topic Re: Credit utilization in Understanding FICO® Scoring

Credit utilization

Shaman0429 — Mon, 01 Oct 2018 23:29:04 GMT

is the utilization ratio based on total balances to available credit or does having individual accounts that have higher ratios maintain the negative effect.

I've been paying off large chunks of balances but there's one that's inactive but has a ratio of 70%. So I'm trying to decide if I should spread my lump sum around or knock that one down? What do you guys think?

Re: Credit utilization

Anonymous — Mon, 01 Oct 2018 23:51:44 GMT

FICO takes into account your highest individual utilization on a single card AND the total you owe across all accounts vs your total credit line. That 70% on a single card is hurting your score. What is your overall UTI?

Re: Credit utilization

Shaman0429 — Tue, 02 Oct 2018 01:35:24 GMT

so my overall uti is 47% and my scores are TU 661 EX 664 EQ 639. FICO sim shows if I pay off everything scores will move to plus 700 on all but EQ.

As a side note I have a pretty big student loan that the MYFICO simulator says will improve my score 30 pts if I pay down 15% of the total which I'm prepared to do as well. Will those increases be on top of those gained from improvements in UTI?

Thanks again for the support

Re: Credit utilization

Anonymous — Tue, 02 Oct 2018 02:07:44 GMT

The simulator is fun to play around with but don't rely on it. For optimum scoring(I assume this is what you are asking), you want your total UTI to be 8.9% or lower but not zero. You can have up to 28.9% UTI on a single card without taking major point deductions. There are quoted point gain threshholds for UTI. 88.9%, 68.9%, 48.9%, 28.9%, and 8.9% being ideal. Once your single and total UTI cross these thresholds from where you are now, you will start seeing significant point gains.

I can't make any recommendations because I don't know how many cards you have, your total credit lines, or anything else. From your data above, I would start paying that 70% card down. This will obviously help both your single and total UTI at the same time.

FICO treats installment debt far more favorably than revolving debt but the same brackets apply. When you get your installment down to 8.9%, you will be in the optimal bracket from a scoring perspective.

Re: Credit utilization

Anonymous — Tue, 02 Oct 2018 02:54:17 GMT

OP, what do you mean by the 70% utilization card being "inactive?" Do you mean closed? If it's closed, utilization on the card is viewed as 100% / maxed out. If you're at 70% on an open card it means you're making payments on it, or it's balance is rising due to interest and new balances are being reported monthly. These things mean that the card is indeed active. Just trying to get clarification here on what exactly you have going on with that card.

Re: Credit utilization

Shaman0429 — Wed, 03 Oct 2018 08:58:42 GMT

The TL is open on that card. I just havent been using it.

I'm really trying to boost my scores in preparation to purchase a home.

Re: Credit utilization

Anonymous — Wed, 03 Oct 2018 12:09:52 GMT

Gotcha. It's then considered active, even if you're not using it. Inactivity means that your card has a $0 balance on it and isn't being used, that is, the reported information for the card wouldn't change from month to month. Because you're carrying a balance and making payments, your card is indeed active.

Re: Credit utilization

Anonymous — Wed, 03 Oct 2018 12:15:31 GMT

What is your timeline for the home purchase?

It sounds like you have no problem paying all your revolving accounts (cards, etc.) to $0. You should do that immediately. The only tweak is to leave about $10-15 on one card. Then moving forward, always have that card reporting that small positive balance with all other cards reporting $0.

Note: The card that reports a small positive balance should be a true credit card (not a charge card) and a card in your name (not an AU card).

You should not at this point make any extra payments on your loans.

You should obtain some free tools to help you see when all the credit cards have their new (much smaller) balances reporting. We can suggest some tools for that if you like.

Once all the cards are reporting properly, you should obtain your mortgage scores, which are very different from the FICO 8 scores that the simulator has been advising you about. Again, we can tell you how to do that.

Re: Credit utilization

Shaman0429 — Wed, 03 Oct 2018 12:57:14 GMT

Wow thanks you guys!

I am fortunate to be in a position where I'm a pretty high income earner, but to get there I had to change companies and the first year had me making 1/5 of my previous salary. This position came to me very quickly and I didn't have time to adequately prepare. So to make ends meet I had to lever up and for a 30 day period I missed several payments about 2 years ago. Fast forward to today and my income exceeds my previous by nearly an order of magnitude, but my credit scores are poor and I am unable to purchase a home due to high UTI and late payments. So I've been using my earnings to significantly delever every month. I'm down to about 18k from 53k in two months and should be able to payoff all of that this month. I will leave a card with a balance at 8.9% I have an Amex and a Discover that I use for everyday purchases and payoff every month.

My student loan is a 200k at 6.25% APR anchor around my neck. I need to get rid of that debt as its costing me 12k a year and seems to be hurting my scores because the princple isn't declining. We live pretty austerely so once the revolving debt is handled I can dedicate a significant amount of cash towards that.

The thing that is the most frustrating about the situation I'm in is that I earn a high six figure income and can't qualify for a home loan. Whereas I've seen people come out of bankruptcy with fewer problems.

Re: Credit utilization

Anonymous — Wed, 03 Oct 2018 13:26:26 GMT

Thanks, very helpful.

It sounds like you would very much like to buy a home, but don't have an urgent need to do that any time soon. I.e. it's not like you have buy a house in the next three months. Is that right?

If so, can you describe some different timelines that you would be ok with? For example, you might say:

I know I need time to get my scores up, so six months is what I am shooting for though I'd be ok with 12 months.

That's just an example. We need to know timeline because depending on what you tell us different strategies for score improvement will be open to you (or closed).

When do you you think you can have all your credit card debt paid off? Personally I would pay ALL of it off (and then keep a small positive balance reporting on one card, like $15) rather than what you are suggesting, which is to pay down to 8.99% and then (if I understand you right) carry a balance.

Have your pulled your three credit reports and gone over them with a fine tooth comb? A crucial step right now for you is to make a list of all the "derogs" (lates, collections, chargeoffs, etc.) as they appear on each report, along with the date that each appeared. I recommend using the free site AnnualCreditReport.com -- which is the gold standard for accuracy in your reports.

It's quite possible (depending on your timeline) that some or all of these derogs could be completely removed from your reports.

Re: Credit utilization

Anonymous — Wed, 03 Oct 2018 13:23:30 GMT

PS. Regarding your cards....

(1) Can you clarify exactly how many open cards you have?

(2) Of these, have some of them not been used for a while?

(3) You mention an Amex. Are you certain that the Amex is a credit card and not a charge card? If it is a charge card you should not use the Amex as the card that reports the small positive balance.

(4) Do you have any closed accounts (cards or otherwise) with a positive balance? If so, these should be a high priority to pay off. If you have any collections, let us know because you actually want to not immediately pay those off. Instead you will want to negotiate a PFD agreement before doing that.

Re: Credit utilization

Shaman0429 — Wed, 03 Oct 2018 13:37:42 GMT

I have a subscription to myfico. I know it costs money but it gives the most accurate scores and the scores I posted came from there. My current "mortgage" middle score is a 651.

I have 9 open CC TL. I will have the entire remaining 18k paid by the 15th of November if not sooner.

Some of them are used while some of them I just keep around for the age of the credit line and some dire circumstance.

The AMEX is a Delta Skymiles CC it is not the charge card (apperantly I cannot qualify for one of those)

No closed accounts, no collections, just several 30 day lates in a 60day period and my student loan went 120 days late in july of last year as I thought it was in forberance while I was working with them to adjust the payments. Sp no bankruptcies no forclosures just debt and payment history

As for my timeline. The truth is I could stay in my 1600/mo rental home indefinately and call it good I don't have to purchase a home now nor at any date in the future. I would like to do so to improve my lifestyle a bit, but there is ZERO urgency. I do need to refiance this student loan 6.25% is waaay to high in this interest rate environment. So I need to get my scores up as high as I can.

If you guys have some guidence to make the biggest impact in shortest amount of time. I'm ready to execute and can allocate resources to do it. Incidently I have a very good relationship with my Credit Union and could likely call on them to lend to me if need be

Re: Credit utilization

Anonymous — Wed, 03 Oct 2018 13:54:30 GMT

Wonderful news regarding timeline for the home purchase! Here is what you should be doing, in order of priority:

(1) Always pay at least $2 more than the minimum payment on every card that you have. Never pay only the MP. And always pay on time -- never be late on any payment going forward

(2) Pay all cards to under 87% (if you have any that high).

(3) Pay all cards to under 67%.

(4) Pay all cards to under 47%.

(5) Then use whatever strategy feels best to pay off all revolving debt.

After you have paid off the CC debt, begin implementing the Goodwill Letter Saturation Technique. You can find it described on this site. It will give you the best chance of getting all your lates removed.

Another thing I will suggest is to use each of your nine cards once for a small purchase and then let the card report a positive balance on the next statement After that pay the balance in full. If some of those cards have not been used in a long time they may have been classified as inactive or are at risk of being closed. Part of good card hygiene is to use a card once every six months for something small.

After your CC debt is paid off then you can refinance the loans (or you can wait to see what progress you will make on the Goodwill Technique first -- up to you).

Re: Credit utilization

Anonymous — Wed, 03 Oct 2018 13:59:16 GMT

@Shaman0429 wrote:
I have a subscription to myfico. I know it costs money but it gives the most accurate scores and the scores I posted came from there. My current "mortgage" middle score is a 651.

Which version of the myFICO Ultimate do you have -- the $30/mo or the $40/mo?

I am personally not crazy about that product since it costs $500 a year when there are free alternatives, but it can be the right choice for a particular person and situation depending. I would certainly keep it around until all your CC debt is paid off. You'll be curious to look at your mortgage scores after that.

Re: Credit utilization

Shaman0429 — Wed, 03 Oct 2018 14:06:22 GMT

I agree 100% that that product is highway robbery but in my circumstance I care more about the Intel than the cash. I have the 40/mo plan. I try and check my scores on the dates I know the TLs report.
I will research thr goodwill saturation letter technique I got nothing but time and opportunity if you guys think it's effective

Re: Credit utilization

Anonymous — Wed, 03 Oct 2018 14:45:32 GMT

Keep using the myFICO product for at least 2-3 months, since it will give you some really cool info after you pay off all the CC debt.

After that, you may decide to rethink it. If by the end of the year you think you'll be buying a house soon, by all means keep it. If you decide that the home purchase will not happen for another 12 months, I'd cancel it. That's just me -- all that info is just overkill in my opinion. Do be aware that myFICO's scores are not more accurate than if you were to get the same scores somewhere else. In other words a FICO 8 Classic score will be just as accurate if you get it free at Amex or a number of free sites than if you get it at myFICO.

Good luck!