topic Re: To Pay or Not to Pay, that is the Question.. in Credit Cards

To Pay or Not to Pay, that is the Question..

Anonymous — Tue, 22 Jan 2013 20:12:53 GMT

Ok, so I imagine this question has been asked over a 1,000 times but I keep reading something different. Can someone please explain to me the difference of paying a cc completely to 0 or leaving 9% utilization on it? I have never let the balance go to 0 in fear of not having reoccurring account (OK) on my credit. Do I pay them completely off or leave them with a really low balance? Thanks in advance!

Re: To Pay or Not to Pay, that is the Question..

daybreakgonesXe — Tue, 22 Jan 2013 20:16:25 GMT

@Anonymous wrote:
Ok, so I imagine this question has been asked over a 1,000 times but I keep reading something different. Can someone please explain to me the difference of paying a cc completely to 0 or leaving 9% utilization on it? I have never let the balance go to 0 in fear of not having reoccurring account (OK) on my credit. Do I pay them completely off or leave them with a really low balance? Thanks in advance!

That depends what you want to do! If you have multiple cards, many people like to pay off the accounts to 0 while leaving one account with a 1-9% utilization amount over their total credit lines, in order to really maximize their scores.

If you're not planning on apping for anything anytime soon, this really isn't necessary. Feel free to have a small balances on whatever you want!

Re: To Pay or Not to Pay, that is the Question..

Anonymous — Tue, 22 Jan 2013 20:21:17 GMT

I am buying a house in a few months. Will a balance of 0 stop reoccuring reports to my credit?

Re: To Pay or Not to Pay, that is the Question..

Anonymous — Tue, 22 Jan 2013 20:21:34 GMT

@daybreakgonesXe wrote:
@Anonymous wrote:
Ok, so I imagine this question has been asked over a 1,000 times but I keep reading something different. Can someone please explain to me the difference of paying a cc completely to 0 or leaving 9% utilization on it? I have never let the balance go to 0 in fear of not having reoccurring account (OK) on my credit. Do I pay them completely off or leave them with a really low balance? Thanks in advance!
That depends what you want to do! If you have multiple cards, many people like to pay off the accounts to 0 while leaving one account with a 1-9% utilization amount over their total credit lines, in order to really maximize their scores.

If you're not planning on apping for anything anytime soon, this really isn't necessary. Feel free to have a small balances on whatever you want!

I think we need to be completely clear here though! There are two concepts:

1) Having a balance on your card at the time the statement is produced

2) Carrying a balance, i.e. not paying in full the statement balance by the payment due date.

All FICO score discussions are about 1). People, for whatever reason, who want to maximize score, with pay in full BEFORE the statement CLOSES, on all but 1 of their cards. So these statements then show 0 balance and that is what is reported to the CRAs. (Some banks, like US Bank, report at month-end rather than at statement date, so you pay then before the end of the month, but the idea is the same)

Carrying a balance usually incurs interest charges and does nothing for your score, so whenever possible (and of course there are times that this might not be possible) don't do this. If you are in a 0% interest period, then it's OK, but the complete balance will be reported to the CRA.

Re: To Pay or Not to Pay, that is the Question..

daybreakgonesXe — Tue, 22 Jan 2013 20:22:34 GMT

@Anonymous wrote:
I am buying a house in a few months. Will a balance of 0 stop reoccuring reports to my credit?

You will not have this issue for MOST creditors. Since you do have a few months, try it out for a month and watch your reports closely. Most creditors will still report perfect payment while also reporting a $0 balance for the month!

Re: To Pay or Not to Pay, that is the Question..

Anonymous — Tue, 22 Jan 2013 20:27:15 GMT

I am just nervous, my credit history is fairly new (as I have been rebuilding) 10/11 months of 100% on time payments. I have a Wal-Mart card (800 limit) which is 0 balance because I just got it. My First Premier is (300 limit) and the balance is 12 dollars.

Re: To Pay or Not to Pay, that is the Question..

Walt_K — Tue, 22 Jan 2013 20:27:22 GMT

@daybreakgonesXe wrote:
@Anonymous wrote:
Ok, so I imagine this question has been asked over a 1,000 times but I keep reading something different. Can someone please explain to me the difference of paying a cc completely to 0 or leaving 9% utilization on it? I have never let the balance go to 0 in fear of not having reoccurring account (OK) on my credit. Do I pay them completely off or leave them with a really low balance? Thanks in advance!
That depends what you want to do! If you have multiple cards, many people like to pay off the accounts to 0 while leaving one account with a 1-9% utilization amount over their total credit lines, in order to really maximize their scores.

If you're not planning on apping for anything anytime soon, this really isn't necessary. Feel free to have a small balances on whatever you want!

This is slightly incorrect. The general rule of thumb for optimal scoring is to have only one card report a balance with that balance being 9% or less of that card's individual credit limit. This makes sense if you think about it. If you have $50K in total available credit, 9% would be $4500. You don't want to let a $4500 balance report on a card with a $5K CL.

Re: To Pay or Not to Pay, that is the Question..

daybreakgonesXe — Tue, 22 Jan 2013 20:35:20 GMT

@Walt_K wrote:
@daybreakgonesXe wrote:
@Anonymous wrote:
Ok, so I imagine this question has been asked over a 1,000 times but I keep reading something different. Can someone please explain to me the difference of paying a cc completely to 0 or leaving 9% utilization on it? I have never let the balance go to 0 in fear of not having reoccurring account (OK) on my credit. Do I pay them completely off or leave them with a really low balance? Thanks in advance!
That depends what you want to do! If you have multiple cards, many people like to pay off the accounts to 0 while leaving one account with a 1-9% utilization amount over their total credit lines, in order to really maximize their scores.

If you're not planning on apping for anything anytime soon, this really isn't necessary. Feel free to have a small balances on whatever you want!

This is slightly incorrect. The general rule of thumb for optimal scoring is to have only one card report a balance with that balance being 9% or less of that card's individual credit limit. This makes sense if you think about it. If you have $50K in total available credit, 9% would be $4500. You don't want to let a $4500 balance report on a card with a $5K CL.

That's true, but usually that's a common sense thing. FICO scoring wise, as long the one account isn't maxed out, they're not gonna notice.But, then again, that doesn't mean though your creditor won't notice either!

But say for example I used my Shell card for utilization and the rest at zero to calculate 1% utility. When utilization is calcuated for a FICO purpose, it's over your total open revolving accounts. If i did 1% on my Shell, that's $8. Then, over my total accounts: $8/$29400 = 2.72108843537415e-4 = .027%!!!

Now, not sure how the FICO scoring model will weigh that. Will they round it to 0%? 1%? Would I be losing points this way now?

So take caution to the wind when playing around with utility!

Re: To Pay or Not to Pay, that is the Question..

Walt_K — Tue, 22 Jan 2013 21:20:30 GMT

@daybreakgonesXe wrote:
@Walt_K wrote:
@daybreakgonesXe wrote:
@Anonymous wrote:
Ok, so I imagine this question has been asked over a 1,000 times but I keep reading something different. Can someone please explain to me the difference of paying a cc completely to 0 or leaving 9% utilization on it? I have never let the balance go to 0 in fear of not having reoccurring account (OK) on my credit. Do I pay them completely off or leave them with a really low balance? Thanks in advance!
That depends what you want to do! If you have multiple cards, many people like to pay off the accounts to 0 while leaving one account with a 1-9% utilization amount over their total credit lines, in order to really maximize their scores.

If you're not planning on apping for anything anytime soon, this really isn't necessary. Feel free to have a small balances on whatever you want!

This is slightly incorrect. The general rule of thumb for optimal scoring is to have only one card report a balance with that balance being 9% or less of that card's individual credit limit. This makes sense if you think about it. If you have $50K in total available credit, 9% would be $4500. You don't want to let a $4500 balance report on a card with a $5K CL.
That's true, but usually that's a common sense thing. FICO scoring wise, as long the one account isn't maxed out, they're not gonna notice.But, then again, that doesn't mean though your creditor won't notice either!

But say for example I used my Shell card for utilization and the rest at zero to calculate 1% utility. When utilization is calcuated for a FICO purpose, it's over your total open revolving accounts. If i did 1% on my Shell, that's $8. Then, over my total accounts: $8/$29400 = 2.72108843537415e-4 = .027%!!!

Now, not sure how the FICO scoring model will weigh that. Will they round it to 0%? 1%? Would I be losing points this way now?

So take caution to the wind when playing around with utility!

It's worth pointing out for people that do not understand how this works. While it's common sense to not max out a card, it's not so much common sense that you are getting dinged around 20-30% even. If you're aiming for 9% total utilization it would be easy to end up around 20-30% individual utilization. For the most part this won't matter, but there are people that need every last point, e.g., people trying to qualify for a mortgage.

Utilization always rounds up. .000001% is 1%.

Re: To Pay or Not to Pay, that is the Question..

daybreakgonesXe — Tue, 22 Jan 2013 21:26:32 GMT

@Walt_K wrote:
@daybreakgonesXe wrote:
@Walt_K wrote:
@daybreakgonesXe wrote:
@Anonymous wrote:
Ok, so I imagine this question has been asked over a 1,000 times but I keep reading something different. Can someone please explain to me the difference of paying a cc completely to 0 or leaving 9% utilization on it? I have never let the balance go to 0 in fear of not having reoccurring account (OK) on my credit. Do I pay them completely off or leave them with a really low balance? Thanks in advance!
That depends what you want to do! If you have multiple cards, many people like to pay off the accounts to 0 while leaving one account with a 1-9% utilization amount over their total credit lines, in order to really maximize their scores.

If you're not planning on apping for anything anytime soon, this really isn't necessary. Feel free to have a small balances on whatever you want!

This is slightly incorrect. The general rule of thumb for optimal scoring is to have only one card report a balance with that balance being 9% or less of that card's individual credit limit. This makes sense if you think about it. If you have $50K in total available credit, 9% would be $4500. You don't want to let a $4500 balance report on a card with a $5K CL.
That's true, but usually that's a common sense thing. FICO scoring wise, as long the one account isn't maxed out, they're not gonna notice.But, then again, that doesn't mean though your creditor won't notice either!

But say for example I used my Shell card for utilization and the rest at zero to calculate 1% utility. When utilization is calcuated for a FICO purpose, it's over your total open revolving accounts. If i did 1% on my Shell, that's $8. Then, over my total accounts: $8/$29400 = 2.72108843537415e-4 = .027%!!!

Now, not sure how the FICO scoring model will weigh that. Will they round it to 0%? 1%? Would I be losing points this way now?

So take caution to the wind when playing around with utility!
It's worth pointing out for people that do not understand how this works. While it's common sense to not max out a card, it's not so much common sense that you are getting dinged around 20-30% even. If you're aiming for 9% total utilization it would be easy to end up around 20-30% individual utilization. For the most part this won't matter, but there are people that need every last point, e.g., people trying to qualify for a mortgage.

Utilization always rounds up. .000001% is 1%.

Good point...then for those who don't fully understand the FICO model, aiming for 1-9% on one card is a safer bet then having them try to figure out 1-9% over total lines, especially if they have many cards with low limits that could make it seem like they're maxed out on one card.

Also, thank you for clarifying the utilization round up!

Re: To Pay or Not to Pay, that is the Question..

Anonymous — Tue, 22 Jan 2013 21:48:45 GMT

So, on these forums I have heard two versions:

1) Walt_K's above, the magic figure is 1-9% of the CL on one card on that card, the rest 0

2) daybreakgonesXe and others: The magic figure is 1-9% of TOTAL CL, one one card, the rest 0.

Certainly 2 creates issues as pointed out by Walt_K, and I asked about that yesterday (in the context of constantly increasing total CLs by apping, it gets harder to meet this goal on one card).

However 1 is strange as well. Presumably FICO is meant to measure something like how well I am doing with credit. If I have say $150K in CL, and I keep a very old store card with $100 CL, can I just put $1 on it to maximize score? This doesn't seem to reflect the total credit picture.

So, is there a consensus?

Re: To Pay or Not to Pay, that is the Question..

SnackTrader — Tue, 22 Jan 2013 23:08:24 GMT

I don't think there will ever be consensus, but I also have a feeling that is because it is going to vary between people. The best bet if it is a life and death matter is to play around with it beforehand and find a sweet spot.

It seems to me that the exact situations described in this thread are the reasons why it is less formulaic across all individuals than assumed. We know for a fact that FICO has the ability to bucket consumers based on certain characteristics, so is it completely ridiculous to hypothesize that utilization also depends on some sort of segmented calculation? For example, those with available credit stemming from 15 tradelines vs. those with available credit stemming from 1. This idea could be expanded into all sorts of categories including the dollar amount, the type (cards, vs. home equity vs. flex spending), etc. My thought, and I have no empirical evidence for this, is that my recent app spree probably changed my ideal utilization.

Maybe I'm very wrong, but if I'm not it will probably blow all assumptions on this forum out of the water. So lets hope I'm wrong

Re: To Pay or Not to Pay, that is the Question..

zerobacan — Wed, 23 Jan 2013 04:01:12 GMT

Very interesting thread, learning alot.

Re: To Pay or Not to Pay, that is the Question..

Anonymous — Wed, 23 Jan 2013 04:01:38 GMT

Thanks guys, I think I am understanding.. Just play around with it and see what drops me or raises me.. I am still too afraid to pay them all off 100%

Re: To Pay or Not to Pay, that is the Question..

Walt_K — Wed, 23 Jan 2013 04:12:02 GMT

This is a general rule of thumb, not a hard and fast rule. That said, IMO most instances of people stating the guideline as 1-9% of total CL are due to people speaking imprecisely or repeating someone else who was speaking imprecisely. I can't recall any instances of anyone actually verifying that a 40% individual utilization that was, for example, 7% total utilization providing them their optimum score. I wouldn't expect to see any examples like that either as we know that individual utilization is scored.

I have seen reports of people having no problem with having small balances on two accounts.

Re: To Pay or Not to Pay, that is the Question..

pdog661 — Wed, 23 Jan 2013 04:23:53 GMT

Personally I do not worry about getting to 9% reporting. I just make sure it reports below that amount. Best bet is to only have 1 card report a small balance (less then 9% of that cards credit limit.)

Having 2 cards report will hurt your score. I had a second card report a 1.50 balance and it ding my score 15 points. I have well over 60K of open credit.

Do not use one card and attempt to hit 9% utl of all open credit limits. If you go above 90% of one card balance that is considered maxed out, and this is another deduction in your score (typically a big one)

Do not let all cards report with a 0 balance. Your cards will report as paid OK. but all having a 0 balance will reduce your fico score as well.

I sometimes only let 5-10 dollars report on one of my cards. This seems to work just as well as 1-9% of the balance for my scores.

Another post had a great point about utl round up. $1 reporting on a 100K limit is still 1% utl.

***edited because I am a terrible writer.

Re: To Pay or Not to Pay, that is the Question..

Anonymous — Fri, 01 Feb 2013 14:43:46 GMT

so even if you have a 0 balance on your card it reports? I suppose that is what I am asking.

Re: To Pay or Not to Pay, that is the Question..

Anonymous — Fri, 01 Feb 2013 15:15:47 GMT

@Anonymous wrote:
so even if you have a 0 balance on your card it reports? I suppose that is what I am asking.

I have been playing around with my scores since I opened my first cc in August 2012. I pay most of them in full every month before the statement cuts. A few I let balances hit...mainly because I'm paying Christmas stuff off on those. Anyways....when I let a 0 balance hit, it has always shown ok for that month on my credit reports. I assume they mark it ok because I was charging stuff and paying it off so there was activity. I'm sure it is different for other creditors but you can see what I have in my signature line. I don't know about the Amex cards though because they are so new they have not hit my credit yet.

Re: To Pay or Not to Pay, that is the Question..

Anonymous — Fri, 01 Feb 2013 16:20:25 GMT

@SnackTrader wrote:
I don't think there will ever be consensus, but I also have a feeling that is because it is going to vary between people. The best bet if it is a life and death matter is to play around with it beforehand and find a sweet spot.

It seems to me that the exact situations described in this thread are the reasons why it is less formulaic across all individuals than assumed. We know for a fact that FICO has the ability to bucket consumers based on certain characteristics, so is it completely ridiculous to hypothesize that utilization also depends on some sort of segmented calculation? For example, those with available credit stemming from 15 tradelines vs. those with available credit stemming from 1. This idea could be expanded into all sorts of categories including the dollar amount, the type (cards, vs. home equity vs. flex spending), etc. My thought, and I have no empirical evidence for this, is that my recent app spree probably changed my ideal utilization.

Maybe I'm very wrong, but if I'm not it will probably blow all assumptions on this forum out of the water. So lets hope I'm wrong

Re: To Pay or Not to Pay, that is the Question..

Anonymous — Fri, 01 Feb 2013 16:58:56 GMT

@Anonymous wrote:
I am buying a house in a few months. Will a balance of 0 stop reoccuring reports to my credit?

Comenity Bank which holds a lot of store cards, will not generate statements or report if you have a zero balance. Most others do report if there is usage and zero balance.