topic Kind of theoretical question about util %% in Credit Cards

Kind of theoretical question about util %%

mikka1 — Wed, 15 Aug 2012 21:15:24 GMT

Let's assume you have 10 cards with $1000 CL on each of them (so, with your total available limit of $10 000). For the sake of simplicity, let's assume that none of them have any rewards, all have the same APR and same closing date.

You need to spend $900 that you will not be able to repay before the closing date, so the balance of $900 will report in some way anyway.

What will be better from the point of view of your score and how you look in the eyes of your existing lenders:

1) Extreme scenario #1: Just spend $900 on one card, letting it report a $900 balance, leaving 0 balance on all other cards. (So, you'll have util of 90% on one particular card, 0% util on all other cards and 9% overall util)

2) Extreme scenario #2: Spend $90 on each of the cards, letting each of them to report $90 balance (So you'll have 9% util on all cards and 9% overall util)

3) Spend $300 on each of three chosen cards, letting it report 30% util each (with all others reporting 0%) with 9% overall util.

4) ?

Straight to the point - I just try to understand - if you have to carry a balance, apart from APR factor, how should you spread it between existing cards in order to minimize the damage to the score. Clearly I know that from the pure score perspective you'd better have 9% util on only 1 card and 0% on all the others, but let's assume it's not possible. I also assume that option #1 is not the optimal one, as 90% util might raise a red flag on one's file (or I'm wrong?).

Opinions are greatly appreciated!

Thanks,

mikka

Re: Kind of theoretical question about util %%

mschang — Wed, 15 Aug 2012 21:25:16 GMT

i know you should not do #1 but aside from that i don't know the "best" answer.

i hope that some of the more experienced people give you a full answer.

Re: Kind of theoretical question about util %%

Quips — Thu, 16 Aug 2012 02:17:22 GMT

@mikka1 wrote:
Let's assume you have 10 cards with $1000 CL on each of them (so, with your total available limit of $10 000). For the sake of simplicity, let's assume that none of them have any rewards, all have the same APR and same closing date.
You need to spend $900 that you will not be able to repay before the closing date, so the balance of $900 will report in some way anyway.

What will be better from the point of view of your score and how you look in the eyes of your existing lenders:

1) Extreme scenario #1: Just spend $900 on one card, letting it report a $900 balance, leaving 0 balance on all other cards. (So, you'll have util of 90% on one particular card, 0% util on all other cards and 9% overall util)
2) Extreme scenario #2: Spend $90 on each of the cards, letting each of them to report $90 balance (So you'll have 9% util on all cards and 9% overall util)

3) Spend $300 on each of three chosen cards, letting it report 30% util each (with all others reporting 0%) with 9% overall util.
4) ?

Straight to the point - I just try to understand - if you have to carry a balance, apart from APR factor, how should you spread it between existing cards in order to minimize the damage to the score. Clearly I know that from the pure score perspective you'd better have 9% util on only 1 card and 0% on all the others, but let's assume it's not possible. I also assume that option #1 is not the optimal one, as 90% util might raise a red flag on one's file (or I'm wrong?).

Opinions are greatly appreciated!

Thanks,

mikka

Neither number 1 or 2 are good options. #1 would have a card at 90% which is considered "Maxed out". #2 would have too many cards reporting a balance.

Number 3 would work as you don't want more than 50% of your cards reporting a balance as FICO will ding you for that. I have found that keeping individualy cards under 30% (if they can't be at 9% or lower) doesn't negatively impact your score.

Re: Kind of theoretical question about util %%

Anonymous — Thu, 16 Aug 2012 03:33:49 GMT

My guess is the difference will be small and not worth worrying about.

But theories are meant to be proven/disproven. I suggest you try each way and see what the scores are. Everyone here would want to know how it turns out.

Re: Kind of theoretical question about util %%

j_casteel — Thu, 16 Aug 2012 03:40:15 GMT

Easy answer....use each how you please and PIF each month before statement cuts. No need to worry about the util% game because its different for each person. I know when my cards carried high balances my score dropped, when i carried some balances it didn't change much, when i PIF they came up. So I just stick with PIF each month, and if one or two report it won't affect me too much b/c i don't carry large balances on my card now.

Re: Kind of theoretical question about util %%

mikka1 — Thu, 16 Aug 2012 04:34:01 GMT

@Anonymous wrote:
(...)
But theories are meant to be proven/disproven. I suggest you try each way and see what the scores are. Everyone here would want to know how it turns out.

Well, would be hard to deduce credible answers from the experiment anyway, as all other parameters / variables (CLs, number of tradelines etc) will have to be frozen for the all duration of the experiment (so no CLIs, no new apps etc :-) ).

In fact, I understand that option #1 is most likely the worst one, but what I really was unsure about is the threshold splitting util that is "reasonably low" and "high" from lender's perspective. Certain comments let me suggest that this threshold is somewhere around 30% which is basically in line with my personal observations (I had a balance of around 25% reporting for a couple of months that apparently made almost no real difference in terms of the score).

This month I will most likely have 2 cards reporting ~20-25% balance, so I'll see if it dumps my score all the way down :-)

Thanks to everyone for contribution!

Re: Kind of theoretical question about util %%

Anonymous — Thu, 16 Aug 2012 04:45:56 GMT

Interesting question. I see most of answers kind of avoiding answering.

Since total utilization is the same in all cases, that portion of the FICO scoring is the same. However you get dinged for each account where you have a balance of any sort. Based on FICO score estimator, the breakdowns look to be 0-4, 5-6, 7-8, 9 or more. At the same time, each card's individual utilization has an additional ding. So the question is whether or not the ding from cards having any balance is better/worse than ding from individual card's utilization.

As you can see, the dings for every card having balance include everything. As such, I don't believe there is the same answer for everyone. Having any card over 80% is bad, so I would write off scenario one. Scenario 2 is really bad as having 9 accounts having balances and having some utilization seems bad. So Scenario 3 looks correct. However, you are hitting the 30% mark on cards which is bad. Ideally it should be just below 30% so better scenario would be 4 cards having 200ish balance. However it just really depends on how many other accounts have balances as well (car loans, mortgages, etc.).

Obviously experimentation is key but wanted to give you guys the proper way to think about it.