topic Re: Question about utilization in Understanding FICO® Scoring

Question about utilization

Anonymous — Tue, 21 Jun 2011 19:58:06 GMT

Hey Guys,

1) First of all, not a bonfide utilization question BUT: I heard a while ago that it was GOOD to carry a balance to allow the issuers to make some money on interest, etc. So I went and charged up some things that I planned to pay off gradually. It was fun and all, but I really prefer paying in full-- am I going to be commiting some sin in the eyes of my creditors by no longer carrying balances?

2) I spend currently $2,000-$2,500/month. If I did all of this on my cards, I would max them out (total credit lines split between three cards is $2,400) and even though I could pay them in full at the month's end, I would bring my utilization to nearly 100%. This is ill-advised, even if I pay them in full, right?

3) Should I just pay a cell phone bill per month (~$150) on any one of the cards and PIF at the end of the cycle? This would give me 6.25% utilization, but very little card activity. Is that okay? (I have a hard time believing that I'm going to do much good to my credit if I hardly use it, even with low utilization.)

4) In the future, when I have bigger credit lines, let's say $10,000 split between two cards at $5,000 each, is it better to carry, say $900, split between the two cards or $900 on one single card with $0 on the other? Or is there no scoring difference for FICO on my credit reports and maybe just an internal scoring thing with the creditors?

5) Is there a distincition (for scoring purposes) between debt that is PIF and debt that is carried over? How does a potential creditor know whether I spent $3,000 one month, paid in full, then spent $2,000 the next, or just paid $1,000 toward that original balance, leaving a statement balance of ~$2,000 the next month?

Thank you for everything, this is a great board.

Re: Question about utilization

Anonymous — Tue, 21 Jun 2011 21:03:54 GMT

Hi wanttofix!

Welcome!

Hope this is somewhat helpful:

@Anonymous wrote:
Hey Guys,

1) First of all, not a bonfide utilization question BUT: I heard a while ago that it was GOOD to carry a balance to allow the issuers to make some money on interest, etc. So I went and charged up some things that I planned to pay off gradually. It was fun and all, but I really prefer paying in full-- am I going to be commiting some sin in the eyes of my creditors by no longer carrying balances? Issuers make money on transaction fees, and they know they are in your good hands when you PIF or keep a very small balance. Whenever I've spoken with a creditor and they make comments on my "excellent credit behavior" or whatsuch, it's always been in a situation where I'm PIFing or occasionally carrying a very small balance. IMO, ignore any advice to pay interest to please a creditor.

2) I spend currently $2,000-$2,500/month. If I did all of this on my cards, I would max them out (total credit lines split between three cards is $2,400) and even though I could pay them in full at the month's end, I would bring my utilization to nearly 100%. This is ill-advised, even if I pay them in full, right? Utilization is based on reported balances. Most, but not all, CC issuers report your balance to the CRA's on your statement date. FICO scores you on your reported balance, not on utilization during the month. Some of us who are rebuilders have made a few payments a month when we've had lower CL cards. Put as much through as you like (although I would stay well below the CL to avoid an over-the-limit surprise), but mind the reported balance - and of course pay attention to paying by the due date.

3) Should I just pay a cell phone bill per month (~$150) on any one of the cards and PIF at the end of the cycle? This would give me 6.25% utilization, but very little card activity. Is that okay? (I have a hard time believing that I'm going to do much good to my credit if I hardly use it, even with low utilization.) That's great card activity - very savvy, and a lot of folks on these forums do exactly that. Whenever you PIF, watch the due date and the reporting date.

4) In the future, when I have bigger credit lines, let's say $10,000 split between two cards at $5,000 each, is it better to carry, say $900, split between the two cards or $900 on one single card with $0 on the other? Or is there no scoring difference for FICO on my credit reports and maybe just an internal scoring thing with the creditors? FICO scores utilization on each card as well as overall utilization. FICO also scores on how many accounts report a balance. The general mantra for best FICO score impact is to have one card reporting less than 9% utilization; with the remaining cards reporting a zero balance.

5) Is there a distincition (for scoring purposes) between debt that is PIF and debt that is carried over? How does a potential creditor know whether I spent $3,000 one month, paid in full, then spent $2,000 the next, or just paid $1,000 toward that original balance, leaving a statement balance of ~$2,000 the next month?
Thank you for everything, this is a great board.

Re: Question about utilization

Anonymous — Tue, 21 Jun 2011 21:30:46 GMT

That is so, so helpful! Thank you very much!

I'm going to take your advice. I'll pay everything down to zero, then put a single cell phone bill through per month. I'll do this on my higher-limit card to minimize utilization.

And since I'm not on top of it enough to make payments multiple times monthly per card (at least I know that I'll mess up-- a marked improvement from several years ago), I'll just refrain from spending on those other cards to keep them at zero.

I went through a period of denial for a couple years where I wouldn't even look at my credit report, now I'm set on fixing it. You guys really encourage good behavior, thank you, everyone.

Re: Question about utilization

Anonymous — Tue, 21 Jun 2011 22:22:32 GMT

I agree - this is a great place! With lots of knowledgeable helpful folks.

I just want to note that your CC companies will be looking to see activity on their cards. Putting a utility or some small regular purchase on your cards every month or two or three will keep them happy. You don't want any CC companies closing your card, or reducing your CL, for inactivity.

Re: Question about utilization

Anonymous — Tue, 21 Jun 2011 22:42:35 GMT

Thanks for the pointer! That's very good to know.

Re: Question about utilization

RobertEG — Wed, 22 Jun 2011 00:29:52 GMT

Excellent advice, all around!

I would add only one comment on the quest to maintain maximum scoring under % utiilization each month. While I totally agree with the maximization strategy of maintaining one card at under 10%, and doing a PIF on the others, it is not really necessary to maintain such maximization each and every month.

% util is one of the few FICO scoring categories having no historical memory... by that I mean that last month's % util has no relevance once the next month's util arrives.

Maximumizing % util becomes important at the time you plan to actually use this beast called your FICO score to apply for new or extended credit, or enter into a business transaction that uses your FICO score as part of the process.

To obessively try to maintain max. FICO scoring under % util is not really necessary. Just know how to do it, and make sure it is done a month or two before you actually expect your FICO score to be used.

Re: Question about utilization

Anonymous — Wed, 22 Jun 2011 01:41:17 GMT

Thank you for that addition! That makes me feel a lot better and makes things more much easily manageable.

I guess that aside from paying on time and keeping low utilization (at least during important periods), time just has to do the rest in my case.

Thanks again, guys!

Re: Question about utilization

Anonymous — Wed, 22 Jun 2011 03:37:26 GMT

Remember that your current CC accounts can, and will, soft pull your credit reports. Even if you don't choose to strive for one card reporting less than 9%; with the others reporting $0 balance, you'll always want to watch your reported utilization and keep it low; along with watching the number of accounts reporting a balance. If utilization goes high, and it shows up on a soft pull, it'll give your CC issuers the shakes and can, and does, result in AA like account closure, CLD, and even balance chasing.

I've learned from a wise and savvy mod on these boards to keep myself looking good JIC. Remember when mum told you to always be prepared? Or was that the scouts? At any rate, my last three apps and new accounts were done without 30-60 days previous notice. I've learned to keep my CR in good shape - you never know when you'll need to pull your very best (or close to your very best) FICO score; and you do know with a certainty that your current CC's are always checking in.

High utilization will kill your FICO - IMO, always always keep it in fairly decent if not excellent shape. My general habit is to follow the one at less than 9%; the rest at $0. It's become very easy for me to keep that pattern going each month. And I know it has served me well over time.