0 balance vs 10 percent utilization

[Anonymous]

Ok so my mortgage broker said that I  dont quite have enough revolving credit to get my scores high enough for my loan and he ran an analizer and it said that I need to open a credit card and let it sit at a 0 balance for a month and that would give the best possible increase. Wouldn't it make more sense to put a 10 % uitilization on it to show usage? I have not always gotten the best advice from brokers and this sounds a bit off to me.

Thanks in advance for any help

[Anonymous]

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@Anonymous wrote:

Ok so my mortgage broker said that I  dont quite have enough revolving credit to get my scores high enough for my loan and he ran an analizer and it said that I need to open a credit card and let it sit at a 0 balance for a month and that would give the best possible increase. Wouldn't it make more sense to put a 10 % uitilization on it to show usage? I have not always gotten the best advice from brokers and this sounds a bit off to me.

Thanks in advance for any help

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No part of that advice is sensible to me.  The hit from a credit inquiry and the lowered AAoA will take effect immediately.

If you have an existing credit card, you would be much better off trying for a CLI than opening a new card.  You need to find out the "actual" concern that the bank has in terms of not giving you a loan.  "enough revolving credit" could refer to age of accounts, number of accounts, utilization, number of payments, etc.

[pizzadude]

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@Anonymous wrote:

No part of that advice is sensible to me.  The hit from a credit inquiry and the lowered AAoA will take effect immediately.

If you have an existing credit card, you would be much better off trying for a CLI than opening a new card.  You need to find out the "actual" concern that the bank has in terms of not giving you a loan.  "enough revolving credit" could refer to age of accounts, number of accounts, utilization, number of payments, etc.

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+1.   With revolving utilization, the best starting point to optimize your scores is usually have a single card reporting a small balace ( less than 9%).     I really wouldn't advise adding another card to the mix, as jausanka mentioned your score will drop due to lowered AAoA and inquiries.

If you want to list your open CCs by balance/credit limit then we can offer some specific advice.

[Anonymous]

I have 2 credit cards both with low credit limits one for 300 and one for 500. (credit has always scared me) I fear debt so I only have 2 cards.  I am learning to be more comfortable with it. I had credit cards from back in the early 2004 that I closed that had a $3000 limit that I was never late on and so when I reapplied to have that opened it didn't affect my cr. I think they did a soft pull. 

The things on my credit that are bringing my scores down are old medical debts that I am waiting to be removed. I had a couple rough divorces and when going to buy my house found some medical stuff and it was all covered by insurance. Letters are out for that. I think that the broker is impatient and wants to increase my scores more quickly and said I need a third card inorder to help the scores along. 

[pizzadude]

It's hard to know for certain if adding a third card will do anything for your scores.  Before you decide, I'd recommend first letting a very small balance report on one of your cards, and seeing if that does anything for your score.

[Anonymous]

What may be occurring here is that the broker is suggesting that there needs to be a third active tradeline for the mortgage approval. I have seen several posters in the mortgage forum mentioning this as a requirement. OP perhaps you should call the broker again and ask him to break it down what he is really looking for.

[Tikon]

before bankrupcy reform, FICO reported people who never carried balances on cards were much more likely to default than people who carried small balances and paid regularly.

Which is why it's good to carry a small balance and pay on it. It's anybody's guess how long and the exact best way to get a score boost.

[Anonymous]

3 revolving credit lines is ideal for FICO (IMHO).  But that ideal is for the "medium" to "long" term.  Here is how you should figure it out.

What is your score right now?

Get your AAoA before and after adding a card.

How many hard inquiries right now (separate out mortgage related to non mortgage).

Let really small balance post to one card (like 3% of one card)

Here is how your score will be affected with third card:

Get a bump for having 3rd revolving card

Get drop from hard inquiry

Get drop from new account

Get drop from lowering AAoA

Get bump from utilization effects

Hard to say how it all adds up, but in real short term, I would guess you would go down.  In 6 months, you would be good.

The original poster is a perfect example of a responsible person who wasn't responsible or misinformed about credit.  You have to show responsible use of credit to get credit.  Not having debt is good, but it shouldn't surprise anyone that if you haven't been using credit, don't be surprised when you need it, they are hesitant to give it.  Sort of like having a friend who has money asking for a big loan out of the blue.  Sure he can probably pay it back, but will he?

Also, see if you current cards will give you CLI without hard inquiry.  Showing higher credit lines than 300 to 500 is good.

[Anonymous]

I do carry small balances on my credit cards. I am not afraid to use the cards I just dont want to spend more then I have. I know that credit is a huge responsibility. I never realized how big. I am going to carry a small balance on the new card just to make sure it reports as active. I think from what I have read and seen on here it is better to be safe then sorry. 

Because the card I applied for I had such great past history with it was a soft pull not a hard one. Years back I had a $3000 cl with them and never a late payment so essentially its almost like they reactivated an old card, just a new account number. I had closed all of my old credit cards because I didnt want to get into a situation where I was living on them. I have held onto the idea that if you dont have cash for something then you dont need it. I never knew that closing accounts was the wrong thing to do.

Thankyou everyone for your input. 

[Anonymous]

Eberron, remember small balance doesn't mean paying interest. It just means that it reports a balance to the credit bureaus. You need to find out when they report. Typically it is when your statement is generated. If you have been using your cards, then you might have had balances reported all along. Remember ideal is 1 card showing balance of 1-9% util and 0 on rest of them. Also, get cli from whomever does soft pull on credit.