topic Re: How does utilization affect scores, overall or per card? in Understanding FICO® Scoring

How does utilization affect scores, overall or per card?

Anonymous — Wed, 09 May 2018 14:48:05 GMT

I have 5 cards as of now close to their limit. I have the money to pay several all down to zero, leaving two maxed, or I can simply knock all of them down. From a financial standpoint, ridding myself of multiple monthly payments will free up income to pay down the balances over time of the two I don't pay off quicker, but my question is how does that affect my credit differently? I'm trying to get my car refinanced so whatever looks more favorable to lenders is important as well.

Basically, does having a couple cards near limit but the rest near zero look the same as if the debt were more spread out but the same overall amount of utilization?

Re: How does utilization affect scores, overall or per card?

Anonymous — Wed, 09 May 2018 15:15:41 GMT

@Anonymous wrote:
I have 5 cards as of now close to their limit. I have the money to pay several all down to zero, leaving two maxed, or I can simply knock all of them down. From a financial standpoint, ridding myself of multiple monthly payments will free up income to pay down the balances over time of the two I don't pay off quicker, but my question is how does that affect my credit differently? I'm trying to get my car refinanced so whatever looks more favorable to lenders is important as well.

Basically, does having a couple cards near limit but the rest near zero look the same as if the debt were more spread out but the same overall amount of utilization?

People more knowledgeable than I will likely have better answers, but from what I can tell looking at my own credit reports, it looks as if they mainly look at the overall utilization (which, as you know, ideally should be 10% or less - the figure I usually see cited is 8.9% - for the best effects on your scores, though one can generally get up to 30% (more precisely 28.9%) utilization overall without risking negative repercussions on the score). That being said, I know some services do report utilizations on individual cards as well as the overall utilization.

EDIT: Per the OP in this thread: https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/AZEO-at-lt-8-9-vs-lt-28-9/td-p/5226088 , there's a fair body of evidence that you can get up to 28.9% utilization on at least one individual card without penalty to your scores as long as your overall utilization stays under the ideal 8.9% mark.

Re: How does utilization affect scores, overall or per card?

Anonymous — Wed, 09 May 2018 15:43:52 GMT

@Anonymous wrote:

Basically, does having a couple cards near limit but the rest near zero look the same as if the debt were more spread out but the same overall amount of utilization?

The quick answer is no. It would not be the same. FICO would punish you harshly for having credit cards that are close to being maxxed out.

(1) Your first priority should be getting all cards at < 87% (I am assuming you will have to be a few percent in interest as well).

(2) Next priority (if the score is your chief concern) is getting all cards at < 67%.

(3) After that it would be all cards at < 48%.

(4) After that creating as many $0 balances as you can.

PS. Nice response by Joel.

PPS. Some people would argue that #3 and #4 could be switched.

Re: How does utilization affect scores, overall or per card?

SouthJamaica — Wed, 09 May 2018 18:00:33 GMT

@Anonymous wrote:
I have 5 cards as of now close to their limit. I have the money to pay several all down to zero, leaving two maxed, or I can simply knock all of them down. From a financial standpoint, ridding myself of multiple monthly payments will free up income to pay down the balances over time of the two I don't pay off quicker, but my question is how does that affect my credit differently? I'm trying to get my car refinanced so whatever looks more favorable to lenders is important as well.

Basically, does having a couple cards near limit but the rest near zero look the same as if the debt were more spread out but the same overall amount of utilization?

No it does not. You are severely penalized for having even a single account that has high utilization. First I would try to get all accounts down to 28% or less, then I would start trying to zero out as many as possible.

Re: How does utilization affect scores, overall or per card?

Brian_Earl_Spilner — Thu, 10 May 2018 01:46:15 GMT

@Anonymous wrote:
@Anonymous wrote:

Basically, does having a couple cards near limit but the rest near zero look the same as if the debt were more spread out but the same overall amount of utilization?

The quick answer is no. It would not be the same. FICO would punish you harshly for having credit cards that are close to being maxxed out.

(1) Your first priority should be getting all cards at < 87% (I am assuming you will have to be a few percent in interest as well).

(2) Next priority (if the score is your chief concern) is getting all cards at < 67%.

(3) After that it would be all cards at < 48%.

(4) After that creating as many $0 balances as you can.

PS. Nice response by Joel.

PPS. Some people would argue that #3 and #4 could be switched.

Thats interesting. I always thought the cutoff points were 67%, 30%, and 10%

Re: How does utilization affect scores, overall or per card?

Anonymous — Thu, 10 May 2018 02:42:11 GMT

The cutoff points are 88.99%, 68.99%, 48.99%, and 28.99% for individual U, and the same for total U with the additional breakpoint of 8.99%.

In practice, however, when we tell a person to bring a card to under 88.99%, he inevitably brings it to a dollar under 88.99%, and then the interest he gets charged for the month brings it to over that breakpoint. This is why I wrote:

(1) Your first priority should be getting all cards at < 87% (I am assuming you will have to pay a few percent in interest as well).

If he brings it to 87% and then gets charged a bunch of interest, it will likely still be < 88.99%

Re: How does utilization affect scores, overall or per card?

HeavenOhio — Thu, 10 May 2018 04:56:34 GMT

You'll frequently hear "under 30%" or "under 10%." Because FICO rounds all fractions up, "under 30%" means 28.9% or below, and "under 10%" means 8.9% or below.

29.00000001% will round up to 30%, and 9.00000001% will round up to 10%. That means that you'll no longer be under those thresholds.

Re: How does utilization affect scores, overall or per card?

Anonymous — Thu, 10 May 2018 14:39:35 GMT

One thing I'd suggest doing is looking up each one of your cards and calculate what your various breakpoints, particularly 8.9% and 28.9%, are for each card, and then add up your total revolving credit and see what the various breakpoints are, and write them down. I do that myself, so that I know how much I can have (including interest - always stay aware of that) running on any given card as well as over all my cards to stay under a certain breakpoint.

Re: How does utilization affect scores, overall or per card?

AlmostNJ — Thu, 10 May 2018 16:56:19 GMT

This post answered all my questions. Thanks

@Anonymous wrote:
@Anonymous wrote:

Basically, does having a couple cards near limit but the rest near zero look the same as if the debt were more spread out but the same overall amount of utilization?

The quick answer is no. It would not be the same. FICO would punish you harshly for having credit cards that are close to being maxxed out.

(1) Your first priority should be getting all cards at < 87% (I am assuming you will have to be a few percent in interest as well).

(2) Next priority (if the score is your chief concern) is getting all cards at < 67%.

(3) After that it would be all cards at < 48%.

(4) After that creating as many $0 balances as you can.

PS. Nice response by Joel.

PPS. Some people would argue that #3 and #4 could be switched.

This post answered all my questions. Thanks so much!

Re: How does utilization affect scores, overall or per card?

JBJBJB1 — Thu, 10 May 2018 19:19:14 GMT

Hi:

It is important to note that you can request credit line increases on your cards to knock down your utilization down as well!

Best,

Re: How does utilization affect scores, overall or per card?

HeavenOhio — Thu, 10 May 2018 20:01:24 GMT

There's no harm in trying for a CLI (credit limit increase) if there's no hard pull or if a denial doesn't reset a clock that prevents you from asking again in the relatively near future.

However, with maxed out cards, there's little chance of CLI success. If requesting results in unwanted consequences, it's better to wait until balances are substantially paid down.

Re: How does utilization affect scores, overall or per card?

Anonymous — Sun, 13 May 2018 18:54:24 GMT

If you look at how utilization affects your credit, it is the total limits compared to your balances. My credit recently dipped drastically from 740 to 680 cause my ut went from 45 percent to 51 percent. Once you get over 49% util, it KILLS your credit. Understand that is the TOTAL amount of utilization amongst all cards.

So, if you have 4 cards, 10k each, whether you have 2 cards maxed, and 2 at 1 dollar balance, or all 4 cards at 5k, the result on your credit is the same (40k total balance, owe a total of 20k - 50% utilization)

I fixed this quickly by paying off the one card that I had maxed (did a balance transfer to a card with 0% interest for 18 months) and ALSO got a few new cards to increase my total limit and hence reduce utilization.

My score went back to the 700s in about a month. Opening and closing accounts is good for you credit, so, if you don't have the money, SMARTEST thing you can do is get a card with a high limit with will decrease your total utilization.

Re: How does utilization affect scores, overall or per card?

HeavenOhio — Sun, 13 May 2018 21:26:44 GMT

Welcome, @Anonymous.

Overall and individual card utilization both factor in. Individual card utilization is determined by the card with the highest utilization. Although overall utilization is the more significant factor, a maxed out card will hit you hard. In your case, you killed two birds with one stone by paying down the maxed out card. That reduced both your overall and individual card utilization.

Opening accounts will most likely ding your scores in the short term as your AoYA (age of youngest account) and AAoA (average age of accounts) will be affected. You'll recover in time, though. The exception would be if adding a card or three significantly reduces one's overall utilization. That would trump the new account penalty.

Closing cards tends to be more or less irrelevant to scoring, mainly because closed accounts tend to stick around on your reports for years. One exception would be if closing accounts causes you to have less than three open cards. Another would be if your oldest account drops off your report and your second oldest account is quite a bit younger.