Utilization?

[Onwards]

Hi all,

I'm a newbie here, and I really appreciate the guidance I've received already.

I'm working on learning, and I have a question about the term "utilization." Does this apply only to credit cards, or does it also apply to lines of credit (e.g., second mortgage)? For instance, if I have a line of credit that's pretty much maxed out but credit cards with low utilization, is my "utilization" considered high?

Sorry for this very basic question. If someone can point me to a resource on these boards that explains this, I'd be very grateful.

Thanks! 

[MarineVietVet]

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@Onwards wrote:

Hi all,

I'm a newbie here, and I really appreciate the guidance I've received already.

I'm working on learning, and I have a question about the term "utilization." Does this apply only to credit cards, or does it also apply to lines of credit (e.g., second mortgage)? For instance, if I have a line of credit that's pretty much maxed out but credit cards with low utilization, is my "utilization" considered high?

Sorry for this very basic question. If someone can point me to a resource on these boards that explains this, I'd be very grateful.

Thanks! 

---

Although utilization of installment accounts (mortgages, car loans, student loans, personal loans, etc.) is scored it is a very small part of the total equation.

30% of your total score is based on revolving credit utilization (total balances owed divided by total available credit). This applies to most cards but there are exceptions for No Preset Spending Limit Cards.

FICO looks at both overall and individual account utilization.

LOC's (Lines of Credit) are usually considered revolving credit. However some LOC's are scored as installment if it is a certain amount. I've read here that amount is perhaps anything over about $35,000 to $40,000. Do you have something like a HELOC?

Does this answer any of your questions?

From a BK years ago to:
EX - 9/09 pulled by lender 802, EQ - 10/10-813, TU - 10/10-774

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".

[Onwards]

Hi,

Thanks so much for your reply. Yes, that does help a lot.

I do have a HELOC. Right now the balance is around $149,000 on a $150,000 credit limit (which is so high it makes me wonder if there's any point at all in my wondering about utilization, if you know what I mean). I've been paying more than the minimum payment on that for several months now, but realistically I'm not going to be able to pay it down significantly very soon unless I hit the lottery. And since I don't play the lottery....

So I guess the question is whether the HELOC is regarded as an installment loan or revolving credit, right? Is there any way I can find out about my particular case?

Thank you very much for your patience. This is quite a complex world to try to understand, but I'm totally committed to repairing my credit and changing my life.

[RobertEG]

HELOCS at that level, per statements by Fair Isaac, are not scored by them under revolving % util, primarily because they are secured lines of credit.

Util of credit is scored, under somewhat nebulous and proprietary levels, by FICO.  The only really concrete, public information from Fair Isaac is that, overall, in weighting of total fico score, it generally accounts for about 30% of your overall scoring.

So how does FICO break down your utiliization?  in my opinion.........  it is much more complex than just overall % util.

Both revolving (CC) and installment credit is scored under utilization of credit.  Every public post by Fair Isaac, and confirmed by anecdotal experiences on here, makes it pretty clear that, reagarding the 30% overall weighting of utilization, the VAST majority of the impact is devoted to util of revolving credit.

My anecdotal experience is that is somewhere around 90% weight of that 30% overall for revolving, and 10% of that 30% overall for installement % util.

It then breaks down into a guess of how FICO calculates util of revolving credit.  Fair Isaac, in public webinars a couple of years ago, stated that they score approx half of your revolving % util based on overall % revolving util, with the other half being based on a look at util of individual revolving accounts.

30% of the max FICO score of 850  gives approx 255 pts for util.  Assuming that 90% of that 255 is devoted to revolving % util, that leaves approx 230 pts for revolving util scoring.   If half of that is devoted to overall % revolving util, that is 115 pts based on the level of overall revolv % util.  That is huge.

The remaining 115 pts is then scored based on the combined affects of your util of your indiv revolving accounts.  FICO has also stated they look at the % util on each individual account, and also at the % of total accounts that are currently reporting a balance over $0.  Thus, take the sample of an CR with four open revolving accounts, three of which are reporting a balance at the end fo the reporting period.  That amounts to five sub-categories of indiv revolving account util (util on each of the four, plus the % of cards reporting any balance)  155/5 = aprox 31 pts for each.

I know that these are rough approximations based on assumptions, but I think they convey the overall impact, based on what has been generally disclosed about FICO scoring.

Overall % revolving util is around 115 pts in weight.

% util of each individual revolving account is around 31 pts in weight.

% of cards showing balances is around 31 pts in weight.

% util of installment credit is around 26 pts in weight.

That is my view.

[MarineVietVet]

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@Onwards wrote:

Hi,

Thanks so much for your reply. Yes, that does help a lot.

I do have a HELOC. Right now the balance is around $149,000 on a $150,000 credit limit (which is so high it makes me wonder if there's any point at all in my wondering about utilization, if you know what I mean). I've been paying more than the minimum payment on that for several months now, but realistically I'm not going to be able to pay it down significantly very soon unless I hit the lottery. And since I don't play the lottery....

So I guess the question is whether the HELOC is regarded as an installment loan or revolving credit, right? Is there any way I can find out about my particular case?

Thank you very much for your patience. This is quite a complex world to try to understand, but I'm totally committed to repairing my credit and changing my life.

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You should be able to look at your credit reports to see how this is listed. It should say either "revolving" or "installment" account. I'm pretty sure that yours is probably being scored as installment which helps you.

If you buy your scores here at myFICO one of the things it will list is your revolving utilization. I think you'd be able to tell right away if a $150,000 credit limit was included in this calculation.    If you do decide to buy them here I suggest you do an internet search for "myfico discount codes" to save a little money.

From a BK years ago to:
EX - 9/09 pulled by lender 802, EQ - 10/10-813, TU - 10/10-774

"Some people spend an entire lifetime wondering if they've made a difference. The Marines don't have that problem".