2 CC's; Best strategy for better Utilization score

[Anonymous]

Not sure if I'm posting to the right category but here goes:

I'm trying to get my utilization down. I have one high interest CC that was CLD very recently so its close to the limit with a fairly high balance. I have another 0% interest CC that's within $1000 of being paid off with a $4500 limit.

Which is more prudent with regards to my fico score (not necessarily less interest paid)? - Keep paying down high interest card over the long term with minimums to 0% CC? OR Pay off 0% CC in a couple months with minimum to other so that I'm utilizing 1 less CC on CR?

I've read here that people paying down recently CLD CC's result in that lender reducing the limit further (like chasing the balance down). That will further hurt my utilization if that happened.

Help!

[Anonymous]

The utilization is the percentage used of the total amount of available credit... which means all of your revolving accounts combined.  Paying down one with said money is just as good as paying down another.  Makes no difference to your fico score.

WIth that being said it would only make sense to pay down the card you are paying the most in interest on currently.  For doing that will save you more money.

[mauve]

Ideally, if you have 2 cards, you want one at 0 and one at 0-9%.  Assuming the same CL on both cards and 9% utilization, you're better off with 9% on one and 0% on the other than with 4.5% on each, if my understanding is correct. 

[Anonymous]

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@mauve wrote:

Ideally, if you have 2 cards, you want one at 0 and one at 0-9%.  Assuming the same CL on both cards and 9% utilization, you're better off with 9% on one and 0% on the other than with 4.5% on each, if my understanding is correct. 

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I hear what your saying ... i think that depends on if he had more cards.  Active accts count against you if you have more of them.  If he only has two cc's this shouldn't make a difference.

For those carrying a good number of cc's  you are correct sir.

[RobertEG]

It could, in fact, make a different in FICO scoring depending on how you pay them down.

Approx 1/2 of your scoring under % util is based on overall % util, and clearly, it does matter which card you make the payments to.  It will result in the same new overall % util.

The other half of your % util scoring then looks at the combined effects of usage of the individual cards.

Take, for example, a combined % util on these cards at 50%.  Assume one is at 20%, and the other is at 80%.  In my experiece, the one card that is below your average wont help your score as much as the one that is above your average is hurting it, particularly if it is near its CL.

Another factor to consider is not one purely of FICO scoring.  It is, as you have said, the portential for additional CLDs.  I would personally not use the strategy of retaining a high balance on a card to prevent its CL from being reduced.  I think that, in the long run, if you continue to retain a high blance on that card, you might be increasing, rather than reducing the chance of a CLD in future periodic review by the OC. 

My inclination would be to attack your high % util card first.  But each considers their own factors.

[Anonymous]

Daboss - I have other cards, none as offending as the CLD card. Are you saying that the less active accounts I have the better?

[Anonymous]

RobertEG - So what your saying is that if util is at 50% its better to have all cards closer to that 50% than to have some way above and some way below?

Thanks all, this is great food for thought. I think I may initially pay down higher util card, and anything extra throught the month will go to other.

I'd love to hear what others have done.

[haulingthescoreup]

Having that one nearly-maxed-out card is hurting you more than having both/ all accounts with balances. Several of us have seen that we've gotten away with having one high-util card (new balance transfer, etc.), but we have a lot more cards. If a second account showed high util, we saw our FICO's drop. I think that with only two cards, you're being hurt.

For scoring purposes, I'd first get the maxed-out card to 49% or less and then go after the other. Of course, if the card issuer then keeps CLD'ing you ("chasing the balance"), you'll have a different problem.

Anyway, that would be the order I'd do it in --CLD'd card under 50%, then pay off the other one with the $1K balance, then back to the CLD'd one.

In general, getting as few cards with reported balances as possible is kind of the last bit of tweaking that you do on your scores. First comes reduction of overall AND individual card util.

[RobertEG]

Yes, that is what I am opining.

Of course, no one knows the exact FICO scoring algorithm.  Yet everyone wants numbers.

No one can give you specific number estimates without first making some subjective assumptions about how FICO scoring works.

I have several assumptions in order to give me a rough estimate of % util mpacts that I will share with you, and my rationale behind them, but again, this is just my "guesstimate."

I start with the clearest pronouncement made by Fair Isaac, and that is their weighing of util of credit at approx 30% of total FICO score.

30% of 850 is 255,  But all of that 30% is not simply revolving credit util, some is installment loan util.

The second thing we know is that revolving util counts much higher than installment loan util.  ONe has to make an assumption of how much higher.

I assume, based on anecdotal experiences, that of this 255 pts, between 80% and 90% of weighting goes to revolbing util. 

With those subjetive assumptions, one has approx. 212 pts to score for revolving credit.

The next thing we know about revolving credit scoring are the prior statements by Fair Isaac that overall % util and the combined effects of individul card utils are scored approximately the same.  So another subjective assumption.

About 106 points of your FICO score are based on overall util, and approx 106 points are based on the combined, indivi card utils.

Carrying this out to specifics, if you have two cards, for example, overall % util would control 106 pts in your scoring, and each of the two cards would separately account for approx 53 points.

The final assumption is how the effect of % util decays based on level of util..  The one thing that is the murkiest, and deepest FICO secret.

Everything I have seen myself, and seen others report anectotally, is that higher utils hurt more than lower.  Mathemacially that says that the formula is not liner, but is exponential.

So I simply make the most logigical mathematical assumption, and assume that effect of % util is exponential.  That is, overall % util scores -106 points for 100% util, and 0 pts for 0% util with the point spreads between higher levels hurtng more than the same reduction for lower util levels.

If you do that, here is a chart of aapprox point effects for overall % util.

 0% util       -  0 pts

10% util      - 1 pt

20% util      - 4.3 pts

30% util      -  9.6 pts

40% util      -17 pts

50% util      -27 pts

60% util      -38 pts

70% util      -50 pts

80% util      -68 pts

90% util      -86 pts

100% util   -106 pts.

For individual cards, simply divide the above point impact by the number of indiv cards.

OK, applying all those assumptions to Account 1 with two cards, and an overall % util of 50%, and and equal % util of 50% on each card.

The overall point hit would be:

-27 pts for overall % util at 50%

-13.5 pts for individ card 1 util of 50%

-13.5 pts for individ card 2 util of 50%

Total impact:  -54 pts.

Apply these same assumptions ot an overall % util of the same 50%, but card one is at 80%, and card 2 is at 20%

The overall pt hit would be:

-27 pts for overall % util at 50%

-34 pts for card 1 at 80%  (-68/2)

- 2 pts for card 2 util at 20% (-4/2)

Total impact:  -63 pts.

If alternately the higer util card, in this case, card 1  is siting at 90% util, and card 2 sits at 10% util, then the point spread jumps by another 15 pts.

I know this involves a lot of assumptions, but if you want points, that must be done.  That is simply how I see it.

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[BungalowMo]

Good Lord!  I'd hope that getting my util from 25% down to about 9% I'd gain more that (approx) 10 points!  Especially with only one 6 yo baddie on EQ & TU each!!!