First you should realize that there are 2 groups that you are trying to impress, and they are to some extent complete opposites.
You want to impress the credit card companies. You want to show them that you have credit cards, that you are using them, and that you are paying them off regularily (ideally every month). These companies will decide if they want to loan you more of their money, and they are concerned with risk, and return on investments, etc. So usually for these companies you want to have your monthly charges report to the credit bureaus, then pay in full before you are charged any interest. And don't use too much of any one card, ie, don't rack the card up close to 100%, that can be interpreted as you are finding it difficult to meet your expenses, etc. Appearing desperate is never good.
The second group you want to impress is FICO. They generate a credit score. They don't loan you money, they don't care about your credit history. All they care about is the present moment, the current snap-shot of your credit risk. They will sum up your entire credit worthiness in the form of a number. And only a number.
So, when you want to 'play the game', remember that you are not just a number (except to FICO, and they don't give you a loan or a credit card, now do they?).
Most of the time, just use your card a reasonable amount, let it report, and immediately pay in full. Create that rich, robust credit report that the credit companies want to see. Sure they look at that Fico number, but thats not all they look at, so give them what they want.
As to the FICO score, why its always fluxuating a bit, so why not try to optimize it right before you apply for more credit. At that time, and only that time, try to get one credit card to report 1% - 9% and the rest of them report 0%. You have to figure out what date each card reports to the credit bureaus and pay off each cards just before that. For some credit cards that will be approximately the date that the new statements are created. For others it will be a different date (example: US Bank and ELAN cards report your balance near the last day of the month).
Its really as simple as that.
@Themanwhocan wrote:First you should realize that there are 2 groups that you are trying to impress, and they are to some extent complete opposites.
You want to impress the credit card companies. You want to show them that you have credit cards, that you are using them, and that you are paying them off regularily (ideally every month). These companies will decide if they want to loan you more of their money, and they are concerned with risk, and return on investments, etc. So usually for these companies you want to have your monthly charges report to the credit bureaus, then pay in full before you are charged any interest. And don't use too much of any one card, ie, don't rack the card up close to 100%, that can be interpreted as you are finding it difficult to meet your expenses, etc. Appearing desperate is never good.
The second group you want to impress is FICO. They generate a credit score. They don't loan you money, they don't care about your credit history. All they care about is the present moment, the current snap-shot of your credit risk. They will sum up your entire credit worthiness in the form of a number. And only a number.
So, when you want to 'play the game', remember that you are not just a number (except to FICO, and they don't give you a loan or a credit card, now do they?).
Most of the time, just use your card a reasonable amount, let it report, and immediately pay in full. Create that rich, robust credit report that the credit companies want to see. Sure they look at that Fico number, but thats not all they look at, so give them what they want.
As to the FICO score, why its always fluxuating a bit, so why not try to optimize it right before you apply for more credit. At that time, and only that time, try to get one credit card to report 1% - 9% and the rest of them report 0%. You have to figure out what date each card reports to the credit bureaus and pay off each cards just before that. For some credit cards that will be approximately the date that the new statements are created. For others it will be a different date (example: US Bank and ELAN cards report your balance near the last day of the month).
Its really as simple as that.
While you don't need to worry about utilization every month I do not agree that the only time you should ever try to utilize properly is right before applying. While its less important, if you keep your score up with proper utilization you may get auto credit line increases (saving you from having to apply for one and take a HP) and you may also get preapprovals for cards you may want helping to take the guess work out of whether or not you may be approved. So while I don't think its extremely critical to worry about your util all the time I would not say that its only beneficial immediately before an app cycle. Its just even more important then that's all.
;
@navyox wrote:To put it another way, let's say you have two identical people, as far as credit profile. Same AAoA, same number of inquiries, same number of accounts, neither has ever been late on a payment or had a collections or BK. They each have one credit card and here is their utilization over the year:
Jan 14 Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
Person 1 20% 25% 30% 50% 25% 53% 60% 34% 20% 34% 22% 1%
Person 2 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%
They both apply for credit in January 2015. They will both have the same score.
That is 99% correct, but it's been anecdotally found that utilization can get you rebucketed but I don't think the utilization numbers you posit here as an example would fall into that category.
@toi34 wrote:@Walt:
How does one know their "sweet spot?"
Lots of experimentation and tracking. If you're not either using Scorewatch or have access to some regular free FICO score (DCU / PSECU / Wally / Merrick / etc. ad naseum) don't bother, and even then I personally don't bother that much because my '08 vs. '04 scores may be different; however, with a mortgage in my future, I should probably go see if I can maximize it for '04... but we're talking about minor point differences anyway. The difference between 1-9% vs an explicit call it 4% sweet spot is going to be minimal.
@Eduardo wrote:Now I am confused because of 2 following statements:
- "Total utilization is the sum of the balances over the sum of the credit lines, and this ideally is kept < 10%, but the utilization on each individual card should also be not too high."
- "try to get one credit card to report 1% - 9% and the rest of them report 0%
So where is the truth? How the utilization is calculated?
Oh, well you're only confused because BOTH statements are true.
FICO scoring takes into acount both the overall utilization, and the utilization of individual cards. You cannot have 10 identical cards, 9 of which are at $0 and one which is maxxed out, and assume that since your total utilization is 10% that FICO scoring algorithms will love you for it. That single 100% utilization would be a killer.
Similarly, if you had a bunch of cards, one of which had a really low limit of $100, and you used $90 if that, but you had some $30,000 of total limits all being unused, you would still be in trouble for that measly $90.
---
Now, the "get one card to report %1 - %9 and the rest %0" comes from people who have tried various combinations in the past using their own cards, and were able to check their FICO scores probably daily, and figured out that this formula usually results in the highest score. It might not be 100% accurate, since different people are in different 'buckets' that weigh the various factors differently. But, we just take it on faith, just like we believe in the Tooth Fairy, Meteorologists, and Flu shots.
@red259 wrote:
@Themanwhocan wrote:First you should realize that there are 2 groups that you are trying to impress, and they are to some extent complete opposites.
You want to impress the credit card companies. You want to show them that you have credit cards, that you are using them, and that you are paying them off regularily (ideally every month). These companies will decide if they want to loan you more of their money, and they are concerned with risk, and return on investments, etc. So usually for these companies you want to have your monthly charges report to the credit bureaus, then pay in full before you are charged any interest. And don't use too much of any one card, ie, don't rack the card up close to 100%, that can be interpreted as you are finding it difficult to meet your expenses, etc. Appearing desperate is never good.
The second group you want to impress is FICO. They generate a credit score. They don't loan you money, they don't care about your credit history. All they care about is the present moment, the current snap-shot of your credit risk. They will sum up your entire credit worthiness in the form of a number. And only a number.
So, when you want to 'play the game', remember that you are not just a number (except to FICO, and they don't give you a loan or a credit card, now do they?).
Most of the time, just use your card a reasonable amount, let it report, and immediately pay in full. Create that rich, robust credit report that the credit companies want to see. Sure they look at that Fico number, but thats not all they look at, so give them what they want.
As to the FICO score, why its always fluxuating a bit, so why not try to optimize it right before you apply for more credit. At that time, and only that time, try to get one credit card to report 1% - 9% and the rest of them report 0%. You have to figure out what date each card reports to the credit bureaus and pay off each cards just before that. For some credit cards that will be approximately the date that the new statements are created. For others it will be a different date (example: US Bank and ELAN cards report your balance near the last day of the month).
Its really as simple as that.
While you don't need to worry about utilization every month I do not agree that the only time you should ever try to utilize properly is right before applying. While its less important, if you keep your score up with proper utilization you may get auto credit line increases (saving you from having to apply for one and take a HP) and you may also get preapprovals for cards you may want helping to take the guess work out of whether or not you may be approved. So while I don't think its extremely critical to worry about your util all the time I would not say that its only beneficial immediately before an app cycle. Its just even more important then that's all.
I don't know, personally I don't count on any auto-CLI's to make my credit report robust: if I need more credit for whatever reason, I'm fine with incurring a HP as most auto-CLI's are on the order of a few hundred and my aggregate lines are already nearing 20K and expanding.
I've also never received a pre-approval for any card I'm remotely interested in, and there's enough anecdotal information here and a few other places for me to make a pretty good judgement as to whether I'll be accepted or not. Yes, maybe as a Chase customer I might get a CSP pre-approval someday, but odds are likely that I can qualify for it easily well before they get around to marketing that to me.
That all said to TMwhocan's point, I don't regularly spend a fantastic amount of money to max out my cards, I only do that occasionally to set a high balance when I have some big payment available (taxes, tuition) and generally my utilization is in the <10% range anyway because I commonly only spend around 1K a month with a max around 1.6K if an insurance payment or car registration is due.
That's me now though nearing 2 years in my positive credit journey: to your point, someone who's just starting likely should pay much more attention to it and get into some practice as it took even me a try or two to get into practice on optimizing my report, and it can be a problem if you screw up when it counts potentially, so it's worthwhile doing when tradeline counts and limits are small, but after a 1-1.5 years, that's not really necessary anymore.
@Themanwhocan: OT but neat idea, two different Cash+ cards with different reward sets, hadn't thought of that 
.
@Ed: TMWC is right - anecdotally there's a FICO penalty for a maxxed revolving tradeline and I think that it's set at 90% (it might be 80, someone will hopefully correct me on that), so even with 100K in limits, if you max out a 1K card, it's going to be a score reduction in addition to the 1% revolving utilization impact.
@Eduardo wrote:Sorry for my stupidity but I am still confused(
If I have 10 cards with the same limit and only one will report 1-9% utilization the total utilization will always be less than 1%. And FICO doesn't like <1%. How can it be the best strategy then?
We'll probably never know the real reason for that.
basically these formulas used by FICO were developed over the years, where they could use statistics (another field of study that we take on faith) to determine if people who do certain bad things like fail to pay back credit cards, or fail to make the credit card companies money, also tend to do certain unrelated things, such as, oh, brushing their teeth only once a day.
Think I'm joking? Ok, a little bit. But consider car insurance. Some places base the premiums you pay in part on your credit score. Now there is no way in the world that when I optimize my FICO by only letting one card report 1% - 9% that I and all the drivers in cars that are around me suddenly become safer drivers. BUT statisical analysis has shown that people with higher FICO scores cost the insurance companies less money in accident claims. So even though you can't convince a 2 year old that it would make any sense, they still believe in their statistics...
So, why is that the best strategy? Because it just is.