Not another "what's the ideal utilization" thread!

[Anonymous]

Hi everyone!  Just joined today and I'm really impressed with this forum filled with people with a common goal to improve their FICO scores and nice to see where some of the seasoned members with impeccable scores have come from!

I've done my homework and seen that every case is unique, so I'm not looking to revalidate the common knowledge surrounding ideal credit card balance utilization.  The main two schools of thought I've seen are the old "30%" myth and a more detailed 1-9% overall utilization with less than 50% of credit card accounts having any balance.  Since I can't achieve the latter at this point, I'm going to focus on just reducing my utilization on each account.

I have 12 accounts, of which 6 have been used to carry balances (to take advantage of promotional 0% APRs--I know that the balance transfer fees count for something but with an average fee of 3% spread across 10-12 months, I'll take that over 15-21% all day long!).  4 accounts are used for my day-to-day personal and business usage and are paid in full every months, and 2 are just idly sitting there for a rainy day. Slight tangent--I noticed a lot of people holding the Barclay's card underwriting standards to be pretty high and I agree!  I was declined a few years ago but then a call in and I was manually accepted.  Recenly closed it down because I didn't need the extra credit and I was working on closing down unnecessary accounts.  Once I pay them off, 4 more accounts will be on the chopping block.

My problem is that I've been focused on debt reduction since I haven't had to buy my own home yet, and I haven't cared about my FICO score much, so I paid off my highest interest rate debt first and kept transfering balances on remaining debt, causing those utilizations to be high on those "balance transfer" accounts.

A list might be helpful with limits and % utilization:

- Chase Amazon - $5,000 - 90%

- Chase United Explorer - $5,000 - 86%

- Discover - $7,500 - 73%

- Amex BluSky - $8,100 - 72%

- Credit Union - $10,000 - 32%

- Citi AAdvantage Platinum - $10,000 - 18%

My CU has the highest interest rate of all my debts at 9.9% (that's their regular, non-promotional rate) so I was targeting that while letting the other balances remain high so I could pay them off eventually.  However, when I spoke to a realtor and her mortgage lender today, they said I need to reduce those balances to below 60% right away if I could, to get the best credit score.

Current credit scores with dates and source:

- 701 Experian (3/2015 (no date), from Bank of America's Privacy Assist service -- costs me $10 per month

- 719 TU (same as above)

- 723 Equifax (same as above)

- 705 (3/6/15, FICO from Discover)

- 664 (2/24/15, FICO from Citi)

I'm curious where the last two are from; Citi says it works with Experian to get my score, but according to BoA's service, my lowest Experian score was 686 in Jun 2014; it's been at 701 since Dec 2014.  Discover says it works with TU, but my score was 712 in Dec 2014.

Goal:

My previous goal was to pay off all my debt in a smart way, to reduce my effective APR for all my debts.  Now, my goal is to get the highest credit score because I would like to buy a home in the next 6-8 months.

Conclusion / questions:

So, I need to focus on bringing down the utilization on those accounts with 70%+ and maybe use some of the room on the CU and Citi cards (32% and 18%, respectively).  Or, should i NOT use the room and use my juicy tax return money to only pay off the others and reduce the number of accounts that are carrying a balance?  I suppose I should NOT touch the the 2 accounts that are sitting idle with zero balance, because even though it could bring my high utilization per account down, I would then be reporting more accounts being used (so it's just as bad)?

Sorry for the extremly long post, and thank you to those who took the time to read through, and even more to those who have some advice that might help me focus on the right things!

Cheers!

[Anonymous]

I would keep paying on those accounts as much as you can every month.  I know many say pay the highest apr's first, I would pay the lowest amount off first.  Makes you feel like you got somewhere.  You have all the info correct.  Just be careful not to close your oldest accounts as that will decrease your score.  Let us know how you're doing. 

[Anonymous]

Maybe someone more knowledgeable will correct me, but I think the impact of utilization on your credit score is an "immediate" thing, as in, all that matters is your CURRENT utilization, and when your utilization changes, so will your score.

If that's correct, if you are trying for a mortgage in 6-8 months I would keep on focusing strictly on debt reduction until just 1-2 months before you apply for the mortgage. Only in that last 1-2 months should you worry about optimizing your allocation across your cards -- reducing you overall debt levels will have a LASTING impact on your credit score, whereas the particular configuration in a specific month will be transatory. That said, obviously, if that particular month is mortgage month grab all the transitory benefit you can!

II also want to question how you're going to get a mortgage if you're in debt. Ordinarily you would want to have a sizeable downpayment. Either you're propsoing a very highly leveraged scenario which is pretty risky, honestly, or else you've somehow amassed a down payment that you are NOT using to pay your debts off. In that case, why not pay off your debts, then rebuild the downpayment without having to worry about interest payments?

[Anonymous]

good question, canadian! I do have my 401k which I was thinking of borrowing against for the down payment money and I also have family that's willing to loan me interest-free money for the down payment.  All my discretionary income is going into credit card repayment so we're definitely on the same page there.

the other advice given on paying off smallest balances first to gain momentum--that's really sound advice for most people, but I'm pretty transactional about my situation and focused on reducing costs, so my logic is APR first, then picking low-hanging fruit once all my debts are at the 0% APR level (I'll then target those accounts where the promotional APR expires sooner, etc.).  I have a whole hierarchy in Excel!

Still not clear to me is whether I should use available balance transfer room on 2-3 accounts with current zero balances to bring down the other accounts to below 50% utilization.  The answer to this question would be very helpful!

[Imperfectfuture]

Do not borrow against your 401k. You are too leveraged, why go for best interest rates, when buying a home is one step away from financial disaster? IMHO, you need much more preparation to buy a home.

[takeshi74]

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@Anonymous wrote:

I've done my homework and seen that every case is unique, so I'm not looking to revalidate the common knowledge surrounding ideal credit card balance utilization.  The main two schools of thought I've seen are the old "30%" myth and a more detailed 1-9% overall utilization with less than 50% of credit card accounts having any balance.

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Every case is unique but that doesn't mean that one can't use standard strategies since the factors and their relative weights are roughly known.

Those are not two different schools of thought.  30% is the generally suggest maximum.  1 balance at 10% or less is optimal.  They're two entirely different things even though they are both in regards to utilization.

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@Anonymous wrote:

I'm curious where the last two are from; Citi says it works with Experian to get my score, but according to BoA's service, my lowest Experian score was 686 in Jun 2014; it's been at 701 since Dec 2014.  Discover says it works with TU, but my score was 712 in Dec 2014.

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This is a very common topic.  Scores aren't just a matter of the CRA used as a data source but of the scoring model as well.  See also the Understanding FICO Scoring subforum and its stickies.  In short, you should expect different algorithms used by different scoring models to produce different results -- even when comparing FICO's.

You'll have to confirm what scoring model BofA uses.  Discover provides a TU 08.  Citi provides a FICO 8 Bankcard score.

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@Anonymous wrote:

So, I need to focus on bringing down the utilization on those accounts with 70%+ and maybe use some of the room on the CU and Citi cards (32% and 18%, respectively).  Or, should i NOT use the room and use my juicy tax return money to only pay off the others and reduce the number of accounts that are carrying a balance?  I suppose I should NOT touch the the 2 accounts that are sitting idle with zero balance, because even though it could bring my high utilization per account down, I would then be reporting more accounts being used (so it's just as bad)?

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Prioritize based on reducing utilization.  Get the highest cards down first.  That 90% is probably considered maxed and if it is then you're getting double dinged there.  Get all your cards under 70%, then get them all under 50%, etc.  You can worry about reducing number of balances once you have utilization in check.

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@Anonymous wrote:

Maybe someone more knowledgeable will correct me, but I think the impact of utilization on your credit score is an "immediate" thing, as in, all that matters is your CURRENT utilization, and when your utilization changes, so will your score.

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It is as long as one isn't stuck in a bucket which seems to happen to some.

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@Anonymous wrote:

Still not clear to me is whether I should use available balance transfer room on 2-3 accounts with current zero balances to bring down the other accounts to below 50% utilization.  The answer to this question would be very helpful! 

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You can certainly BT to adjust individual utilization.  It will not reduce overall utilization, of course.  However, if you can't drop utilization by paying balances down then you should probably reconsider the timing of your home purchase.

[Anonymous]

Thank you so much for your replies!

My immediate goals in the next 30 days:

1. Bring my overall utilization, which is 29% ($25,004 out of $86,100), down to 24%

2. Bring my 4 accounts with utilization >50% down to 50% -- 90%, 86%, 73% and 72%

3. To accomplish 2, it will take a combination of lump sum payment and BTs; one thing I hate to do is to use 50% of the limit of a card that is currently zero, and bring up utilization for a card that is currently sitting at 18% util.

Any specific feedback on #3 above is welcome!

[Anonymous]

Could you please elaborate on "more preparation to buy a home"? I'm looking at a $200k property and was planning to put 20% down ($40k). $10k is available from family and I was going to use $30k from my 401k. I don't have any term loans so I thought I'd be able to handle it with my DTI.

[Anonymous]

Are you looking into a conventional loan or FHA?

Is this a home you plan on being in 30 years or more of a 3-5 year deal before upgrading?

[Anonymous]

I'm currently in the process of researching all thing mortgage on the mortgage loans section. Good stuff! I'm looking for a $200k property give or take and only for 3-5 years tops. I've been told I would qualify for better rates so I should stick with conventional. But I am in the process of researching that advice now.