Less Than 1% Micro-Utilization: Helpful or Pointless?

[pdxuser]

Skip to the second paragraph if you just want the question. I'm trying to figure out what store card I want to put in my credit mix, and I'm questioning whether I should get one at all. My favorite grocery store (Whole Foods, offers food I can't get elsewhere) doesn't offer one. And other than my grocery store, there isn't a store I shop at frequently. I basically buy food and pay rent and utilities, that's it. And I don't want to start a new spending habit just to show credit activity. I've called all the utility companies I use, and none of them can be paid through a major retail chain. However, I can buy a prepaid cell phone card every other month at a major retailer with a store credit card. T-Mobile offers rates as low as 10c/minute on prepaid cards (depending on a couple factors), which is actually cheaper than my current rate plan, based on my usage. I can even lower my usage a ton with free VoIP and just opting to email people rather than call them. And at certain stores, I hear the cards are sold at as much as 20% off their face value, so the rate becomes 8c/minute.

So, here's the question: if I get a store credit card only for the "credit mix" (not for overall utilization, I can easily keep that low) and I only use it every other month at less than 1% of the CL, is that really any better than having a store card that's never used, or not having a store card in my credit mix at all? I currently have no credit and I'm planning to start out with a secured card through my credit union and a store card, hopefully adding a prime card in six months. Having and using credit cards is not my goal at all -- my goal is a good mortgage rate in a year. I could easily keep my overall CC and per-CC utilization at or below 1%, jumping from one to the other from month to month to keep each "active" without having more than half my cards with balances in any given month. And I'm fine with low CLs, but I'm not sure if low CLs -- even if util is also low -- hurts either my FICO score or my chances with a mortgage lender.

[Anonymous]

having a card that is open with a 0 balance is reported the EXACT same way as if the current payment obligations are met, think about it your min payment is 0 because your balance is 0 and you made a 0 payment, your acct is in good standing :-)  you dont really need any store credit cards in the mix if you already have it open dont close it but there is not a real need to have one.

Message Edited by dodgeman on 02-23-2008 10:32 PM

[Anonymous]

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dodgeman wrote:

having a card that is open with a 0 balance is reported the EXACT same way as if the current payment obligations are met, think about it your min payment is 0 because your balance is 0 and you made a 0 payment, your acct is in good standing :-)  you dont really need any store credit cards in the mix if you already have it open dont close it but there is not a real need to have one.

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This is true, except it should be mentioned that a card that shows no activity for some number of months in a row will be excluded from FICO utilization calculations, and will eventually be closed by the creditor for inactivity.

It's a good idea to give all your cards a little action every three months or so, even if it means just using them to buy a cheeseburger.

[pdxuser]

Thanks, I've actually decided since I wrote that post to skip getting a store card, since it would only help on the margins, and I clearly didn't have a need for one. But I am still wondering if less-than-1% utilization would be seen as a positive or if it would just look trivial.

[haulingthescoreup]

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@pdxuser wrote:

Thanks, I've actually decided since I wrote that post to skip getting a store card, since it would only help on the margins, and I clearly didn't have a need for one. But I am still wondering if less-than-1% utilization would be seen as a positive or if it would just look trivial.

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I usually have less than 1% overall util, but that's generally because I have a lot of available credit, and I actually have to work to get as much as 1% to show.

I do think that there's a final special prize to have overall util at 1%, because my scores just seemed to climb absurdly fast once I got there. For someone like you, with a thin and short file (not many accounts and not for very long), I don't know that you would see any effect. This is because we're in completely different score buckets. It ought to impress the heck out of potential lenders, though.

edit to add: we really need to get ilovepizza on this question. He was trying to figure this out last fall, and I don't know if he ever came up with a definite answer.

pizza, you out there?

Message Edited by haulingthescoreup on 02-24-2008 08:19 AM

[Anonymous]

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pdxuser wrote:

Thanks, I've actually decided since I wrote that post to skip getting a store card, since it would only help on the margins, and I clearly didn't have a need for one. But I am still wondering if less-than-1% utilization would be seen as a positive or if it would just look trivial.

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When you see the 1-9% ideal that people mention, it's not exactly literal.  I interpret it to mean greater than $0 but less than 10%.  I believe less-than-1% util would be scored the same as 1%.

[Dawn]

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dodgeman wrote:

having a card that is open with a 0 balance is reported the EXACT same way as if the current payment obligations are met, think about it your min payment is 0 because your balance is 0 and you made a 0 payment, your acct is in good standing :-)  you dont really need any store credit cards in the mix if you already have it open dont close it but there is not a real need to have one.

If the OP is planning to have 2-3 cards and maintain $0 balances on any of them, there is another consideration.

Some FICO scoring models deduct points for not having enough revolving credit reporting balances.  I'm sure the exact circumstances will vary from one portfolio to another, but I did recently see a 15 point drop that appeared to have been because I only had 1 revolving balance reporting instead of the 2 that were reporting when the prior score was obtained.

[pdxuser]

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Dawn wrote:

If the OP is planning to have 2-3 cards and maintain $0 balances on any of them, there is another consideration.

Some FICO scoring models deduct points for not having enough revolving credit reporting balances.  I'm sure the exact circumstances will vary from one portfolio to another, but I did recently see a 15 point drop that appeared to have been because I only had 1 revolving balance reporting instead of the 2 that were reporting when the prior score was obtained.

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Out of how many cards?

[Dawn]

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pdxuser wrote:

Out of how many cards?

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I have three cards that are currently reporting to the CRAs.

I have five cards that are still open but haven't been reported/updated in years.

Last updates on these old, unused cards:

1998

1999

2003

2003

2003

[jsmith12345]

This is interesting, I've never heard this before.  So if I don't use a card for a year it will not count in my utilization?  I have several zero balance cards that I never use, but I'm pretty sure they're reporting as part of my utilization overall % or at least that's what I thought....

Message Edited by jsmith12345 on 02-25-2008 03:08 PM