Question about how payoffs affect utilization

[Anonymous]

Hello. I'm new to myFICO and have been browsing through the great info here. I want to make sure I'm clear on one point with respect to utilization before I take action. Here's a simplified scenario to help clarify my question: A person has two credit cards. Card A has a $4,000 balance, $5,000 limit, and 10% rate. Card B has a $4,000 balance, $5,000 limit, and 20% rate. The person has $3,000 in available cash and wants to payoff the credit cards in a way that will have the most beneficial impact on his FICO score. Should he (Option A) pay $1,500 on Card A and $,1500 on Card B, or (Option B) pay the full $3,000 towards Card B? Before the payoff, he has an 80% utilization on each card and in total. After Option A, he would have a 50% utilization on each card and in total. After Option B, he would have an 80% utilization on Card A, a 20% utilization on Card B, and a 50% utilization in total. Option B makes the most financial sense because he'd be applying the full payoff to the highest rate card and saving on future interest payments. But would the impact on FICO score be the same as Option A? Thanks for any input!

[PayYouNever]

Your UTL is your total available credit against your total balances... i don't think the "mix" really matters, but you should pay off the one with the high APR, then ask for a reduced APR after a month or two.

[Anonymous]

FICO scores you on overall utilization (total balances divided by total CLs) as well as individual utilization.  So, in your example, all else equal, you can get a higher score with lower balances on two cards than you could with a higher balance on one and a very low balance on the other.

You are correct that in order to save the most money in finance charges and to pay down your debt the fastest, you want to pay as much as you can towards the card with the highest APR, then once that's paid off, snowball the payments onto the other card(s).  Unfortunately, whatever makes the best fiscal sense is not always the action that makes the best FICO sense.

Hope this helps.