Credit Card Utilization?

[Anonymous]

How much does CC Utilization matter when you have such a low limit. Me and DH both have Capital One Secured Master Cards, I pay off balances every 2 weeks. I make sure, I am on top of it. Now, since we have a low limit. I was wondering how much our utilization really matters. DH has had his about one month, and have had mine about 3 weeks. I know not long, but we are rebuilding credit to get our lives in the right place financially, to buy a house. DH also just got a car. It was neccesary purchase to get him back and fourth to work. His old car wasn't doing so great, and it was due to break down anytime. 

We have high utilization, Mine is bit higher, just due to the me paying bills with it factor. DH mostly uses his for gas for the car, and a smaller bill. Once in a while food if I send him to the store. We don't purchase anything we don't have the money for. Or any extra fun things. 

But at this point, so early how important is utilization? 

[Pway]

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@Anonymous wrote:

How much does CC Utilization matter when you have such a low limit. Me and DH both have Capital One Secured Master Cards, I pay off balances every 2 weeks. I make sure, I am on top of it. Now, since we have a low limit. I was wondering how much our utilization really matters. DH has had his about one month, and have had mine about 3 weeks. I know not long, but we are rebuilding credit to get our lives in the right place financially, to buy a house. DH also just got a car. It was neccesary purchase to get him back and fourth to work. His old car wasn't doing so great, and it was due to break down anytime. 

We have high utilization, Mine is bit higher, just due to the me paying bills with it factor. DH mostly uses his for gas for the car, and a smaller bill. Once in a while food if I send him to the store. We don't purchase anything we don't have the money for. Or any extra fun things. 

But at this point, so early how important is utilization?  Utilization is important.  Although what are your limits on your secured cards?

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[CH-7-Mission-Accomplished]

So here is the deal:  When you ask about "utilization," you need to be clear what you are talking about.  In terms of FICO scoring, "utilization" is the percentage of your total available revolving credit being used.  And FICO likes to see that as low as it can be, so 1% of the crdit limit.  Lots of folks just let $2 report, which is the lowest dollar amount to keep it reporting since some lenders writeoff balances of $1 to not pay to send out a statement.

Also utilization is only a snapshot, so if your utilization is high on this month's statement, if you pay the card down to 1% next month, your scores will go back up.

The other general meaning or the term "utilization" is how much you put through a card every month as seen by the credit card lender.  CC lenders  would love it if you put through as much money as possible during a month -- they make their swipe fees on each transaction (like 2%).

So people are always doing a little dance with their credit cards; they want to put as much through the card each month to make the lender happy so they will ultimately give you a nice fat increase in your credit limit, but to keep FICO happy they make sure to pay off all but $2 right before the statement cut date.

With secured cards, however, Cap 1 will only give one small CLI with the card.  So if you have a $500 secured card, and you pay it on time, they will likely raise the limit to $700 in 6 months.  But that's it.

So to make a long story short (way too late now, I know -- LOL)  but for a secured credit card just let some small $2 or $5 charge post each month and call it good.  You are not going to get a big CLI by using that card heavily.  So just pay with cash or debit cards and let one item chrage each month -- like a Netflix charge, or one trip to the store or one tank of gas, and then pay if off either all but $2 before the statement cycle date to see a high FICO that month, or just let a small $5 - $10 charge post to your statement and pay it by the due date.

With low limit secured cards the important part is to pay on time.  If you have a $500 limit and this month your statement cycles for $100 you will be at 20% utilization (not great, but not bad) and next month you have $5 report (1%), your FICO wil be lower this month and go back up next month.

When you get unsecured cards, then it's time to use the heck out of them so the lender will you give CLI's, but still pay off most of the balance right before the statement cuts so you can enjoy a nice FICO score that month.  

30% of FICO scoring is utilization.  That means 150 points up for grabs.  You could max out your cards this month and lose 150 points, pay them off and get that 150 points back next month.  There is no memory.  

Hope that helps.

[NRB525]

I'm sorry, that isn't helpful to OP in this situation.

They only just got their first cards. They need to be using the cards regularly and paying them frequently. Utilization on a $500 card, when it is your only card, should never be factored in someones decisions to limit use of the card while building credit.

OP: use the cards. Pay them frequently, let balances report on the statement, never go over the limit, NEVER miss a payment due date, and as these first few months go by, those months of usage will be cha-chinging on your credit report like pennies from above. You want to be showing usage of these cards. These first few months are the launching of your credit journey. Do not worry about utilization levels yet. That is for much later.

You will gain much more now by just letting your history build with usage reporting every month in perfect payment fashion, and not worrying about any optimization of FICO scores.

Good luck!

[Anonymous]

Thank you, this was very helpful. We each only have $200 limits on our secured cards. I know utilization is important, but I didn't know at what stage. My first statement hasn't posted yet. But DHs did and did pay it in full. We don't rely on our CC at all. But we do use it for the neccesities and we do stay on top of all of our finances. I let myself get behind when I was 20, and I will not allow that to happen again. I always make sure everything is paid in full. I make payments every week to two weeks. Everytime money comes in I pay, to keep things as low as possible. I never go over. The most amount of my avaliable credit that I use is 75%. I never go over that. Just incase. So according to what you said. I should be fine, for now. When is the time to really worry about utilization? At what limit should I be concerned.

[CH-7-Mission-Accomplished]

I'm sorry, that isn't helpful to OP in this situation.

They only just got their first cards. They need to be using the cards regularly and paying them frequently. Utilization on a $500 card, when it is your only card, should never be factored in someones decisions to limit use of the card while building credit.

OP: use the cards. Pay them frequently, let balances report on the statement, never go over the limit, NEVER miss a payment due date, and as these first few months go by, those months of usage will be cha-chinging on your credit report like pennies from above. You want to be showing usage of these cards. These first few months are the launching of your credit journey. Do not worry about utilization levels yet. That is for much later.

You will gain much more now by just letting your history build with usage reporting every month in perfect payment fashion, and not worrying about any optimization of FICO scores.

Good luck!

Actually, my friend, you are mistaken!  FICO doesn't gives a rat's derriere whether you put $1 on the card or $20,000 on the card.  It only cares about on time payments and % of available credit used.  You get NO BENEFIT for using the card for more than one transaction a month.  If you think you do, please explain it to me?  FICO doesn't care.  Cap 1 doesn't care becasue it is secured.  You are dead wrong.

You are not being helpful to the OP by asking them to do a bunch of useless transacting that will have absolutely NO BENEFIT to the OP.

[CH-7-Mission-Accomplished]

You should be concerned about utilization at any moment when your FICO score is important to you - so when you are applying for credit.  As I pointed out in my detailed posting, you can have the card maxed out all you want and pay it down to 1% and you will get back all your FICO points lost for over utilization.

FICO doesn't keep track of whether you were running the card up and paying off multiple times per month.  FICO doesn't know about that.  

And as I said, you don't have to wow Cap 1 because they are not going to give you a big CLI on a secured account.  Just pay on time for six months and then apply for the QS 1 and/or the Platinum -- both unsecured.

[CH-7-Mission-Accomplished]

Why on earth do you owe 46K in revolving debt?  This is all wrong.  Pay off your credit cards and your scores will rise.  You are getting nothing out of your technique except pissing away money on interest.

[Anonymous]

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@CH-7-Mission-Accomplished wrote:

Why on earth do you owe 46K in revolving debt?  This is all wrong.  Pay off your credit cards and your scores will rise.  You are getting nothing out of your technique except pissing away money on interest.

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I don't know if this was directed towards me, but I don't owe 46K. I could not fathom owing that much money. To simplify, I just use my cards and pay it down each time my husband gets paid. It helps me keep control of finances, I pay all my bills in two installments. It just helps me stay in control of everything better. I just make sure, I pay full amounts on statements. 

[NRB525]

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@CH-7-Mission-Accomplished wrote:

Why on earth do you owe 46K in revolving debt?  This is all wrong.  Pay off your credit cards and your scores will rise.  You are getting nothing out of your technique except pissing away money on interest.

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The reason for saying don't worry about utilziation on a $500 card is, it is a fools errand to try to control utilization on such a small limit. People need to live. A $500 card is intended to be a transaction instrument that you can charge a bit, pay it off, start showing payment history, and later on get larger limit cards. At that point, if you note in my post, then utilization can be watched.

My open balances are not really the topic here. But I'll bite anyway. I show them in my signature to provide as much context about my situation as possible. The balances are actually down from  $117,000 in August 2008, so I think I'm doing great!

You are correct, my scores will rise when I get them paid down to $20k.

What you may not realize is, even with the open balances at the levels they have been, my FICO scores in the last many years have always been in the range of 690 - 735 (maybe even 750 if I believe certain Reasons letters) and that is because I have never ever missed any payments on any debt product. And, while I've been denied two cards that I wanted in the last several months, in the last year I got another AMEX, US Bank Travel Rewards, two Chase cards, Diners Premier, US Bank Fred Meyer, all at nice limits. That is the basis for my recommendation so often that people not get too wrapped up in micromanaging utilization levels, especially when starting out with a low limit card. The most important factor in your FICO score, bar none, is never ever missing any payments. Utilization levels are just an icing on the cake. Your relationship with the banks that issue your cards is something to be taken seriously and they will like you as a customer.

Cheers!

p.s. I paid an average of $104.49 in interest in November, December, and January.