How do lower 'Credit Utilization'

[Anonymous]

Okay, so for a better Credit Score, keep utilization under some percent.  Some say 10%, some say 30%.

Is there a significant difference between 10% and 30% on how it affects your score?

And utilization per 'account' matters.  So keeping each card under some % is what you should do instead of using 70% of one card and not using others at all?

How do you lower utilization?  Is the only option to just not use the card?  If not, why do they even give such credit limits?

It's ridiculous.

I think I read something about using the card, but to lower credit utilization, pay off the card's balance before the credit card company computes the bill?

Something like that...    Paying the card in full after the bill has been computed, the utilization is already reported... But is it true that you can pay it off early to have it report low utilization?

And define the word "balance"

Currently, what I understand "balance" to be is the amount charged on your card at any point in time.

So, balance is NOT just the amount carried over from month to month due to not paying the credit card bill in full each period?

Or is this not the case?  Is "credit utilization" only the amount carried over? or is it the ratio between the amount charged and the account's credit limit at time of bill computation (or some other point in time)?

Also, is there any resource were credit card terms are clearly defined as opposed to being unacceptably vague as is so prevalent?

[NoAnchoviesPlease]

For a lot of your questions, the answer varies on who's looking, when, and why.

Your credit report looks best if you have low utilization on all cards. Some lenders get tetchy if you have any high util% even if aggregate is low. I had this happen, had a couple of no-comma limit cards nearly maxed, and my >1k cards were pretty low or paid off, and a bank asked why I didn't pay off the $750 card every month. 

If you're worrying about utilization, you're probably trying to increase your score for something, and you'll probably want to pay down all of your accounts as much as possible, before the payment due date. (Most of my creditors will report as of statement date, and the # on my CR tends to be the last statement balance, but I've seen some folks here say it's based on payment due date time, so better safe than disappointed).

Balance is generally what you owe right now--all posted charges and payments on top of previous statement balance. But statement balance (which is usually what's on your credit report) is going to be whatever your balance was when the statement is generated, usually a few days after the last payment due date. 

Utilization is balance divided by credit limit, but again it depends on when you look at those numbers. If you talk to Chase about a Chase card, for example, they see you're using 750 out of 1500 today and your util is 50%. If you talk to BofA and they pull your credit report, they see you were using 1200 out of 1500 on your Chase card at your last statement. Both are correct, just at different points in time. 

Sometimes it doesn't make any sense... I've paid off accounts and had the creditor say I wasn't paying enough of my balance. But generally a bank or credit card company isn't there to make sense to customers, or to help them (although it's a happy accident when they do). 

[takeshi74]

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@Anonymous wrote:

Okay, so for a better Credit Score, keep utilization under some percent.  Some say 10%, some say 30%.

Is there a significant difference between 10% and 30% on how it affects your score?

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Absolutely.  30% is the generally regarded maximum but optimal is around 10% or less.  That's precisely why the general recommendation is "for optimal scoring allow only one card to report a balance with 10% or less utilization".

You can use a CMS and experiment with your reported utilization to see for yourself.

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@Anonymous wrote:

How do you lower utilization?  Is the only option to just not use the card?  If not, why do they even give such credit limits?

It's ridiculous. 

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Nothing ridiculous about it -- you're just not very aware of how credit works.  Your credit limit isn't there for you to use 100%.  High utilization over extended periods of time indicates that one is a credit risk.

Limiting usage is one option but you also need to distinguish between utilization (balance[s]/limit[s]) and reported utilization.  You can use whatever you want and then adjust reported utilization by making payments prior to statement end since that's when balances are reported to the CRA's.  

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@Anonymous wrote:

And define the word "balance"

Currently, what I understand "balance" to be is the amount charged on your card at any point in time.

So, balance is NOT just the amount carried over from month to month due to not paying the credit card bill in full each period?

Or is this not the case?  Is "credit utilization" only the amount carried over? or is it the ratio between the amount charged and the account's credit limit at time of bill computation (or some other point in time)?

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Balance isn't just what's charged to your account.  The balance includes any payments, interest, credits, fees, etc

Meaning depends on context as well.  When someone says "carry a balance" it typically refers to the amount carried over from one cycle to the next.  Current balance is whatever you account is at for the given moment in time.  Statement balance is the balance for the given statement period.

Utilization is just balance(s)/limit(s) at the given point in time.  Whether the balance is carried over or not isn't relevant.  It's still balance(s)/limit(s).

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@Anonymous wrote:

Also, is there any resource were credit card terms are clearly defined as opposed to being unacceptably vague as is so prevalent? 

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I'm not aware of any glossary on myFICO.  The Frequently Requested Threads sticky has some helpful resources:

http://ficoforums.myfico.com/t5/General-Credit-Topics/Frequently-Requested-Threads/td-p/10675

Reading the threads here is useful as well.  Several of the words you're asking about are standard English words.  I've never found any "unacceptably vague" even before I started reading up on credit sites.  There are certainly other resources available that you can refer to but I don't have them memorized or bookmarked and would have to Google.