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, andonly 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.
Can we all agree that 1% is definitely better than 10%? The lower while not zero, the better. The 10% rule is an urban myth (I would love to be proved wrong on this).
@HiLine wrote:Can we all agree that 1% is definitely better than 10%? The lower while not zero, the better. The 10% rule is an urban myth (I would love to be proved wrong on this).
Not necesarilly. I recall someone on another credit card blog, who claimed he tested it out and for him, leaving about 3-4% on one card was better than 1% or 10%, etc.
But the problem is, we don't know what Bucket he is in. We don't know what other factors might modify it. If you have no "prime bankcard accounts", then is 1% utilization best, versis someone with 3 Prime bankcard accounts (defined as 10K or greater credit limits) maybe 5% is best? Does the optimal usage depend on how many inquiries you have, or if the card showing the utilization is from a sub-prime company?
I think that once your one card is below 10%, that even though I expect there to be variance in how much the actual value affects your Fico score, the amount of variance is going to be relatively slight. But we just don't know. People with long credit histories and thus very high fico scores, have more to lose from minor dings. People with very short histories also see high impacts from minor dings to their credit. So, do we say that certain factors start out impacting your score a lot... then not so much... then start impacting it a lot again? And if so, how in the world do we quantify that?
I think we can all agree... to disagree.
@Anonymous wrote:
@Themanwhocan wrote:
@HiLine wrote:Can we all agree that 1% is definitely better than 10%? The lower while not zero, the better. The 10% rule is an urban myth (I would love to be proved wrong on this).
Not necesarilly. I recall someone on another credit card blog, who claimed he tested it out and for him, leaving about 3-4% on one card was better than 1% or 10%, etc.
But the problem is, we don't know what Bucket he is in. We don't know what other factors might modify it. If you have no "prime bankcard accounts", then is 1% utilization best, versis someone with 3 Prime bankcard accounts (defined as 10K or greater credit limits) maybe 5% is best? Does the optimal usage depend on how many inquiries you have, or if the card showing the utilization is from a sub-prime company?
I think that once your one card is below 10%, that even though I expect there to be variance in how much the actual value affects your Fico score, the amount of variance is going to be relatively slight. But we just don't know. People with long credit histories and thus very high fico scores, have more to lose from minor dings. People with very short histories also see high impacts from minor dings to their credit. So, do we say that certain factors start out impacting your score a lot... then not so much... then start impacting it a lot again? And if so, how in the world do we quantify that?
I think we can all agree... to disagree.
You are saying this like is some impossible thing to test. Today, with all the proliferation of free and cheap FICO scores, you can test different scenarios. I did it, and in three months concluded that 1% reporting on one card was best. Do it yourself! It's not complicated. It just takes a little discipline and a few months later, you will know what to do to maximize YOUR SCORE for decades to come, or until they alter the present algorithm.
I'm saying it like it is an impossible thing to advise others on. I do not know for certain if 1% is better than 3% for me. And If I do make that determination for myself, I cannot be certain that calculation will still be valid for me in another 6 months when my AAoA passes some arbirary multiple of 2 years or whatever. And I certainly can't be sure that my calculation holds true for those new to credit, or those with very low FICO scores due to various types of baddies, etc, etc.
By the way, have you tested your 1% calculation on FICO 04, FICO 08 and the new FICO 9 algorithms? Does it hold true for fico scores generated for morgages, and car loans, and student loans? And was each test done using the same average age of accounts, and same credit report age?
Hey, I think what you are saying makes logical sense. But I just have no way of proving it. I could prove that 1% was best for me, but not if it will still be in the near future.