Utilization question- Is it better to spread out charges below 30% or make heavier use of a few?

[Anonymous]

I have 22 credit cards. All are currently at zero balances.

My available limits total about $191,000

I need to spend about about $42,000 on a big marketing project and I'll be able to pay it off within about 6 months. 

My question is whether I should spread the $42,000 out over multiple cards, keeping the utilization below 30% or whether I would be ok taking only a few of the cards to 50% utilization. It seems like having the multiple card balances outstanding might also cause the score to drop, but I don't know what's worse.

Thanks!

[Anonymous]

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@Anonymous wrote:

I have 22 credit cards. All are currently at zero balances.

My available limits total about $191,000

I need to spend about about $42,000 on a big marketing project and I'll be able to pay it off within about 6 months. 

My question is whether I should spread the $42,000 out over multiple cards, keeping the utilization below 30% or whether I would be ok taking only a few of the cards to 50% utilization. It seems like having the multiple card balances outstanding might also cause the score to drop, but I don't know what's worse.

Thanks!

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By "ok" do you mean "I'd be at zero risk of creditors getting worried and taking adverse action"?  (Like lowering your credit limits?) 

Or are you asking whether having cards at their individual utilization of 51% might cause an additional score drop?

If it is only the latter, does it actually matter if there was a small additional score drop?  For example, are you planning to buy a car or a house in the next three months?

PS. You mention that all of your cards are reporting at $0 right now.  Just as an FYI, that causes you to take a score hit.  Your score will be higher if at least one of your cards reports a positive balance.

[Thomas_Thumb]

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@Anonymous wrote:

I have 22 credit cards. All are currently at zero balances.

My available limits total about $191,000

I need to spend about about $42,000 on a big marketing project and I'll be able to pay it off within about 6 months. 

My question is whether I should spread the $42,000 out over multiple cards, keeping the utilization below 30% or whether I would be ok taking only a few of the cards to 50% utilization. It seems like having the multiple card balances outstanding might also cause the score to drop, but I don't know what's worse.

Thanks!

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Hard to say what is "optimal".

I would suggest not reporting a balance on more than 30% of your cards - say 6 cards max in your case. Beyond that best to keep all individual card balances that do report under 50%. 

[takeshi74]

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@Anonymous wrote:

It seems like having the multiple card balances outstanding might also cause the score to drop, but I don't know what's worse.

Revolving utilization generally outweighs number of reporting balances.

It's difficult to guarantee anything either way.  Being at 50% for under 6 months could be no big deal but it probably isn't quite as safe as staying at 30% or less.  How long would it take you to get a 50% card to under 30%?

Why are you worrying over scores?   Are you planning on new credit, CLI's etc in that 6 month timeframe?  Your scores will recover as your reported revolving utilization drops.

[Anonymous]

Huge and sudden utilization spikes are not very favorable looking to creditors.

[too-much-time]

If you get any convenience checks in the mail these days (and I get a lot this holiday season), they can save you a bundle in interest.

[amakol]

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@Anonymous wrote:

Huge and sudden utilization spikes are not very favorable looking to creditors.

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QFT. A $42K jump in balances that's not typically in your normal spending pattern will be noticed.

I would try to spread out the charges as best as I could and forget FICO unless you're also buying a car/home. Otherwise, a bank whose card is one of the ones picked for >50% or >30% utilization may feel it more necessary to lessen their risk. Though you know this is a one-time thing, they don't.

[noobody]

let me put an example

I have 10 cards with 10K CL each same APR, I want to charge 15K and pay it off in 6-9 month

Which scenario get me higher FICO?

#1: 2 cards with 7500 each on Cap1 and rest 0 Balance

#2: 1500 across the board

I would not worry about AA as my score is high enough and no bunch of recently opened accounts, just in case some good deal like 140K Ritz pop up during this period, i can get approved with decent CL.

[Anonymous]

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@Anonymous wrote:

Huge and sudden utilization spikes are not very favorable looking to creditors.

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+1 If you are going to do this on one card, call the ccc and let them know. I did this with Barclay when I made a large purchase on the Ring card (30%), then set up a reoccuring payment. It will be paid off soon and not a problem, so far.

[Anonymous]

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@noobody wrote:

let me put an example

I have 10 cards with 10K CL each same APR, I want to charge 15K and pay it off in 6-9 month

Which scenario get me higher FICO?

#1: 2 cards with 7500 each on Cap1 and rest 0 Balance

#2: 1500 across the board

I would not worry about AA as my score is high enough and no bunch of recently opened accounts, just in case some good deal like 140K Ritz pop up during this period, i can get approved with decent CL.

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Great question, Noobody.  I like the way you made it a specific thought-experiment.

The answer is: neither #1 or #2 is probably best.  Best would be three cards at $5000 or four cards at $3750. 

There are three relevant FICO factors in this thought-experiment:

(a) Total utilization

(b) Utilization on each card considered by itself

(c) Number of cards showing a positive balance

(A) is the same in all scenarios so we can ignore it.  (B) matters a lot the closer a card gets to being maxxed out.  Thus two cards at 75% might have a significant (though not huge) impact.

In your experiment you want to balance factor B and C.  You want as many cards reporting $0 as possible, but not so many as will cause the cards that do report to have a high utilization.

My guess is that three cards at 5k is the sweet spot for the situation as you defined it.

One final thought.  The set of priorities as you defined them were to be solely interested in the FICO impact.  If you broaden that very slightly to include "credit scoring impact by potential future lender" then you should at least be aware of the following.  In the past there was no downside at all (aside from paying interest) to placing money on credit cards and then slowly paying it off.  Starting next year, however, that is expected to change.  Lenders will be able to see if you have "carried a balance" like that in the past, and if you had, they may consider that a drawback in deciding whether to lend to you.

Here is a recent discussion about that:

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Utilization-per-card-or-overall/m-p/43534...