High Utilization Score Impact

[IssacFair]

DW, has high utilization ~90% on her Citi DC card... 14.5k CL. Overall credit is about 75k. There are no lates and AAoA 2years. Anyways score dropped from 745 to 705. Is that a reasonable decrease for the high utilization? And if the card is paid off will it go back up to mid 700s?

[SouthJamaica]

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@IssacFair wrote:
DW, has high utilization ~90% on her Citi DC card... 14.5k CL. Overall credit is about 75k. There are no lates and AAoA 2years. Anyways score dropped from 745 to 705. Is that a reasonable decrease for the high utilization? And if the card is paid off will it go back up to mid 700s?

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Yes and yes.

[Anonymous]

That’s a great datapoint for the damage a single maxed out card can do on an otherwise healthy portfolio...

[Anonymous]

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@Anonymous wrote:
That’s a great datapoint for the damage a single maxed out card can do on an otherwise healthy portfolio...

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Enough information hasn't been provided to verify the validity of that data point though.  For one, the OP didn't state what the before utilization was on that 90% utilization card.  Maybe it was 1%.  Maybe it was 60%.  We don't know and that is a crucial piece of information.

Second and even more important IMO is before/after aggregate utilization in addition to knowing the before utilization on that single card.  If an aggregate utilization threshold was crossed, that can easily account for 1/2 to 2/3 of the score drop depending on profile.

[Anonymous]

Very true, I am oversimplifying it. I’d be interested to know the other factors you listed too.

[RobertEG]

While theoretically, once you pay down the high util accounts, you should regain the points lost, there is a "hidden" risk in having high % util.

Some creditors will subsequently do reductions in your credit limit if you maintain a high % util for any extended period.

High % util shows increased risk potential default, and makes creditors antsy.

Thus, high util over any extended period can trigger credit limit reductions.

Credit limit reductions will then prevent you from decreasing your % util as you pay down the debt, as they are decreasing your denominator as you decrease the numerator.

It is unwise to leave high % util, or to have repeated instances of maxing out your cards.

[Anonymous]

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@RobertEG wrote:

Some creditors will subsequently do reductions in your credit limit if you maintain a high % util for any extended period.

High % util shows increased risk potential default, and makes creditors antsy.

Thus, high util over any extended period can trigger credit limit reductions.

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While this may be true, it's extremely rare on a strong profile.  99% of the time someone references a CLD, balance-chasing or any sort of AA it involves the presence of negative information on their credit report, that is, something that adversely impacts the Payment History sector of the Fico pie.  I've known people with strong profiles that have rolled with 7+ revolvers across multiple lenders all at 96%+ utilization (thus aggregate utilization at 96%+) for a period of 12+ months and saw no AA at all, simply because their profiles were clean/otherwise strong. 

I think high utilization and its relation to AA gets blown out of proportion on this forum, simply because most people that reference it don't also reference the fact that they have a weak profile, usually due to dirty file/negative(s) present.  While the high utilization may be the catalyst for the AA in many of these cases, people wrongly post that high utilization is the reason for AA.

From a numerical standpoint, you could quantify it as someone with only high utilization is weak in 30% of their profile, where someone that has high utilization and payment history issues is more than twice as risky, possessing a profile that's weak in 65% of areas.