topic Question About Utilization in General Credit Topics

Question About Utilization

MomoMango — Tue, 25 Jun 2019 20:50:06 GMT

Hello, I've been lurking on these forums for a while, and I just decided to join the community. And I have to say I'm very thankful because I've learned so much more credit and started to make more careful decisions. I recently just started my credit journey and I had some questions about credit utilization.

What I've learned so far is that credit card companies look at how much utilization you use on your cards. I also know that you should use at least 10% or 30% for your utilization. But I am not sure if paying the minimum balance will avoid getting a late fee. So could I pay the minimum balance before the due date and only leave 10% or 5% of the balance on there without receiving a late fee?

I currently have Discover It Student Credit Card for about almost 2 months with a $1500 starting limit. My due date is the 6th of every month and the statement period ends on the 11th.

Re: Question About Utilization

coldfusion — Tue, 25 Jun 2019 21:06:45 GMT

If you pay at least the mininum payment each month, you won't be assessed a late fee. You will however accumulate interest.

Narratives that suggest it is helpful if you revolve balances of 10-30% of your credit limit are BS.

There is a technique known as All Zero Except One (AZEO) that some cardholders will follow because in many cases it can help maximize one's FICO scores. I suggest you research that, the technique has already been thoroughly discussed here many times.

Re: Question About Utilization

Anonymous — Tue, 25 Jun 2019 21:07:22 GMT

The Minimum payment is the amount due to avoid a late fee.

The rule of thumb is 10% or less despite the CMS educational sites citing 30% or less.

Mentally you should report for example on your $1500 CL an amount of $150 or less.

Depending on your scoring strategy and goals though it's easier to just let the balances report and setup autopay for the statement balance so you don't run into paying interest which negates your rewards you're earning by using the cards.

Re: Question About Utilization

Anonymous — Tue, 25 Jun 2019 21:08:54 GMT

“I also know that you should use at least 10% or 30% for your utilization.”

Ah, welcome but that’s not actually the case. Using “at least” 30% will lower your score considerably. There is no floor, except you don’t want all cards to report zero. So something on at least one card but less then half your cards.

Ideally (for scoring) you want to keep your total aggregate balance below 8%. Not above 10% and definitely not above 30%. I’m not sure if you got mixed up and meant to say “below” and not “at least”. Someone will come along to direct to some threads that you can get more info on those thresholds. Good luck

Re: Question About Utilization

SouthJamaica — Tue, 25 Jun 2019 21:39:40 GMT

@MomoMango wrote:
Hello, I've been lurking on these forums for a while, and I just decided to join the community. And I have to say I'm very thankful because I've learned so much more credit and started to make more careful decisions. I recently just started my credit journey and I had some questions about credit utilization.

What I've learned so far is that credit card companies look at how much utilization you use on your cards. I also know that you should use at least 10% or 30% for your utilization. But I am not sure if paying the minimum balance will avoid getting a late fee. So could I pay the minimum balance before the due date and only leave 10% or 5% of the balance on there without receiving a late fee?

I currently have Discover It Student Credit Card for about almost 2 months with a $1500 starting limit. My due date is the 6th of every month and the statement period ends on the 11th.

You've got it upside down. Be sure to use less than 10% overall and less than 30% overall. (Really 9% and 28% to be on the safe side).

How much less? The less the better. (except that with some FICO score models you will come out better with one card reporting a small balance than with all cards reporting zero balance)

Re: Question About Utilization

Remedios — Tue, 25 Jun 2019 22:24:33 GMT

You can use as much as you want/need. What they are talking about is reported utilization.

If your card has rewards, make the best use out of them, just pay it down to some acceptable level before statement closes, then pay your balance off once the statement is ready (any time before the due date)

Re: Question About Utilization

MomoMango — Tue, 25 Jun 2019 22:28:04 GMT

This might be a dumb question since I'm still new to credit, but is the statement balance the minimum balance?
When I looked at my statement with Discover is showed the "New Balance," which is now the minimum balance. The minimum balance was when I used it the day after the due date.

If I do pay the statement balance, will I avoid paying interest? I currently have the 0% APR for about 5 months, but I would like to be cautious.

Also I always pay it all off, but I don't want credit companies thinking I'm not using my card.

Re: Question About Utilization

Remedios — Tue, 25 Jun 2019 22:28:18 GMT

If you pay statement balance, there will be no interest. Also, there is no interest being assessed while you're in 0% promo APR.

Once the promotional period expires, interest accumulates on any amount not paid in full from previous statement, and you lose grace period for new purchases.

So, whenever possible, pay the entire statement balance.

Re: Question About Utilization

Anonymous — Tue, 25 Jun 2019 23:30:15 GMT

@MomoMango wrote:
I currently have Discover It Student Credit Card for about almost 2 months with a $1500 starting limit. My due date is the 6th of every month and the statement period ends on the 11th.

The statement balance is what gets reported each month, so you want that to show between 0 and $135. Above 0, but not over $135, or 9% of the limit.

All the articles on the web will say 'under 10%', but they don't tell people that 9.5% will not be 'under 10%' due to the way utilization is rounded up.

Use the card as much as you want, and make payments by the 11th to keep it in the sweet spot. I think we're both in the same 'new-to-credit scorecard' where I just found that staying under 4% utilization also gets us a few more points. (Above zero, but below $60 for your limit.)

Re: Question About Utilization

Anonymous — Tue, 25 Jun 2019 23:33:13 GMT

Never force yourself to carry a balance just to meet some imaginary objective. If by some reason a person has to carry balance then in that instance you should never go higher than 28% utilization. As it severely affects your score. While under 9% is optimum, it's best not to carry a balance ever if it can be avoided though.

You can charge up to $1400 per statement, so long as it's paid by the due date. No need in paying in percentages, and leaving a few Dollars left owing. Doing so will avoid any interest or late fees. During your 0% promo, however. You can carry a balance from month to month only paying the minimum due to avoid late fees. Just make sure usuage is being reported, thus do not pay before the statement cuts. If other Banks do not see usage, they may not see you as a profitable customer.

Re: Question About Utilization

Anonymous — Tue, 25 Jun 2019 23:41:31 GMT

Just to make sure...

Once you receive that statement balance showing between 0 and $135, you have until the 6th to pay that off. Pay it in full and you'll never pay interest. This is the only amount that you need to pay in full to avoid interest.

You'll have a 'current balance' from using the card after that statement balance reports. You only need to pay what was on the statement balance to avoid interest.

Re: Question About Utilization

MomoMango — Wed, 26 Jun 2019 00:48:35 GMT

If I'm starting to understand correctly: A statement balance is the balance that was left over from last month. By looking at my previous statement:

It shows:

Statement Balance: $17.32

Minimum Payment Due: $17.32

Payment Due Date: July 06, 2019

Paying the Statement Balance avoids fees and interest

Paying the Minimum avoids fees but not interest

Once I pay the statement balance. Would the remaining current balance of 1% or 2% which is $15 or $30 be okay?

Re: Question About Utilization

Anonymous — Wed, 26 Jun 2019 00:59:00 GMT

Whatever amount that's left over after the "statement" balance is paid, is also interest free until the following statement cut date. But must be paid along with any new charges made during that new statement period.

Once your promo rate is over, and if it's doable. Just pay the "total balance" every month and cut out the micromanaging overthinking of it.

If you are unable to pay the "total balance" every statement period, then just keep paying the "statement balance" by the due date every month and you'll be fine. It should tell you on the statment which balances should be paid and when to avoid what fees.

Re: Question About Utilization

Anonymous — Wed, 26 Jun 2019 00:59:27 GMT

@MomoMango wrote:
If I'm starting to understand correctly: A statement balance is the balance that was left over from last month. By looking at my previous statement:

It shows:
Statement Balance: $17.32
Minimum Payment Due: $17.32
Payment Due Date: July 06, 2019

Paying the Statement Balance avoids fees and interest
Paying the Minimum avoids fees but not interest

Once I pay the statement balance. Would the remaining current balance of 1% or 2% which is $15 or $30 be okay?

Yes, you have it all correct now.

Just forget the minimum payment...always pay that statement balance in full. Right now they match because the amount is so low. You're at 1.15% actual utilization ( (17.32/1500) * 100 ), but the FICO algorithm only looks at whole numbers/integers, so that becomes 2%.

You could charge $1000 on that card, pay it down to between 0 and $135 before the 11th, and then once you get the statement in email or whatever, just pay that $0-135 amount before the due date and you'll never pay interest.

Re: Question About Utilization

MomoMango — Wed, 26 Jun 2019 01:15:04 GMT

Alright I pretty much got it down.

Thank you guys so much for helping me, this was my first question and I was a little shy to ask it as soon as I joined. But now I'll have more courage to ask for more help.

Re: Question About Utilization

Anonymous — Wed, 26 Jun 2019 07:00:24 GMT

Welcome to the forums!

Re: Question About Utilization

Remedios — Wed, 26 Jun 2019 19:54:21 GMT

@MomoMango wrote:
Alright I pretty much got it down.
Thank you guys so much for helping me, this was my first question and I was a little shy to ask it as soon as I joined. But now I'll have more courage to ask for more help.

@MomoMango Dont be shy. Ask away, we all did and still do

Re: Question About Utilization

Fated4Credit — Fri, 28 Jun 2019 01:14:27 GMT

I'm glad you brought up this topic OP as I'm having a similar issue with PIFing the statement as I hope you don't mind me switching topics real quick, but my issue is in regards to paying interest.

For example: my April Cap1 statement:
Statement cut at $366.48
Previous balance of 615.37 (transactions for the month 419)
Payments: 640 but paid $8.15 in interest

I thought that by me paying obviously more than the 615 statement balance I would have avoided interest for the month.

I always preferred to pay down my balance to the desired amount rather than actually paying the statement, even though I pay 5x the amount. For July's statement my previous balance is going to be $90, but I've made $666 current charges, wouldn't it be better to pay my balance down to say $200, than rather just paying the statement balance of $90 & having a larger balance report than last month to avoid interest? Hopefully I've been clear in my post.