topic Re: Rebuilding Optimal Credit Utilization in Understanding FICO® Scoring

Rebuilding Optimal Credit Utilization

Anonymous — Mon, 18 Sep 2017 14:10:38 GMT

I'm sure this has been discussed before but im having a hard time finding the exact answer I'm looking for.

I've currently just begun the rebuilding process, had some derogs back in college than i'm taking care of and are starting to fall off now. Credit scores are all in the mid-high 500s. I just recently got a capital one secured card at $200 and a Victorias secret cared at $350 through the SCT this month.

My question is what is the best way to optimize usage of these cards? I want to grow my credit as fast as i can, I understand that ~7% is about where i want to keep my total utilization. Is it better to keep 7% on both cards every month? Or can i just charge the $38.50 (total 7%) on my secured Cap1 card and not use the VS card? Or some other way im not thinking about?

Again, im new at this and any help is appreciated. Sorry if its been answered 100000 times

Re: Rebuilding Optimal Credit Utilization

Anonymous — Mon, 18 Sep 2017 14:16:36 GMT

AZEO method. Type AZEO in searchbar.

You want at least 3 total credit cards open and reporting positively for maximum "free" FICO boost.

How much you use the cards doesn't matter -- what matters is how much REPORTS to your credit reports. Most credit cards report on statement date, but some may report on the 1st of the month.

AZEO means "All Zero Except One" -- all your cards should report $0 except for one which should report more than $0 and less than 8.9%. After letting ONE card report a balance, pay it off immediately so you're not charged interest.

Re: Rebuilding Optimal Credit Utilization

HeavenOhio — Mon, 18 Sep 2017 15:01:27 GMT

When you have only two cards, let one report the positive balance that ABCD mentions while the other reports zero.

Re: Rebuilding Optimal Credit Utilization

Anonymous — Mon, 18 Sep 2017 15:05:54 GMT

ok great, thanks for the info!

Now that one card reporting less than 8.9%, that is of the TOTAL credit utilization of all cards correct? Not just 8.9% of that one card?

I am planning to add the Discover IT secured card as well.

Re: Rebuilding Optimal Credit Utilization

Anonymous — Mon, 18 Sep 2017 15:50:27 GMT

8.9% of the ONE card's credit limit, not your overall (aggregate) limit.

If you have a $500 credit limit on the card you will REPORT a balance on, let it report no more than $44. Also note if you ever are charged interest it will be added to that statement balance, so you want to make sure to let the balance be less than 8.9% if any interest might post.

Let the $44 report, then immediately pay it to $0 to avoid interest next month!

Re: Rebuilding Optimal Credit Utilization

pizza1 — Mon, 18 Sep 2017 16:07:19 GMT

Gardener88....Id like to welcome you to the forums!! Don't worry about asking questions, even if you think its been answered "a dozen times before". Lots of folks here glad to help out!

Re: Rebuilding Optimal Credit Utilization

Anonymous — Mon, 18 Sep 2017 16:09:23 GMT

One thing I should mention if you're new to it all is to get a good credit monitoring habit monthly -- even free sites like CreditKarma can be useful for monitoring statement balances.

Then, once you're good with monitoring your reports, change the balance you let report every month. So one month let $44 (<8.9%) report, then the next month let $36 report, then go back to $44 the following month. This will help you see the statement balance changing on your credit monitoring site (versus always letting $44 report).

Re: Rebuilding Optimal Credit Utilization

Anonymous — Tue, 19 Sep 2017 02:13:59 GMT

Thanks for all this great advice! I do have an account with credit karma and credit sesame. I know its not 100% accurate, but its a good measuring tool to see where I'm at.

What is the benefit of only leaving a balance of 8.9% on one card, as opposed to the aggragate total? Wouldn't is show a lower overall utilization compared to your total CL?

Re: Rebuilding Optimal Credit Utilization

Anonymous — Tue, 19 Sep 2017 02:46:54 GMT

ABCD is a super guy and the architect of a very helpful thread on how to save money. He's given you some awesome advice here.

The only tweak I would make to what he's saying is that, as far as the veterans here are aware, there's no advantage to keeping each card's individual utilization under 8.99%. That 8.99% breakpoint is for total utilization. FICO does indeed penalize people for having high individual utilization, but you have to get much higher before that individual penalty kicks in. Some people thing it doesn't happen till 49%, but even the most conservative folks agree that < 29% is safe.

Thus:

Total Utilization < 8.99%

Each individual card < 28.99%

With most cards at $0 (but with one showing a positive balance)

That will enable you to squeeze out every additional extra point in the 40-day runup to an important credit pull.

I also note that our OP describes himself as in the rebuilding process (which is a thing a person does over a long period) and that he asks:

"I want to grow my credit as fast as i can."

As ABCD knows, I am a big proponent of AZEO (All Zero Except One) any time someone is preparing for a loan or any other credit app. But just to make sure our OP understands, AZEO and ultralow utilization will not help him grow his score over the long term. It helps if you are trying to get some extra points in a very short time. But it won't help the OP improve his scores long term.

Of course, it won't hurt him either. But to the extent that he is focused on the long game, he has the option of a more relaxed approach. Which would be to use his cards naturally, let them report balances, then always pay those in full after the statement prints. (He can even use autopay to do that.) He still should watch his utilization and keep it always under 29%, just because he's rebuilding and wants to show creditors that he's always being a very good scout.

If he wasn't rebuilding he'd have even more freedom, which would be to allow his utilization get as high as 48% or so without worrying about it. But since he is in rebuilding mode, I'd keep each card always < 29%.

If a total util of 28% makes him nervous, then he can keep his total at < 8.99%. But AZEO won't help him in his goal of growing his score. (Nor will it hurt.)

Re: Rebuilding Optimal Credit Utilization

Anonymous — Tue, 19 Sep 2017 02:47:11 GMT

Because FICO considers both individual utilization AND aggregate utilization in scoring.

If you want the BEST FICO score possible, it's AZEO with the one under 8.9%.

If you are carrying balances over 8.9% on one card, then you want to spread it out so no cards are over 8.9% and overall aggregate utilization is also under 8.9%.

But putting 15% on one card and 0% on the other card to get 7.5% scores FICO lower because one card is over 8.9%.

Re: Rebuilding Optimal Credit Utilization

Anonymous — Tue, 19 Sep 2017 02:55:02 GMT

CGID: BobWang's old FICO charts do show that even with 1 CC only, <9% does appear to help increase FICO versus 20% or 30% with just one card:

Of course this doesn't give us any accurate info on having 3 cards with whatever is reporting.

On my own data points with 6 cards, due to Irma one of my cards posted a statement over $50 ($2500 credit limit) and my scores did plummet a bit but that card reported over 35% (I was stuck on a boat during Irma with no cell signal so unfortunately I couldn't pay down to my usual $50).

When I keep my one card at $50 (out of $2500) I personally see the biggest FICO boost overall!

Re: Rebuilding Optimal Credit Utilization

Anonymous — Tue, 19 Sep 2017 03:13:27 GMT

This is all exaclty what i was looking for! Excellent advice for a newbie like me. I am studying overseas right now, so I would like to improve my credit by this time next year when I return. The goal is growing my credit in the long run, but also improving it as much as possible in this timeframe to have a solid base to work with when I get back, and have no issues with loans.

These cards are striclty for rebuilding, so no other expenses than what is needed to grow and improve how you all said. So its safe to keep total utilization <8.99%, let them report and pay off immediately? I plan to use my Capital one and leave my VS at zero, only using it sparingly to keep the account open.

This board is so helpful! Im really looking forward to learning from all of you!

Re: Rebuilding Optimal Credit Utilization

Anonymous — Tue, 19 Sep 2017 03:18:07 GMT

Here's something you can do yourself: try it both ways and report back with data points here -- it helps everyone!

Let 6% post at statement cut one month, and then next month try 16% or 26% and see if it affects your FICO scores (if you pay for credit monitoring or get it free from somewhere like creditscorecard.com).

This way you can get an idea of what effect carrying a balance might have, but you can "fix" it in a month! If you aren't seeking credit for the next few months, it won't have any long term effect on your scores.

Re: Rebuilding Optimal Credit Utilization

Anonymous — Tue, 19 Sep 2017 03:25:13 GMT

Great idea ABCD, i guess ill learn more from just jumping in (smartly) and getting my feet wet a little. I at least have a good understanding now of how it all works and reports. That way a few months out, I'll really know what i need to do to bump up that FICO score and how its done.

Thanks!

Re: Rebuilding Optimal Credit Utilization

Thomas_Thumb — Tue, 19 Sep 2017 11:13:29 GMT

@Anonymous wrote:
Because FICO considers both individual utilization AND aggregate utilization in scoring.

If you want the BEST FICO score possible, it's AZEO with the one under 8.9%.

If you are carrying balances over 8.9% on one card, then you want to spread it out so no cards are over 8.9% and overall aggregate utilization is also under 8.9%.

But putting 15% on one card and 0% on the other card to get 7.5% scores FICO lower because one card is over 8.9%.

The above is incorrect relative to individual card utilization.

Fico looks at three factors relative to utilization - and they are scored independently from each other. Those factors are:

1) aggregate revolving utilization - this factor is given far more weight than the next two factors.

- Maintain this under 9% for best results

2) number (or %) of cards reporting balances

- This is very important for Fico mortgage scores. More muted with Fico 8 but still significant for most profiles. Generally best to report balances on less than 1/2 cards but always greater than 0% reporting a balance.

3) individual card utilization - scoring based on the revolving account with the highest % utilization.

- Impact of individual card utilization is relatively minor. Many profiles see no affect as long as highest card utilization is maintained below 49% AND the total of cards reporting balances (aggregate) holds under 9%. To be ultra safe with this factor, keep utilization on highest card below 29%. I have yet to see any data that shows a scoring penalty relating to a card utilization in the 9% to 29% range when aggregate utilization is maintained under 9%.

Example - profile has 5 credit cards, each with $1000 credit limit and total balance of $400 reporting.

1) Aggregate utilization is 400/5000 = 8%

How best to distribute balance?

a) $400 on one card = 40% utilization + $0 on the other 4 cards.

b) $200 on each of 2 cards (20% utilization) + $0 on 3 cards.

c) $100 on each of 4 cards (10% utilization) + $0 on the last card

d) $80 on each of 5 cards (8% utilization)

The lowest scoring case will be "d" without question. If one has three or more cards, reporting balances on 100% of cards will drop your Fico 8 enhanced scores and Fico mortgage scores significantly. For most profiles, Classic Fico 8 score will drop as well.

The top scoring caes will be either "a" or "b". Actually, both may result in no score drop penalty. Personally, I would opt for "b" but, the AZEO adherents would be well served by case "a".

Case "c" represents 80% of cards reporting balances and this will negatively impact Fico mortgage scores.

Re: Rebuilding Optimal Credit Utilization

Anonymous — Tue, 19 Sep 2017 13:15:07 GMT

Spot on utilization post from TT above.

Re: Rebuilding Optimal Credit Utilization

wssuter — Wed, 20 Sep 2017 01:22:59 GMT

This is great info and makes sense! I never knew about the AZEO method as I am also new to credit rebuilding but I am loving the experience I have been gaining. I have five credit cards, four are fairly new, and one is a little over a year old. I had thought until recently the best thing to do was pay balances in full every month. I noticed though that since I have received the credit cards and have been paying all of the balances in full that they are not reporting to the credit bureus at all, as I was told that there is nothing to report. Should I let all of the credit cards report at least one time with a balance before incorporating AZEO? Out of those five cards, only two are reporting. Thanks

Re: Rebuilding Optimal Credit Utilization

Anonymous — Wed, 20 Sep 2017 01:46:36 GMT

Example - profile has 5 credit cards, each with $1000 credit limit and total balance of $400 reporting.
1) Aggregate utilization is 400/5000 = 8%

How best to distribute balance?
a) $400 on one card = 40% utilization + $0 on the other 4 cards.
b) $200 on each of 2 cards (20% utilization) + $0 on 3 cards.
c) $100 on each of 4 cards (10% utilization) + $0 on the last card
d) $80 on each of 5 cards (8% utilization)

The lowest scoring case will be "d" without question. If one has three or more cards, reporting balances on 100% of cards will drop your Fico 8 enhanced scores and Fico mortgage scores significantly. For most profiles, Classic Fico 8 score will drop as well.

This is an excellent example and what I was looking for. An outline of the pro/cons of the different scenarios. All this information from everyone is really helpful!

Re: Rebuilding Optimal Credit Utilization

HeavenOhio — Wed, 20 Sep 2017 02:20:09 GMT

@wssuter wrote:
This is great info and makes sense! I never knew about the AZEO method as I am also new to credit rebuilding but I am loving the experience I have been gaining. I have five credit cards, four are fairly new, and one is a little over a year old. I had thought until recently the best thing to do was pay balances in full every month. I noticed though that since I have received the credit cards and have been paying all of the balances in full that they are not reporting to the credit bureus at all, as I was told that there is nothing to report. Should I let all of the credit cards report at least one time with a balance before incorporating AZEO? Out of those five cards, only two are reporting. Thanks

Always pay your statement balances in full if you want to avoid interest. The balance you leave should come from new charges.

Your cards should be reporting, whether the balances are zero or not. Which bank are these cards from?

Re: Rebuilding Optimal Credit Utilization

Anonymous — Wed, 20 Sep 2017 03:22:45 GMT

@wssuter wrote:
This is great info and makes sense! I never knew about the AZEO method as I am also new to credit rebuilding but I am loving the experience I have been gaining. I have five credit cards, four are fairly new, and one is a little over a year old. I had thought until recently the best thing to do was pay balances in full every month. I noticed though that since I have received the credit cards and have been paying all of the balances in full that they are not reporting to the credit bureus at all, as I was told that there is nothing to report. Should I let all of the credit cards report at least one time with a balance before incorporating AZEO? Out of those five cards, only two are reporting. Thanks

Quick point on terminology:

From the way you describe what you have been doing, it sounds like you have been paying to zero (PTZ) prior to the statement printing. PTZ is not the same thing as paying in full (PIF). To PIF means to pay whatever balance appears at the top of the statement in the (roughly) 25 days following the statement date -- and to pay that amount in full.

Thus, if you use a card, allow the statement to print with an amount owed of $258, and then pay that $258 sometime in the three weeks following the statement, you have paid in full (PIF). If you paid only $100, in contrast, then you would be carrying a balance of $158. If you were to pay that $258 before the statement printed, so that the statement printed with a $0 amount owed, then you would have paid to zero (PTZ).

You mention that your cards are not reporting to the credit bureau. Are you sure you don't mean the cards that have been opened very recently? Or do you also mean that the card you opened 11 months ago also does not appear on your credit reports?

If you only meant the cards that were opened recently, then that is not strange. Cards can take up to three months to appear from the date they were opened. That's common for Amex, for example. Were the recent cards all opened in the last 45 days?