topic Utilization problems in Understanding FICO® Scoring

Utilization problems

Anonymous — Fri, 11 Feb 2011 16:22:21 GMT

My utilization ratio of 100% is destroying my credit score, and I need to understand why. The only other negative (according to my FICO summary) is the number of open credit accounts - 6. By all rights, with my income, assets, and credit history I can't fathom why I rate only average, and utilization seems to be the main problem.

I have two cc's that I pay off in full every month, which I understand are reported with balances because of the billing cycles. I get that. The reported Visa balance is $40, with a credit limit of $30,000. The MC has a balance of $2,500, with a credit limit of $50,000.

I have a mortgage, a HELOC (balance of $5,000, line of $70,000), a $20,000 car loan, and a $40 utility bill. Six accounts total.

Could it be that the cc's don't report available credit, and with two installment loans and the monthly utility it appears I am using 100%? And I can't figure why the HELOC is hurting me, although at one point 3 years ago I briefly had a $50,000 balance, which I paid down almost immediately. Maybe the high balance remains in the scoring, rather than the current balance?

Once I understand this, then I need to figure out how to improve the situation, and any advice would be appreciated.

Re: Utilization problems

700orbust — Fri, 11 Feb 2011 17:13:30 GMT

FICO does not take into account income or other assets. It is a risk assessment score.

By having your Util maxed out, it may indicate that you are unable to meet your obligations. You need to get util down past at least 75% so it doesn't get scored as maxed out. <50% is what you need to shoot for, and <10% is ideal.

Do your credit cards report a credit limit? Or are they "signature" cards? Where is this 100% util coming from?

Installment loans aren't scored the same, so they aren't going to be factored into your util.

Also there's a good chance that reporting $40 will score better than 0, since FICO likes to see you using your credit in some kind of fashion.

Re: Utilization problems

Anonymous — Fri, 11 Feb 2011 17:37:59 GMT

Thanks for your post. I 'm trying to understand where the 100% is coming from.

I guess neither cc reports a credit limit. So my $40 Visa balance that I will pay off when I get the bill is counted as 100% utilization? Should I just pay off any balances before the last business day of the month so they report with $0 balances, regardless of the billing cycle?

I only mentioned that I have high income because in theory I could pay off the HELOC and cc's instantly, but I'm not sure that helps decrease the 100%. Closing both cc's (which I have had for 10 years) to find a cc that reports a credit limit doesn't seem like a net improvement. And I can't figure what the issue is with the HELOC (Wells Fargo), since $5,000/$70,000 shouldn't be counting so negatively against me.

Re: Utilization problems

700orbust — Fri, 11 Feb 2011 17:42:14 GMT

Your HELOC probably isn't creating any issues. I'm guessing its scored as an installment loan as well (at least, anything other than revolving)

Yeah, so I'm gathering your only two credit cards are signature cards with no preset limits. Therefore, you don't really show any "available credit" since there are no lines reporting a CL. It doesn't have anything to calculate your util from. Here is a good article on understanding these cards:

http://ficoforums.myfico.com/t5/myFICO-Blog/Is-there-no-limit-to-the-confusion-surrounding-NPSL-cards/ba-p/779933

You might want to consider opening a standard credit card that reports a limit, so that it won't matter so much if your signature cards report a balance. Something like AmEx Blue Cash or True Earnings by Costco