scoring.

Re: Credit Utilization Percentages

takeshi74 — Mon, 11 Jan 2016 15:52:28 GMT

@CreditPhoenix wrote:
Even though I pay every single bill in full and on time every month, I appear to carry a balance of $800 to $1K (credit limit is $7K on the card).

Carry and report are two entirely different things. You can pay in full, not carry and have a balance report. If you want to avoid having a balance report then you need to pay in full prior to report date, not the due date. Payments after the report date will not impact the reported balance.

@CreditPhoenix wrote:
How much credit limit do I need until $1K or less is seen as the lowest and most positive utilization level?

Probably 1% but you'd need to test at different revolving utilization levels to see if there's a meaningful difference between X% and Y%. Generally, the smaller the change the smaller the impact.

Again, you can pay prior to report date to reduce revolving utilization. You don't have to rely on higher limits.

My spend and limits fall at about 6%, I have 8 of 12 cards reporting balances and my FICO 8's are all above 800. You don't have to have the lowest possible revolving utilization for high scores.

@CreditPhoenix wrote:

Also, any update on when FICO might be getting "paid in full" data? I can't wait for that as I believe people who pay all bills in full should have the highest scores, period. If I'm lending and I see someone who always pays all bills on time and in full, I'd consider them the most likely to pay me back. I'd give them the highest FICO. But that's not the world we live in. Is it coming any time soon?

I'm not aware of any such changes. It's not about how you see things but how FICO and creditors see things. If you want to see change then work with the system versus waiting on it to change to fit what you expect. As stated above, even if a new model with such changes was released today it would take time for creditors to adopt the new model and not all would do so.

@CreditPhoenix wrote:
Can I get the AARP even if I'm below 50 and don't have an AARP number?

Sure but is 3% on restaurant spend significant compared to what you're currently getting in dollars? Always run the numbers for your spend.

@CreditPhoenix wrote:
It feels absurd and less safe to have my credit extended into two extra directions, unnecessarily, in order to make me look more "credit worthy"!?! Absurd. But I guess I don't mind getting all the cash back that I can.

You don't have to. You're choosing to. At 770 (assuming the score is a FICO 8) you're already above the mark for qualifying for best terms so anything higher is just gravy.

Step back and reconsider. What specific issues are you experiencing because of your credit profile and scores where you would benefit from a better report and higher scores? There's nothing wrong with wanting the highest scores possible but it's absurd to say that it's absurd that the system is forcing you to do this. While I'm over 800 I'm nowhere near 850 but I'm not losing sleep over it. The hassle isn't worth it to me.

Re: Credit Utilization Percentages

redpat — Mon, 11 Jan 2016 16:06:46 GMT

Always remember that utilization no memory.

If you aren't looking for credit it's a moot point to window dress a score every month, only maybe to make yourself feel better, lol.

Up five, down 10, up 15, down 8 on a month to month basis with high score really doesn't matter much. It's more important to pay bills and pay no interest.

So let those statements cut........PIF before due date!

As the Kinks would say "Paranoia will destroy ya."

Re: Credit Utilization Percentages

Anonymous — Mon, 11 Jan 2016 16:18:11 GMT

I PIF before the due date (NOT the statement date), so I report a balance on every card every month. At this point, a fluctuation of a percent or two of utilization is only going to have about 5 points of effect on my report. I don't really find it useful to play the "all but one at 0%" game, as the gains from it are somewhat minimal and I'm not apping for anything at the moment.

If you're having $1k report, your ideal is probably to have somewhere around $30k in available credit. However, this isn't the be all/end all, and you'll be fine with the credit that you have. Instead, only consider cards that you think will help you out. For example, there is no age limit on the AARP card. I recieved mine when I was in my 20s, and it provides an extra 1% back over my Double Cash for restaurant purchases, so it was worth it for me (and might be for you). Similarly, a gas card could be helpful, or a quarterly 5% card. You just have to look at your spend and your portfolio and determine what you think is worth it to add.

Re: Credit Utilization Percentages

Thomas_Thumb — Tue, 12 Jan 2016 03:38:41 GMT

Agree - PIF by due date is key.

I am not an advocate of pre-pay before statement cuts. It can be a hasstle and you lose interest free float time on your charges.

Nonetheless, depending on spending and CLs, prepay may be the best approach for some to maintain a relatively low utilization. Once the transactor/revolver designator comes into play as a segmentation criteria, value of prepay for transactors may become moot - as long as monthly charges don't exceed the card's CL>

Re: Credit Utilization Percentages

cem13 — Tue, 12 Jan 2016 03:55:45 GMT

@Aahz wrote:

ETA: Oh, and utilities aren't credit so don't really fit into FICO scoring.

Absolutely incorrect. My electric bill reports every month. It is considered as an "installment loan". I get positives because it is "credit" and it is also my oldest account my a long shot. I have lived in this house for 25 years so I get positives for my AAOA. During my BK7 the only TLs that survived was my Student loans and my electric bill.

My wife pays the gas bill so she gets the positives for paying that monthly for 25 years. The gas bill does not report every month but every other month or so. It is random but rarely does it go beyond 4 months.

It does not factor into utilization but it is credit.

Re: Credit Utilization Percentages

Anonymous — Tue, 12 Jan 2016 04:03:12 GMT

Some credit cards report your balance before the due date of your payment. I know discover reports about 5 days ahead of time. You may want to call your credit card companies and have the payment posted before the date they report. That will always show paid in full.

I would leave about 50 bucks on it and then pay it off right away to avoid the interest. If they report before your payment due date, this will work to your advantage. They report before your due date so you can pay off in full before you payment date and not get charged interest.

Re: Credit Utilization Percentages

SouthJamaica — Tue, 12 Jan 2016 04:03:53 GMT

@CreditPhoenix wrote:
Hi All,

I just got a second credit card for no good reason, a Citi Double Cash. (Although, I do look forward to 2% on all purchases.) I have a 770 score and want to get up to the 800's. Even though I pay every single bill in full and on time every month, I appear to carry a balance of $800 to $1K (credit limit is $7K on the card). So I just got a second card in the $7K range. I'm now up to $15K in cards.

Question: How much credit limit do I need until $1K or less is seen as the lowest and most positive utilization level? In other words, should I get a third card, taking my limit up to $22K? (I don't want this many cards in my wallet.) What's the percentage they're after? 5%?

Also, any update on when FICO might be getting "paid in full" data? I can't wait for that as I believe people who pay all bills in full should have the highest scores, period. If I'm lending and I see someone who always pays all bills on time and in full, I'd consider them the most likely to pay me back. I'd give them the highest FICO. But that's not the world we live in. Is it coming any time soon?

If you don't like having more than 2 cards, don't get a 3rd card. Simple.

Your scores will be just fine.

Re: Credit Utilization Percentages

NRB525 — Tue, 12 Jan 2016 05:26:17 GMT

@SouthJamaica wrote:
@CreditPhoenix wrote:
Hi All,

I just got a second credit card for no good reason, a Citi Double Cash. (Although, I do look forward to 2% on all purchases.) I have a 770 score and want to get up to the 800's. Even though I pay every single bill in full and on time every month, I appear to carry a balance of $800 to $1K (credit limit is $7K on the card). So I just got a second card in the $7K range. I'm now up to $15K in cards.

Question: How much credit limit do I need until $1K or less is seen as the lowest and most positive utilization level? In other words, should I get a third card, taking my limit up to $22K? (I don't want this many cards in my wallet.) What's the percentage they're after? 5%?

Also, any update on when FICO might be getting "paid in full" data? I can't wait for that as I believe people who pay all bills in full should have the highest scores, period. If I'm lending and I see someone who always pays all bills on time and in full, I'd consider them the most likely to pay me back. I'd give them the highest FICO. But that's not the world we live in. Is it coming any time soon?
If you don't like having more than 2 cards, don't get a 3rd card. Simple.

Your scores will be just fine.

Agreed.

OP has 770. With two cards. There's no need to get another card, at least not for scoring purposes. The only thing that will get to 800 will be several years of continued pay on time performance. A third card is meh at this point, unless OP wants to get a dining card, which is a fine thing to do.

Re: Credit Utilization Percentages

NRB525 — Tue, 12 Jan 2016 05:32:04 GMT

@cem13 wrote:
@Aahz wrote:
ETA: Oh, and utilities aren't credit so don't really fit into FICO scoring.
Absolutely incorrect. My electric bill reports every month. It is considered as an "installment loan". I get positives because it is "credit" and it is also my oldest account my a long shot. I have lived in this house for 25 years so I get positives for my AAOA. During my BK7 the only TLs that survived was my Student loans and my electric bill.

My wife pays the gas bill so she gets the positives for paying that monthly for 25 years. The gas bill does not report every month but every other month or so. It is random but rarely does it go beyond 4 months.

It does not factor into utilization but it is credit.

Who is your electric company? Gas? Are those publicly traded for-profit companies, as opposed to non-profit, non-publicly traded local utility districts?

Re: Credit Utilization Percentages

Anonymous — Tue, 12 Jan 2016 13:40:13 GMT

@NRB525 wrote:
@SouthJamaica wrote:
@CreditPhoenix wrote:
Hi All,

I just got a second credit card for no good reason, a Citi Double Cash. (Although, I do look forward to 2% on all purchases.) I have a 770 score and want to get up to the 800's. Even though I pay every single bill in full and on time every month, I appear to carry a balance of $800 to $1K (credit limit is $7K on the card). So I just got a second card in the $7K range. I'm now up to $15K in cards.

Question: How much credit limit do I need until $1K or less is seen as the lowest and most positive utilization level? In other words, should I get a third card, taking my limit up to $22K? (I don't want this many cards in my wallet.) What's the percentage they're after? 5%?

Also, any update on when FICO might be getting "paid in full" data? I can't wait for that as I believe people who pay all bills in full should have the highest scores, period. If I'm lending and I see someone who always pays all bills on time and in full, I'd consider them the most likely to pay me back. I'd give them the highest FICO. But that's not the world we live in. Is it coming any time soon?
If you don't like having more than 2 cards, don't get a 3rd card. Simple.

Your scores will be just fine.
Agreed.
OP has 770. With two cards. There's no need to get another card, at least not for scoring purposes. The only thing that will get to 800 will be several years of continued pay on time performance. A third card is meh at this point, unless OP wants to get a dining card, which is a fine thing to do.

Or get a third card and don't carry it. What do you spend in restaurants monthly or annually? How much difference will that 1% make vs. your DC? Many people here have cards that they rarely or never carry for various reasons. You seem like someone who values streamlined. A card that you have to actively manage isn't necessary, but if you want it, go for it.

Re: Credit Utilization Percentages

Anonymous — Tue, 12 Jan 2016 14:17:00 GMT

OP, keep in mind that by PIF every month you never really incur any revolving debt. Fico scores your ability/willingness to pay back debt not your ability to avoid debt. That's why utilization has no memory. Scoring someone based on their ability to avoid debt would have little value when it comes to lending. That's my take on it anyway.
But by all means continue to PIF it shows a great deal of restraint and ability to handle ones finances.

Re: Credit Utilization Percentages

Aahz — Tue, 12 Jan 2016 16:50:57 GMT

@cem13 wrote:
@Aahz wrote:
ETA: Oh, and utilities aren't credit so don't really fit into FICO scoring.
Absolutely incorrect. My electric bill reports every month. It is considered as an "installment loan". I get positives because it is "credit" and it is also my oldest account my a long shot. I have lived in this house for 25 years so I get positives for my AAOA. During my BK7 the only TLs that survived was my Student loans and my electric bill.

My wife pays the gas bill so she gets the positives for paying that monthly for 25 years. The gas bill does not report every month but every other month or so. It is random but rarely does it go beyond 4 months.

It does not factor into utilization but it is credit.

1) You're in the minority.

2) Just because some utilities report does not make monthly utility bills "credit". There is no extension of funds. Considering utilities credit (because you receive the product/service prior to paying for it) would require consider dining in a restuarant as credit also. Do you tend to think of Red Lobster and Outback Steakhouse as your creditors?

This is, in part, the same reason that FICO 9 is no longer calculating delinquent medical bills into it's scoring algorithm. Medical bills also aren't credit. They are merely bills that were either paid or not.

Re: Credit Utilization Percentages

CreditPhoenix — Sat, 16 Jan 2016 21:26:28 GMT

Hi Open G,

You wrote, "Fico scores your ability/willingness to pay back debt not your ability to avoid debt. That's why utilization has no memory. Scoring someone based on their ability to avoid debt would have little value when it comes to lending."

I disagree with this. FICO clearly scores me on debt that doesn't really exist, my reported CC balances. Specifically, FICO considers me to be someone who's running a regular amount of debt that's $1K on a $7K limit, or 14%. It's ridiculous. If it's paid in full every month, that number should be zero. The only reason people like me even use credit cards is because of this stupid "Rewards" industry we've built. They're not really rewards. It just makes merchants have to charge more. So then, if you don't have a good rewards card, you're essentially losing money.

Next, any credit card purchase could in theory be considered a form of debt. If I buy a $50 shirt with a credit card, I haven't given the retailer one penny. However, I now have a debt liability to the CC.

So here's my point on a larger scale. "Utilization" should count as debt. Paying in full each month should reflect an absolutely perfect score in that arena, no ifs, ands, or buts. The critical piece of the puzzle is that the big credit cards have never reported the PIF info. But my understanding is that's going to change. I wish someone could tell me when, as that was one of my initial questions. Assuming it does happen, someone like me should be considered to a person who isn't "avoiding debt" as you put it, but is instead amassing it on a monthly basis, and subsequently paying it in full every time. I have plenty of utilization and have proven to be as trustworthy as possible. That's should be the 850 factor.

On a tangent, I've seen how some people here say that you can pay in full before a CC's reporting date. But my word, what a hassle! Who does this every single month? If anything, it would be nice if the CC's themselves would offer it. That way a person wouldn't have to log in at the right time each month and make a manual payment. Is there a CC that allows for this?

Re: Credit Utilization Percentages

NRB525 — Sat, 16 Jan 2016 22:03:28 GMT

@CreditPhoenix wrote:
Hi Open G,

You wrote, "Fico scores your ability/willingness to pay back debt not your ability to avoid debt. That's why utilization has no memory. Scoring someone based on their ability to avoid debt would have little value when it comes to lending."

I disagree with this. FICO clearly scores me on debt that doesn't really exist, my reported CC balances. Specifically, FICO considers me to be someone who's running a regular amount of debt that's $1K on a $7K limit, or 14%. It's ridiculous. If it's paid in full every month, that number should be zero. The only reason people like me even use credit cards is because of this stupid "Rewards" industry we've built. They're not really rewards. It just makes merchants have to charge more. So then, if you don't have a good rewards card, you're essentially losing money.

Next, any credit card purchase could in theory be considered a form of debt. If I buy a $50 shirt with a credit card, I haven't given the retailer one penny. However, I now have a debt liability to the CC.

So here's my point on a larger scale. "Utilization" should count as debt. Paying in full each month should reflect an absolutely perfect score in that arena, no ifs, ands, or buts. The critical piece of the puzzle is that the big credit cards have never reported the PIF info. But my understanding is that's going to change. I wish someone could tell me when, as that was one of my initial questions. Assuming it does happen, someone like me should be considered to a person who isn't "avoiding debt" as you put it, but is instead amassing it on a monthly basis, and subsequently paying it in full every time. I have plenty of utilization and have proven to be as trustworthy as possible. That's should be the 850 factor.

On a tangent, I've seen how some people here say that you can pay in full before a CC's reporting date. But my word, what a hassle! Who does this every single month? If anything, it would be nice if the CC's themselves would offer it. That way a person wouldn't have to log in at the right time each month and make a manual payment. Is there a CC that allows for this?

Well, if you always pay everything you buy in full by the time 25 days has passed, and you never intend to borrow anything, why do you worry about what your FICO score is? I'm taking the idea to an extreme, to be sure, but if you never go to a bank for a loan, you are fine as is, without a credit score. 800 and certainly 850 is meaningless without the action of going to get a loan, right?

As I noted earlier, you have to spend more time making on-time payments to get your score to improve. Part of getting 800 is years of history paying on time. You would not expect someone to get 850 after paying two months on time, would you? So that is your missing component in your file: more time.

Your concerns about the way FICO scores are not unique to you. Plenty of folks come on here and have "perfect payment history" and wonder why they don't get 850. The answer is, there are some other factors that the FICO system has determined are relevant for calculating scores. It's fine to have an opinion, but realize we are all participants in a larger society where we don't get to make the rules. The idea behind FICO scores is to calculate a single number which can be used to provide a snapshot of 150 million individuals, all with different histories, future plans, and habits.