topic Re: How to keep 9% utilization ? in Credit Cards

How to keep 9% utilization ?

Anonymous — Sun, 06 Oct 2013 22:06:08 GMT

Hi all,

I am pretty new on here and I found the following statement during serfing the forum:

"Total utilization is the sum of the balances over the sum of the credit lines, and this ideally is kept < 10%, but the utilization on each individual card should also be not too high."

It was an easy task for me when I had BofA 1k and BofA 500 and I paid 0 interest.

I usually paid card to 0 before charging interest. After charging date I went to the shop and buy some food an prepaid cell phone cards to make my utilization around 9% (so I spent about $140 each time and this sum went to report).

But now I have the total credit line about 27k. And I can't spend around $2500 in a single day before reporting!

So my question is how to deal with this issue? I want to continue pay 0 interest and keep utilization around 9%.

Re: How to keep 9% utilization ?

navyox — Sun, 06 Oct 2013 22:15:37 GMT

Unless you are applying for credit (cards, car loans, mortgage) don't stress it. Spend what you would normally spend, and pay the balance each month. Utilzation is not cumulative, your score represents what your credit report looks like only at the instance it is pulled.

Re: How to keep 9% utilization ?

navyox — Sun, 06 Oct 2013 22:26:21 GMT

To put it another way, let's say you have two identical people, as far as credit profile. Same AAoA, same number of inquiries, same number of accounts, neither has ever been late on a payment or had a collections or BK. They each have one credit card and here is their utilization over the year:

Jan 14 Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

Person 1 20% 25% 30% 50% 25% 53% 60% 34% 20% 34% 22% 1%

Person 2 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%

They both apply for credit in January 2015. They will both have the same score.

Re: How to keep 9% utilization ?

red259 — Sun, 06 Oct 2013 22:46:10 GMT

@Anonymous wrote:
Hi all,
I am pretty new on here and I found the following statement during serfing the forum:
"Total utilization is the sum of the balances over the sum of the credit lines, and this ideally is kept < 10%, but the utilization on each individual card should also be not too high."
It was an easy task for me when I had BofA 1k and BofA 500 and I paid 0 interest.
I usually paid card to 0 before charging interest. After charging date I went to the shop and buy some food an prepaid cell phone cards to make my utilization around 9% (so I spent about $140 each time and this sum went to report).
But now I have the total credit line about 27k. And I can't spend around $2500 in a single day before reporting!
So my question is how to deal with this issue? I want to continue pay 0 interest and keep utilization around 9%.

I don't really get what the problem is. You NEVER have to pay interest for purposes of utilization. Your utilization is based upon what your balance is at the time that your card company reports it to the CRAs (often this is the same day or within a few days of your statement cutting). Then you have like another 30 days to pay off the balance due before you would be charged interest. Your credit score changes month to month based on utilization so you don't have to worry about it too much unless your getting ready to apply or you are trying to position yourself to have the best possible chance at an auto cli (which can be difficult to predict and may not even happen with everything in order).

Re: How to keep 9% utilization ?

Anonymous — Sun, 06 Oct 2013 23:29:11 GMT

It seems that I don't understand something(

I'll give the concrete example:

My last statement was about 85$ and reported 21/09.
Payment due date is 17/10.
I spent about $300 this month so I have to pay the balance (385$) before 17/10 to avoid paying interest. My balance will be $0 at 17/10
The next statement will be reported 21/10.
Between 17/10 and 21/10 I have to spend ~90$ to get 9% utilization reported at 21/10.

It works fine for 90$ and total credit line of 1000$

But I can't spend $2500 between 17/10 and 21/10 for 27k credit line!

Re: How to keep 9% utilization ?

B335is — Sun, 06 Oct 2013 23:33:25 GMT

OP: If you are really concerned about only letting 9% util report, you need to know what date each of your statements will close and be sure all are reporting a $0 balance until after the respective statement cuts. Some lenders post payments within a day or so (in my case Chase, Amex, Citi all post relatively quick). Others take a few days (GE serviced cards). With that said, you let 1 card post a balance (for example $100 balance on a card with $1,000 CL) and pay it off. I have quite a few accounts, so I have it all laid out on a spreadsheet and check that and my accounts every day.

You start getting charged interest if you aren't paying the statement that cuts in full. So if a statement cuts with $150 balance and you only pay the minimum payment, you will be charged interest on that balance on the following statement. But like others said, if you aren't going shopping for a new credit product, I wouldn't go to all the effort unless you enjoy doing so (like I do)!

Re: How to keep 9% utilization ?

Walt_K — Sun, 06 Oct 2013 23:35:57 GMT

@Anonymous wrote:
It seems that I don't understand something(
I'll give the concrete example:
My last statement was about 85$ and reported 21/09.
Payment due date is 17/10.
I spent about $300 this month so I have to pay the balance (385$) before 17/10 to avoid paying interest. My balance will be $0 at 17/10
The next statement will be reported 21/10.
Between 17/10 and 21/10 I have to spend ~90$ to get 9% utilization reported at 21/10.
It works fine for 90$ and total credit line of 1000$
But I can't spend $2500 between 17/10 and 21/10 for 27k credit line!

If you last statement balance was $85, then all you have to pay by the due date is $85. Your additional $300 in charges are on next month.

You don't need exactly 9% utlization. The general guideline is 9% or less on one card. Generally anwywhere from 1-9% will be fine. Each person is going to have a different sweet spot, and sure, it is possible that yours is 9%, but it's not going to vary that much when you are under 9%. Letting a $1 balance report is enough to give you 1% (utilization rounds up). If you spend about $400 per month on your card, I'd just let that report and then pay in full. That will put you at 2% which should be fine.

Re: How to keep 9% utilization ?

navyox — Sun, 06 Oct 2013 23:37:35 GMT

@Anonymous wrote:
It seems that I don't understand something(
I'll give the concrete example:
My last statement was about 85$ and reported 21/09.
Payment due date is 17/10.
I spent about $300 this month so I have to pay the balance (385$) before 17/10 to avoid paying interest. My balance will be $0 at 17/10
The next statement will be reported 21/10.
Between 17/10 and 21/10 I have to spend ~90$ to get 9% utilization reported at 21/10.
It works fine for 90$ and total credit line of 1000$
But I can't spend $2500 between 17/10 and 21/10 for 27k credit line!

No, you don't have to pay $385 to avoid paying interest. Just $85 by 17/10. If you spend $300 by the time your statement cuts on 21/10, you have to pay $300 by the next payment date to avoid paying interest.

Finally, 9% isn't a magic number. You won't have a higher score for showing 9% versus 1%, likely it will be lower. Never, ever spend money you don't need to to reach a certain utilization %.

Re: How to keep 9% utilization ?

red259 — Sun, 06 Oct 2013 23:42:28 GMT

@navyox wrote:
@Anonymous wrote:
It seems that I don't understand something(
I'll give the concrete example:
My last statement was about 85$ and reported 21/09.
Payment due date is 17/10.
I spent about $300 this month so I have to pay the balance (385$) before 17/10 to avoid paying interest. My balance will be $0 at 17/10
The next statement will be reported 21/10.
Between 17/10 and 21/10 I have to spend ~90$ to get 9% utilization reported at 21/10.
It works fine for 90$ and total credit line of 1000$
But I can't spend $2500 between 17/10 and 21/10 for 27k credit line!
No, you don't have to pay $385 to avoid paying interest. Just $85 by 17/10. If you spend $300 by the time your statement cuts on 21/10, you have to pay $300 by the next payment date to avoid paying interest.

Finally, 9% isn't a magic number. You won't have a higher score for showing 9% versus 1%, likely it will be lower. Never, ever spend money you don't need to to reach a certain utilization %.

Re: How to keep 9% utilization ?

toi34 — Sun, 06 Oct 2013 23:45:08 GMT

@Walt:

How does one know their "sweet spot?"

Re: How to keep 9% utilization ?

Themanwhocan — Sun, 06 Oct 2013 23:51:28 GMT

First you should realize that there are 2 groups that you are trying to impress, and they are to some extent complete opposites.

You want to impress the credit card companies. You want to show them that you have credit cards, that you are using them, and that you are paying them off regularily (ideally every month). These companies will decide if they want to loan you more of their money, and they are concerned with risk, and return on investments, etc. So usually for these companies you want to have your monthly charges report to the credit bureaus, then pay in full before you are charged any interest. And don't use too much of any one card, ie, don't rack the card up close to 100%, that can be interpreted as you are finding it difficult to meet your expenses, etc. Appearing desperate is never good.

The second group you want to impress is FICO. They generate a credit score. They don't loan you money, they don't care about your credit history. All they care about is the present moment, the current snap-shot of your credit risk. They will sum up your entire credit worthiness in the form of a number. And only a number.

So, when you want to 'play the game', remember that you are not just a number (except to FICO, and they don't give you a loan or a credit card, now do they?).

Most of the time, just use your card a reasonable amount, let it report, and immediately pay in full. Create that rich, robust credit report that the credit companies want to see. Sure they look at that Fico number, but thats not all they look at, so give them what they want.

As to the FICO score, why its always fluxuating a bit, so why not try to optimize it right before you apply for more credit. At that time, and only that time, try to get one credit card to report 1% - 9% and the rest of them report 0%. You have to figure out what date each card reports to the credit bureaus and pay off each cards just before that. For some credit cards that will be approximately the date that the new statements are created. For others it will be a different date (example: US Bank and ELAN cards report your balance near the last day of the month).

Its really as simple as that.

Re: How to keep 9% utilization ?

red259 — Mon, 07 Oct 2013 00:03:19 GMT

@Themanwhocan wrote:
First you should realize that there are 2 groups that you are trying to impress, and they are to some extent complete opposites.

You want to impress the credit card companies. You want to show them that you have credit cards, that you are using them, and that you are paying them off regularily (ideally every month). These companies will decide if they want to loan you more of their money, and they are concerned with risk, and return on investments, etc. So usually for these companies you want to have your monthly charges report to the credit bureaus, then pay in full before you are charged any interest. And don't use too much of any one card, ie, don't rack the card up close to 100%, that can be interpreted as you are finding it difficult to meet your expenses, etc. Appearing desperate is never good.

The second group you want to impress is FICO. They generate a credit score. They don't loan you money, they don't care about your credit history. All they care about is the present moment, the current snap-shot of your credit risk. They will sum up your entire credit worthiness in the form of a number. And only a number.

So, when you want to 'play the game', remember that you are not just a number (except to FICO, and they don't give you a loan or a credit card, now do they?).

Most of the time, just use your card a reasonable amount, let it report, and immediately pay in full. Create that rich, robust credit report that the credit companies want to see. Sure they look at that Fico number, but thats not all they look at, so give them what they want.

As to the FICO score, why its always fluxuating a bit, so why not try to optimize it right before you apply for more credit. At that time, and only that time, try to get one credit card to report 1% - 9% and the rest of them report 0%. You have to figure out what date each card reports to the credit bureaus and pay off each cards just before that. For some credit cards that will be approximately the date that the new statements are created. For others it will be a different date (example: US Bank and ELAN cards report your balance near the last day of the month).

Its really as simple as that.

While you don't need to worry about utilization every month I do not agree that the only time you should ever try to utilize properly is right before applying. While its less important, if you keep your score up with proper utilization you may get auto credit line increases (saving you from having to apply for one and take a HP) and you may also get preapprovals for cards you may want helping to take the guess work out of whether or not you may be approved. So while I don't think its extremely critical to worry about your util all the time I would not say that its only beneficial immediately before an app cycle. Its just even more important then that's all.

Re: How to keep 9% utilization ?

Anonymous — Mon, 07 Oct 2013 02:33:52 GMT

Now I am confused because of 2 following statements:

"Total utilization is the sum of the balances over the sum of the credit lines, and this ideally is kept < 10%, but the utilization on each individual card should also be not too high."
"try to get one credit card to report 1% - 9% and the rest of them report 0%

So where is the truth? How the utilization is calculated?

Re: How to keep 9% utilization ?

Revelate — Mon, 07 Oct 2013 02:59:26 GMT

@navyox wrote:
To put it another way, let's say you have two identical people, as far as credit profile.   Same AAoA, same number of inquiries, same number of accounts, neither has ever been late on a payment or had a collections or BK.   They each have one credit card and here is their utilization over the year:

                  Jan 14       Feb     Mar     Apr      May    Jun    Jul     Aug     Sept     Oct     Nov    Dec
Person 1     20%        25%    30%   50%    25%    53%    60%    34%   20%   34%    22% 1%
Person 2       1%         1%       1%     1%       1%    1%     1%       1%     1%      1%     1%    1%

They both apply for credit in January 2015.   They will both have the same score.

That is 99% correct, but it's been anecdotally found that utilization can get you rebucketed but I don't think the utilization numbers you posit here as an example would fall into that category.

Re: How to keep 9% utilization ?

Revelate — Mon, 07 Oct 2013 03:03:24 GMT

@toi34 wrote:
@Walt:
How does one know their "sweet spot?"

Lots of experimentation and tracking. If you're not either using Scorewatch or have access to some regular free FICO score (DCU / PSECU / Wally / Merrick / etc. ad naseum) don't bother, and even then I personally don't bother that much because my '08 vs. '04 scores may be different; however, with a mortgage in my future, I should probably go see if I can maximize it for '04... but we're talking about minor point differences anyway. The difference between 1-9% vs an explicit call it 4% sweet spot is going to be minimal.

Re: How to keep 9% utilization ?

Themanwhocan — Mon, 07 Oct 2013 03:19:45 GMT

@Anonymous wrote:
Now I am confused because of 2 following statements:
"Total utilization is the sum of the balances over the sum of the credit lines, and this ideally is kept < 10%, but the utilization on each individual card should also be not too high."
"try to get one credit card to report 1% - 9% and the rest of them report 0%
So where is the truth? How the utilization is calculated?

Oh, well you're only confused because BOTH statements are true.

FICO scoring takes into acount both the overall utilization, and the utilization of individual cards. You cannot have 10 identical cards, 9 of which are at $0 and one which is maxxed out, and assume that since your total utilization is 10% that FICO scoring algorithms will love you for it. That single 100% utilization would be a killer.

Similarly, if you had a bunch of cards, one of which had a really low limit of $100, and you used $90 if that, but you had some $30,000 of total limits all being unused, you would still be in trouble for that measly $90.

---

Now, the "get one card to report %1 - %9 and the rest %0" comes from people who have tried various combinations in the past using their own cards, and were able to check their FICO scores probably daily, and figured out that this formula usually results in the highest score. It might not be 100% accurate, since different people are in different 'buckets' that weigh the various factors differently. But, we just take it on faith, just like we believe in the Tooth Fairy, Meteorologists, and Flu shots.

Re: How to keep 9% utilization ?

Revelate — Mon, 07 Oct 2013 03:11:29 GMT

@red259 wrote:
@Themanwhocan wrote:
First you should realize that there are 2 groups that you are trying to impress, and they are to some extent complete opposites.

You want to impress the credit card companies. You want to show them that you have credit cards, that you are using them, and that you are paying them off regularily (ideally every month). These companies will decide if they want to loan you more of their money, and they are concerned with risk, and return on investments, etc. So usually for these companies you want to have your monthly charges report to the credit bureaus, then pay in full before you are charged any interest. And don't use too much of any one card, ie, don't rack the card up close to 100%, that can be interpreted as you are finding it difficult to meet your expenses, etc. Appearing desperate is never good.

The second group you want to impress is FICO. They generate a credit score. They don't loan you money, they don't care about your credit history. All they care about is the present moment, the current snap-shot of your credit risk. They will sum up your entire credit worthiness in the form of a number. And only a number.

So, when you want to 'play the game', remember that you are not just a number (except to FICO, and they don't give you a loan or a credit card, now do they?).

Most of the time, just use your card a reasonable amount, let it report, and immediately pay in full. Create that rich, robust credit report that the credit companies want to see. Sure they look at that Fico number, but thats not all they look at, so give them what they want.

As to the FICO score, why its always fluxuating a bit, so why not try to optimize it right before you apply for more credit. At that time, and only that time, try to get one credit card to report 1% - 9% and the rest of them report 0%. You have to figure out what date each card reports to the credit bureaus and pay off each cards just before that. For some credit cards that will be approximately the date that the new statements are created. For others it will be a different date (example: US Bank and ELAN cards report your balance near the last day of the month).

Its really as simple as that.
While you don't need to worry about utilization every month I do not agree that the only time you should ever try to utilize properly is right before applying. While its less important, if you keep your score up with proper utilization you may get auto credit line increases (saving you from having to apply for one and take a HP) and you may also get preapprovals for cards you may want helping to take the guess work out of whether or not you may be approved. So while I don't think its extremely critical to worry about your util all the time I would not say that its only beneficial immediately before an app cycle. Its just even more important then that's all.

I don't know, personally I don't count on any auto-CLI's to make my credit report robust: if I need more credit for whatever reason, I'm fine with incurring a HP as most auto-CLI's are on the order of a few hundred and my aggregate lines are already nearing 20K and expanding.

I've also never received a pre-approval for any card I'm remotely interested in, and there's enough anecdotal information here and a few other places for me to make a pretty good judgement as to whether I'll be accepted or not. Yes, maybe as a Chase customer I might get a CSP pre-approval someday, but odds are likely that I can qualify for it easily well before they get around to marketing that to me.

That all said to TMwhocan's point, I don't regularly spend a fantastic amount of money to max out my cards, I only do that occasionally to set a high balance when I have some big payment available (taxes, tuition) and generally my utilization is in the <10% range anyway because I commonly only spend around 1K a month with a max around 1.6K if an insurance payment or car registration is due.

That's me now though nearing 2 years in my positive credit journey: to your point, someone who's just starting likely should pay much more attention to it and get into some practice as it took even me a try or two to get into practice on optimizing my report, and it can be a problem if you screw up when it counts potentially, so it's worthwhile doing when tradeline counts and limits are small, but after a 1-1.5 years, that's not really necessary anymore.

Re: How to keep 9% utilization ?

Revelate — Mon, 07 Oct 2013 03:17:48 GMT

@Themanwhocan: OT but neat idea, two different Cash+ cards with different reward sets, hadn't thought of that .

@Ed: TMWC is right - anecdotally there's a FICO penalty for a maxxed revolving tradeline and I think that it's set at 90% (it might be 80, someone will hopefully correct me on that), so even with 100K in limits, if you max out a 1K card, it's going to be a score reduction in addition to the 1% revolving utilization impact.

Re: How to keep 9% utilization ?

Anonymous — Mon, 07 Oct 2013 03:20:48 GMT

Sorry for my stupidity but I am still confused(

If I have 10 cards with the same limit and only one will report 1-9% utilization the total utilization will always be less than 1%. And FICO doesn't like <1%. How can it be the best strategy then?

Re: How to keep 9% utilization ?

Themanwhocan — Mon, 07 Oct 2013 03:36:05 GMT

@Anonymous wrote:
Sorry for my stupidity but I am still confused(
If I have 10 cards with the same limit and only one will report 1-9% utilization the total utilization will always be less than 1%. And FICO doesn't like <1%. How can it be the best strategy then?

We'll probably never know the real reason for that.

basically these formulas used by FICO were developed over the years, where they could use statistics (another field of study that we take on faith) to determine if people who do certain bad things like fail to pay back credit cards, or fail to make the credit card companies money, also tend to do certain unrelated things, such as, oh, brushing their teeth only once a day.

Think I'm joking? Ok, a little bit. But consider car insurance. Some places base the premiums you pay in part on your credit score. Now there is no way in the world that when I optimize my FICO by only letting one card report 1% - 9% that I and all the drivers in cars that are around me suddenly become safer drivers. BUT statisical analysis has shown that people with higher FICO scores cost the insurance companies less money in accident claims. So even though you can't convince a 2 year old that it would make any sense, they still believe in their statistics...

So, why is that the best strategy? Because it just is.