topic Re: Utilization vs. Paying in Full in Understanding FICO® Scoring

Utilization vs. Paying in Full

Anonymous — Thu, 20 Oct 2016 23:32:23 GMT

What is everyone's philosophy regarding paying in full? I know some people like to leave anywhere from 3%-5% utilization showing on their reports while others prefer to pay in full before the statement closes so that the credit reports. I am one for paying in full and not letting and balance report, but I'm not sure if this is a good strategy as it may look like I am not using my cards at all.

Currently, I have a CSR @ 11k , Freedom @ $4.5k , and Citi DC @ 4.5k . Currently, CreditKarma reports my TU (709) and my EQ (703). They were up around the 720's but took a little hit due to the recent applications for the Chase cards (<1 month ago).

Let me know what you guys and gals think! I'm interested in building my score a bit going into the new year to apply for the CFU and then gardening with my Chase Trifecta for a while! Does the whole thing boil down to what the credit reports view as positive as opposed to how the banks view spending? I'm pretty new to the whole credit game, but I can't wait for my 100k UR to post! I definitely have been enjoying all of the perks that using a credit card has to offer. Thanks!

Re: Utilization vs. Paying in Full

FireMedic1 — Thu, 20 Oct 2016 23:36:23 GMT

Let 1 of the 3 report 1-5%, the rest PIF for best FICO effect.

Re: Utilization vs. Paying in Full

dragontears — Thu, 20 Oct 2016 23:41:17 GMT

Personally since I am not planning on applying for anything in the near future I don't bother with paying before the statement and just let my normal usage report. For my profile the difference in score is 3-6 points (depending on the CRA) between letting it all report and only having 1 card report. Whenever I am ready to apply for something I know I can get those few points.

Re: Utilization vs. Paying in Full

Anonymous — Fri, 21 Oct 2016 00:03:26 GMT

I prefer to pay my cards in full each month. I usually have at least one card on some sort of % interest promo (lowes, walmart, etc.)

My reasoning for pif is different than most people I'm sure. Scores are important to me, but being debt free is more important.

I went through the credit crunch of 2009 and 2010 and ending up with several chargeoffs and refuse to let myself end up there again. So I use my cards for the rewards and pay them off each month.

Re: Utilization vs. Paying in Full

dragontears — Fri, 21 Oct 2016 00:01:35 GMT

I should be clear I do PIF every month, just after the statement cuts not before

Re: Utilization vs. Paying in Full

nachoslibres — Fri, 21 Oct 2016 00:33:30 GMT

My Citi Double Cash is my main card used (I pretty much use all my other cards only for bonused spending) so it is the one I like to leave a slight balance on. Since my DC has a CL of $9k I always try to allow the statement to cut at $900 (10%) - so I make a pretty big payment on the statement closing date and then pay that remaining balance a couple of days later. The other cards I pay in full before the statement cuts so that they report $0 balances and this has seemed to work best for my credit scores.

Re: Utilization vs. Paying in Full

Kevin86475391 — Fri, 21 Oct 2016 03:28:58 GMT

My strategy is simply to PIF, continue using my cards normally, and never worry about what utilization reports. Since I do PIF, have solid credit limits, and spread my spending across many cards, this pretty much ensures that a low, non-zero overall utilization reports. It's not as optimal as having all cards but one report a $0 balance and having that one report a few percent utilization, but it's certainly good enough for me. My FICO 8s are over 800 as is, so usually good enough to get approved at the best rates. Although, I suppose I would try to meticulously optimize if I knew I was going to be applying for something.

Re: Utilization vs. Paying in Full

Anonymous — Sat, 22 Oct 2016 01:01:35 GMT

I let 3% utilization balance report because in August my Fico dropped 20 points when a zero revolving balancd was reported. The next month I left a small 3% balance and my Fico went back up 20 points.

Re: Utilization vs. Paying in Full

Anonymous — Sat, 22 Oct 2016 01:09:03 GMT

@Anonymous wrote:
What is everyone's philosophy regarding paying in full? I know some people like to leave anywhere from 3%-5% utilization showing on their reports while others prefer to pay in full before the statement closes so that the credit reports. I am one for paying in full and not letting and balance report, but I'm not sure if this is a good strategy as it may look like I am not using my cards at all.

@Currently, I have a CSR @ 11k , Freedom @ $4.5k , and Citi DC @ 4.5k . Currently, CreditKarma reports my TU (709) and my EQ (703). They were up around the 720's but took a little hit due to the recent applications for the Chase cards (<1 month ago).

Let me know what you guys and gals think! I'm interested in building my score a bit going into the new year to apply for the CFU and then gardening with my Chase Trifecta for a while! Does the whole thing boil down to what the credit reports view as positive as opposed to how the banks view spending? I'm pretty new to the whole credit game, but I can't wait for my 100k UR to post! I definitely have been enjoying all of the perks that using a credit card has to offer. Thanks!

You mention it may not look like you're using your cards at all. To me...theres no real correlation to that, so don't worry. Internally and the card company itself knows you are using the card, it's just that the low utlization being reported has a low utlization percentage but that doesn't mean you werent using your card. You could of been up to your card limit but just paid it down before the statment, it's a good thing for your score anyway to have low utlization report. So i'm not sure if you mean if creditors look at your report see low UTI and assume youre not using cards? Or do you mean the credit card company itself? Cause the card you use and the company definitely know interally you use the card obviously no matter the low utilization being reported.

Re: Utilization vs. Paying in Full

Aahz — Sat, 22 Oct 2016 01:13:49 GMT

@Anonymous wrote:
I am one for paying in full and not letting and balance report, but I'm not sure if this is a good strategy as it may look like I am not using my cards at all.

This seems to be your main concern, so allow me to put to rest any of your worries.

If you use your cards, the banks see this regardless of whether you PIF before or after the statement cuts. There are sections of each tradeline on your credit report that show both high balance on the card as well as how much you paid the previous month. So, even when you PIF before the statement cuts, if you used the ard, that still shows up on your reports.

Re: Utilization vs. Paying in Full

Meanmchine — Sat, 22 Oct 2016 01:18:57 GMT

@alotta

"I went through the credit crunch of 2009 and 2010 and ending up with several chargeoffs and refuse to let myself end up there again."

Been there myself

Re: Utilization vs. Paying in Full

austinguy907 — Sat, 22 Oct 2016 01:39:59 GMT

@Anonymous wrote:
I let 3% utilization balance report because in August my Fico dropped 20 points when a zero revolving balancd was reported. The next month I left a small 3% balance and my Fico went back up 20 points.

This seems a little dramatic. Do you only have a single account? I'm curious about your profile that could cause such a sway in scores monthly with such a slight difference in debt.

Re: Utilization vs. Paying in Full

austinguy907 — Sat, 22 Oct 2016 02:18:33 GMT

This has been debated over and over again on here and all over the web. It all comes down to your personal situation and what works best for you. If you're hawkish with your scores and have a particular financial goal in mind whether to score the hottest card on the market or planning for a mortgage a couple of years down the road. To understand it though we have to figure out the deifinition that FICO is scoring on.

To calculate its score, FICO looks at five different factors:

How you've handled credit (otherwise known as your payment history). (35%)
Your credit utilization ratio -- how much total debt you have versus how much credit is available. (30%)
Your length of credit history. (15%)
How much new credit you have. (10%)
Your credit mix -- the variety of loans you have. (10%)

Credit utilization components
The credit utilization category has six subcomponents:

The amount of debt still owed to lenders.
The number of accounts with debt outstanding.
The amount of debt owed on individual accounts.
The lack of a certain type of loan, in some cases.
The percentage of credit lines in use on revolving accounts, like credit cards.
The percentage of debt still owed on installment loans, like mortgages.

FICO's scoring model gives a different weight to each of those factors: Credit utilization accounts for nearly a third (30 percent) of a FICO score, making it a very important factor for borrowers to understand.

So, looking at the 6 components of Utilization there's much more in play than just a balance to limit ratio. Taking a look into these is what cause the discussion as they can be interpreted differently with experience. So, the ones that stick out to me regarding the OP and CC's would be:

The number of accounts with debt outstanding.

The amount of debt owed on individual accounts.

The percentage of credit lines in use on revolving accounts, like credit cards.

There are additional reasons why a single one-size-fits-all utilization percentage cut-off cannot realistically apply to credit scoring and why that’s OK:

A particular utilization range may have points assigned differently for individual cards than for combined account percentages. For example, your score might change when utilization on an individual card reaches a certain percentage range, yet it might not change when the average of all your cards combined hits that same percentage or range.
Utilization ranges and points that apply to one person’s credit experience may not necessarily apply to a different set of experiences. That’s due to the "multiple score card" system, by which credit scores use different scoring factors and different weighting of the factors for different sets of credit experiences. Furthermore, the same set of utilization measures might not always apply in the same way to the same person, as the indicators of credit experience, such as length of credit history, number of accounts, payment history, etc., change over time.
Whether talking about utilization or any other set of credit scoring factors, we should never expect to see actual numbers, such as 30 percent, since this level of detail would only be meaningful when actually calculating scores, which, of course, requires much more information and analytical ability than any nonmathematician without access to credit bureau data and proprietary scoring formulas can be expected to have.

Now with this information taking the eagle eye view of combined limits utilization of 10% or less comes into play depending on how your limits look and if you favored a card for bonus / points / cashback / trying to make it grow with time and use. Personally I focus on each individual limit rather than the overall limit of them combined. I set a mental limit of 10% of the individual limit and auto PIF each month and don't chase the statement date at all. Does it work? For some it will and some it won't as it's subjective to each person on how they want to manage their spending each month. For me it has resulted in exponential growth in limits, higher scores (830's), and simplified budget planning.

Forget the old 30% idea
Start by throwing out the old notion about 30 percent usage being OK. FICO, the company that originated credit scoring and is still the largest provider of such scores, has long advised score-conscious consumers to be far more stingy about credit use. The company had told people to keep it to 10 percent or less, says Anthony Sprauve, spokesman for myFico.com, FICO's consumer website.

More recently, the company's stance has softened he says. Its studies indicate that there is only a minimal score difference between consumers who limit their usage to less than 20 percent and those who keep it to less than 10 percent, he says.

That can be good news for consumers who want to actually use lower-limit credit cards for more than token purchases.

According to FICO surveys, credit scoring "high achievers -- those with a score north of 750 -- they're using an average of 7 percent of their available credit," Sprauve says. "I think 20 percent, for a lot of people, is more realistic. I would rather talk about that as a realistic goal that they can attain, rather than something that might feel like a stretch and out of reach."

Fun little tidbit of information I came across while looking for more reference points:

(though not as much as the record holder in the Guinness Book of World Records, who has 1,497 cards with a $1.7 million credit line and nearly perfect credit).

I think we have someone here shooting for that goal sitting at north of 800K inavailable credit which just seems rediculous but, hey.... someone's gotta do it I suppose.

If you're bored and looking for more insight into all of the catagories take a read here:

http://www.bestcredit.com/credit-ratings-advanced-strategies-for-fico-scoring/

Re: Utilization vs. Paying in Full

Thomas_Thumb — Sat, 22 Oct 2016 12:35:20 GMT

@austinguy907 wrote:
@Anonymous wrote:
I let 3% utilization balance report because in August my Fico dropped 20 points when a zero revolving balancd was reported. The next month I left a small 3% balance and my Fico went back up 20 points.
This seems a little dramatic. Do you only have a single account? I'm curious about your profile that could cause such a sway in scores monthly with such a slight difference in debt.

A 15 to 20 point drop is common and expected when zero balance is allowed to report on all revolving credit cards. There are even reason codes for this published by Fico and their affiliates. [See paste below]. I always pay in full but allow balances to show on statements so they get reported. Having a balance report to the CRAs does not mean a person must carry a balance, just that a positive balance gets reported on a statement.

Note: AMEX charge cards and in some cases AU credit cards are not counted. One month I had balances reporting on my AMEX and an AU card only. I was flagged for no revolvers reporting balances and my 3B report showed 0% Ag UT%

Re: Utilization vs. Paying in Full

Anonymous — Sat, 22 Oct 2016 12:55:37 GMT

I did that last month, AmEx charge card only showing a balance and it did not count for util and it dropped me 18 points. No change in FAKO scores at CK, but my real scores all dropped a minimum of 8 points. My score as shown by AmEx actually dropped over 30 points! Let a different card report this month, we shall see if they all rebound.

I have had zero other changes, no new cards applied for in months, in fact an inq fell to six months old from a car purchase so it should have only been getting better, not dropping.

Re: Utilization vs. Paying in Full

Thomas_Thumb — Sat, 22 Oct 2016 13:04:20 GMT

@Anonymous wrote:
I did that last month, AmEx charge card only showing a balance and it did not count for util and it dropped me 18 points. No change in FAKO scores at CK, but my real scores all dropped a minimum of 8 points. My score as shown by AmEx actually dropped over 30 points! Let a different card report this month, we shall see if they all rebound.

I have had zero other changes, no new cards applied for in months, in fact an inq fell to six months old from a car purchase so it should have only been getting better, not dropping.

Thanks for the data point.

FYI - inquiries count their full amount for 12 months in Fico scoring although some posters believe differently. Six months is a non event for an inquiry. Typical impact of an inquiry is 5 points but may range from 0 points to 10 points depending on your scorecard assignment and how many inquiries under 12 months age are in your profile.

Re: Utilization vs. Paying in Full

lhcole77 — Sat, 22 Oct 2016 13:04:49 GMT

I'm at the point where I let things report, sometimes PIF, sometimes don't. Usually carry balances only on BT cards, but not always. Occasionally pay before statement cuts, but never on all cards. Stress free, go with the flow.

When I first started building I micro managed. I no longer have a need for that.

Live and let live.

Re: Utilization vs. Paying in Full

Blodreina — Sat, 22 Oct 2016 14:55:30 GMT

My opinion

Re: Utilization vs. Paying in Full

iced — Sat, 22 Oct 2016 15:48:31 GMT

I PIF every month and have a balance report, so why not just do both?

As an example, on one card I'll run about $3,000 a month through it, spread over the course of the month. Come statement time, I'll have a statement balance of around $3,000 and a balance of about $4,500. I pay the $3,000 statement balance so I don't accrue any interest and continue on my way. By the time the next statement closes, the balance has gone from about $1,500 to $3,000 and I repeat the cycle. I never pay interest and I show a balance at the same time.

That said, I'm not sure having balances report is doing jack for my score since I'm told (via this forum) that FICO ignores utilization on my two primary cards, though I do see a fluctuation of 3-4 points any given month (though this may be due to overall utilizaton rather than utilization on individual cards).

Re: Utilization vs. Paying in Full

Thomas_Thumb — Sat, 22 Oct 2016 16:13:35 GMT

@iced wrote:
I PIF every month and have a balance report, so why not just do both?

As an example, on one card I'll run about $3,000 a month through it, spread over the course of the month. Come statement time, I'll have a statement balance of around $3,000 and a balance of about $4,500. I pay the $3,000 statement balance so I don't accrue any interest and continue on my way. By the time the next statement closes, the balance has gone from about $1,500 to $3,000 and I repeat the cycle. I never pay interest and I show a balance at the same time.

That said, I'm not sure having balances report is doing jack for my score since I'm told (via this forum) that FICO ignores utilization on my two primary cards, though I do see a fluctuation of 3-4 points any given month (though this may be due to overall utilizaton rather than utilization on individual cards).

Not sure what your "primary" cards are but, almost all store cards are revolvers as are credit cards. These should factor into revolving utilization [unless you have AU status - then they may or may not count]. Of course, AMEX charge cards (1 month payment term) are not revolvers even if they show in that category on reports.

The amount of balance you allow to report on credit cards relative to credit limits are factors in Fico scoring. As a general rule for best score potential it is advisable to:

1) Keep reported utilization on individual cards under 30%.

2) Keep aggregate utilization (all cards combined) under 9%.

If the CL of the card in the above example is $6000 and you allow $3100 to report, the card utilization is above 50%. This could be costing you some points relative to reporting a $2900 balance (below 50% utilization). Now if you have 4 cards and a total CL of $30k you would want total of statement balances to be less than $2700 (9%) for best scoring result relative to the aggregate utilization factor..