Effect of heavy use, zero balance vs moderate use tiny balance on score and future limits

[visualfxpro]

Has anybody done any testing on the effect of various strategies reguarding how much you charge vs how munch you carry in terms of effect on score? For example, what would give you the highest score:

[$3000 Limit unsecured card for months]

1) Charge $3000,a month but never carry a balance

2) Charge $6000, a month but never carry a balance (example: Jan 1st charge $2999, Jan 2nd pay $2999, $0 balance reported for January)

3) Charge $300/month and never carry balances

4) Charge $300/month, carry less than $50 average per month

5) Charge $1000/month, carry less tahn $50 avg per month
6) Charge $1000/month, carry nothing

Love to hear your thoughts and experiences. Also, if your scrore was 680 and you were going to buy a house in 4 months and wanted to have 720+ score and you had 4 credit cards with $500 average limits and $3000, highest limit, what would you do?

I'm tempted to not even use my cards at all. Lowers risk of missed payment and 3-4 months of no activity is not long enough to risk the account. That would be 4 months of $0 balance and $0 charges.

BTW, my thinking on charging a lot but not carrying is I'm trying think about how their limit formulas might work. Whatever formula they use is going to predict your ability to pay and spending habbits. If I'm looking at a guy spending $3000 a month on a $3000 limit card who never is late and never carries more than maybe $50 balance, I'm thinking this guy NEEDS  a MUCH higher limit AND he can handle it. He never uses more credit than he needs. Yes, he spends $3000 on $3000 card, but he HAS the money and pays FULL balance right away. This shows for a fact the person has the ability to pay $3000 a month easily. This means, I could give him a $30k limit and he could continue spending like he is and only use 10% of limit AND I might get him to spend even more and hopefully have him start carrying a bit of a balance so I can get some interest. The nevers pending more than he has, tells me customer is disciplined. 

I just think a record of spending and paying of $3000 a month shows discipline and financial ability. No guess work needed. I can SEE what kind of money they have to pay bills. A guy with same card that never carries a balance BUT never charges more than $200, has not demostrated ability to pay the type of bill a large limit card can give.

[satio]

In terms of FICO scoring, to my understanding there is no effect of larger spend and payoff before report date to CRA from a creditor in terms of the actual FICO score model itself.

Spending $3000 and paying it to zero prior to report date vs spending $6000 and paying it to zero, to my understanding, will not make a difference in the FICO score model.

On time payment history, account balance utilization for each account and overall utilization at the time of reporting to a CRA are what effects FICO score.

To maximize score, leaving a small balance on a single account with the others remaining 0 at time of being reported to CRA is the best practice when preparing to seek credit. 

When all CC accounts are zero, there is a "small penalty" in scoring model for not utilizing any credit.

[FireMedic1]

You can use your cards all you want and get the rewards. Its your profit margin. Banks make profit from you using their cards. You should do the same. FICO doesnt score how much you swipe. Its whats reported on statement date. I notice the never carry a balance. If you pay off all your cards. Then you get a score hit avg 15-20 pts because FICO thinks your not using your credit. You mentioned house buying. Its best to have 1 card report a balance of <8% each month while paying all the others off. Or AZEO as we say. It is in your advantage to use your cards as you say you do because this will help with CLI's. Dont use them why give CLI's? So your doing ok. But never have all cards report $0 balance.

[OmarGB9]

As mentioned already, it doesn't matter scoring-wise how much you spend or don't spend. The only thing FICO cares about is what balance is reported to the bureaus monthly, so what is your balance at the end of your billing cycle. That's what's reported and that's what will actually affect your score. If you don't use your cards at all and have them all report zero balances, that's your prerogative, but just know you are actually *hurting* your scores because you'll be hit with the "All-Zero" penalty, which, as @FireMedic1 mentioned, can cost you 15-20 points. Maybe more. So my advice would be to continue to use your cards, or at least one of them however you want, just be sure to pay it down to less than 9% of it's limit (so less than $270 on your $3000 card for example) before the billing cycle ends. Then after your new statement generates, simply pay off that balance to zero. If you're worried about missed payments, set up autopay to pay in full maybe a week before the due date.

[visualfxpro]

---

@satio wrote:

In terms of FICO scoring, to my understanding there is no effect of larger spend and payoff before report date to CRA from a creditor in terms of the actual FICO score model itself.

---

OK, thanks for feedback however I was also wondering about limit increases. The point of spending a lot and paying off is to demostrate you are capable of handling a MUCH larger limit. A guy who spends $3000 a month and always has no balance on a $3000 limit card can clearly handle maybe even a $10k limit card.

If I were a programer writting an algorithim to calculate a good limit for a customer, I'd for sure factor that in. Think about the opossite approach. If a person with a $3000 limit card spends no more than $10 a  month, why would you increase the limit?

[visualfxpro]

---

@FireMedic1 wrote:

. It is in your advantage to use your cards as you say you do because this will help with CLI's. Dont use them why give CLI's? So your doing ok. But never have all cards report $0 balance.

---

Thank you, that is what I thought. I even had Capitol One tell me something simular. They said something about me not using much of my limit might discourage limit increases.

The other data point from heavy charging with no balance or <2% of limit balance is you are demonstrating that the card limit is very inapropriate. If you don't increase the limit, you could lose customer as you have them with 10 kids in a 1 bedroom apartment. You can make it work, but you gonna jump on the first 4 bedroom you can afford.


And also they need to gauge how you handle credit. Let's say you don't every use the card. Then they know almost nothing about your credit skills, so it's risky to give you more. If you only use it 2%, then they have a LITTLE data, but your balance is so low that even a person bad with money can pay that off without thinking. The REAL lessons I'd think comes from really running up large balances, but not carrying. Every month you do this, you are giving TONS of data to credit company. They are actually see exactly how you handle credit. If you have $3000 charge you pay right away, which means you have $3000 to spend, which means you only charge what you know you can afford. So I'd feel comfortable and compelled to give you a really high limit. I'd give $10k and then observe. If you start spending $10k a month and never carry balance for months. I'm giving you $20k. I would not stop until I start seeing you carry balances and it starts to trend up or just in general seems to be a constant thing.

[visualfxpro]

Great advice guys! I'm going to run some experiments and let you know the results. Probably pick cards with less limits than I spend a month so I can spend the limit or more but never carry. I'd probably try something like:

$500 limit card
Begin month
Charge  $500

Pay $500
Charge $500
Pay $500
Month end with $0 balance

So this demonstrates you need a card that will allow for $1k in spending a month comfortable. So maybe they are pushed to  give you $1k+ limit. With spending like that $2k-$3k actually makes sense.

Wait a minute, I should consider the bank's style. Like best to do this with a bank that is more friendly to limit increases.

So which cards would you try this with? Wells Fargo($500), Capitol One ($750), Bank of America($3000) or TD Bank($1000)?

[FireMedic1]

If you have a Cap1 Plat or QS. They are considered bucket cards and dont do much in the CLI dept. I'd go with any of the other 3 for your experiment. Good Luck!