Credit utilization and your FICO score

[kade6767]

If my utilization was about 80% and I've now dropped it down to just under 10%, how much will this affect my score? Will it rise after its reported for a couple of months?

[Anonymous]

---

@kade6767 wrote:
If my utilization was about 80% and I've now dropped it down to just under 10%, how much will this affect my score? Will it rise after its reported for a couple of months?

---

Utilization has no memory. The moment the utilization changes, the score changes. Most major CC issuers report to the credit bureaus once a month, often around the statement cut date. If you pay off the balance before the reporting date, your score will fix after the report is made. You don't have to wait a couple of months for a score change based on utilization. 

Utilization effects your score in two ways. First, individual utilization of a single card, and second, the overall utilization across all your cards. Ideally, you want every card but one to have a zero balance and one card to have over 0 but under 10 percent utilization. With that said, multiple cards with low (under 10%) utilization will not significantly hurt your credit score, but even a low limit card over 10% (especially over 30%) will start hurting your score. 

As for the impact on your score, the higher your score the bigger the impact paying down your utilization will have. Why? Higher scores are more impacted by negatives like high utilization and thus fixing the negative will have a bigger impact. No one can tell you how much without more information, but even with an average credit profile you will likely see a 30-50 point score change. Given extremely high or low credit scores you could see larger or smaller impacts respectively. 

Note regarding utilization having no memory - If you could freeze every aspect of your report (including time) and just change utilization and you jump from 9% to 80% utilization and back to 9%, your score will be identical. However, in practice this is rarely the case. This is because FICO scoring is dynamic and the weight of any one category changes as your credit profile changes. While utilization impacts the average person by 30% of their credit score, this is not the case for well over 99.9% of the population. Why? Almost no one is the average person. The weight any single category has on your score is dynamic and changes as your credit profile changes. Even something as small as a slightly changed AAOA could impact the effect utilization has on your score. Thus, some people mistakenly believe that fixing utilization does not completely fix your score because they lose 40 points when they increase utilization and gain 30 points when they pay it back down. While they think nothing has changed about their credit profile, even something as small as time (changed AAOA) could account for the difference by changing how individual categories are weighted. 

[scorewatcher7]

---

@Anonymous wrote:

---

@kade6767 wrote:
If my utilization was about 80% and I've now dropped it down to just under 10%, how much will this affect my score? Will it rise after its reported for a couple of months?

---

Utilization has no memory. The moment the utilization changes, the score changes. Most major CC issuers report to the credit bureaus once a month, often around the statement cut date. If you pay off the balance before the reporting date, your score will fix after the report is made. You don't have to wait a couple of months for a score change based on utilization. 

Utilization effects your score in two ways. First, individual utilization of a single card, and second, the overall utilization across all your cards. Ideally, you want every card but one to have a zero balance and one card to have over 0 but under 10 percent utilization. With that said, multiple cards with low (under 10%) utilization will not significantly hurt your credit score, but even a low limit card over 10% (especially over 30%) will start hurting your score. 

As for the impact on your score, the higher your score the bigger the impact paying down your utilization will have. Why? Higher scores are more impacted by negatives like high utilization and thus fixing the negative will have a bigger impact. No one can tell you how much without more information, but even with an average credit profile you will likely see a 30-50 point score change. Given extremely high or low credit scores you could see larger or smaller impacts respectively. 

Note regarding utilization having no memory - If you could freeze every aspect of your report (including time) and just change utilization and you jump from 9% to 80% utilization and back to 9%, your score will be identical. However, in practice this is rarely the case. This is because FICO scoring is dynamic and the weight of any one category changes as your credit profile changes. While utilization impacts the average person by 30% of their credit score, this is not the case for well over 99.9% of the population. Why? Almost no one is the average person. The weight any single category has on your score is dynamic and changes as your credit profile changes. Even something as small as a slightly changed AAOA could impact the effect utilization has on your score. Thus, some people mistakenly believe that fixing utilization does not completely fix your score because they lose 40 points when they increase utilization and gain 30 points when they pay it back down. While they think nothing has changed about their credit profile, even something as small as time (changed AAOA) could account for the difference by changing how individual categories are weighted. 

---

I wanted to respond to the original post, but you nailed it. Well put. You went over the ambiguity factor of the algorithm; the fact it takes in so much information at any one time that its hard to say if increase(decrease) in utilization warrants the point fluctuations one would expect. 

[tufa4311]

---

@Anonymous wrote:

---

While utilization impacts the average person by 30% of their credit score, this is not the case for well over 99.9% of the population. Why? Almost no one is the average person.

---

Are we sure about this? You're saying that a large increase/decrease in UTIL will only affect 0.1% of the population's credit scrore in a dramatic way?

[scorewatcher7]

---

@tufa4311 wrote:

---

@Anonymous wrote:

---

While utilization impacts the average person by 30% of their credit score, this is not the case for well over 99.9% of the population. Why? Almost no one is the average person.

---

Are we sure about this? You're saying that a large increase/decrease in UTIL will only affect 0.1% of the population's credit scrore in a dramatic way?

---

@I think the point that @Anonymous was trying to make was that there's a credit mix so seemingly where utilization should yield the 30%, its not finite. 

[bdhu2001]

---

@kade6767 wrote:
If my utilization was about 80% and I've now dropped it down to just under 10%, how much will this affect my score? Will it rise after its reported for a couple of months?

---

As the previous person who posted mentioned, utilization has no memory. The reason people tell you that your payments will reflect within 2 months is because your PIF date and the date that the credit card company reports to the CBA isn't the same.  For instance my FNBO due date is the 20th the statement closed date is the 24th, but it reports to the CBA on the 7th.  Thus, if I PIF on the 10th of February, it will not show up until a CBA report pulled after March 7th.  If I get my FICO  reports on 5th of each month, then it won't reflect until my April report.

In other words, it's not just when you PIF.  It's when your creditor reports it to the CBA and when reports are pulled from CBAs. For mortgage lenders, it seemed that they were always pulling information that was a month behind (At least that's what it felt like when I was house hunting).

[Anonymous]

---

@tufa4311 wrote:

---

@Anonymous wrote:

---

While utilization impacts the average person by 30% of their credit score, this is not the case for well over 99.9% of the population. Why? Almost no one is the average person.

---

Are we sure about this? You're saying that a large increase/decrease in UTIL will only affect 0.1% of the population's credit scrore in a dramatic way?

---

Source: http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx

Relevant quote: "These percentages are based on the importance of the five categories for the general population. For particular groups—for example, people who have not been using credit long—the relative importance of these categories may be different."

I don't mean to say only 0.1% of the population will be effected in a dramatic way. I mean to say that for most people the effect is either more or less than 30%. It might be 30.5% or 29.5% or maybe even 45% or 15%. The variance is proprietary and we don't know it. We just know the impact varies. Moreover, given how big the same factor can swing a high score and how little it effects a low score, the variance is likely a lot more than going up to 45% or low to 15%. For someone with a 500 score due to a recent BK, maxing out utilization usually has very little effect. But for someone with an 800 score it will likely drop the score by well over 100 points. If utilization always had a 30% impact then your score gain or loss from utilization should be fixed. The loss of score going from 5% to 85% utilization should be exactly the same whether you have a score of 500 or 800. 

Simply put, the 30% breakdown for utilization only applies to the average person. Statistically, the average person is amost non-existant. Even people with "average" scores can reach it in so many ways. If utilization had a fixed 30% rate for everyone, then change in utilization would have the same effect on everyone. The same would apply to things like payment history and derogs. Even without the information in the above quote, the variable movement of FICO scores is in itself a sign that the impact of any one category is different for different people. While utilization effects the average person by 30%, for some it has a higher and for others it has a lower effect. 

[takeshi74]

---

@kade6767 wrote:
Will it rise after its reported for a couple of months?

---

No, your score will change as the data is reported.  Scores are generated using the data in your reports.  As mentioned above, lag is typically due to the reporting dates of your accounts.  While some creditors perform a midcycle update for 0 balances most will just report on the day of the month that they usually report.  Most credit cards report on statement date but some do report on fixed dates other than the statement date.