A question about having 1 card at 9% or lower and 0 on others...

[Anonymous]

Why just the one card showing a utiization at 9% or lower and the others carrying a zero balance for maximum scoring? Why couldn't you have balances on other cards as well but as long as your overall utilization totals 9% or under as well. I don't see what the diffrence would be.

[Anonymous]

It has to do with the number of cards reporting balances.  The more cards that have balances reported, the more individual debts you have and this can (but not always) impact your score adversely.

Dollar wise I agree that it's no different if you have five $1000 credit limit cards each with a $10 balance or if you have four of them with a $0 balance and a $50 balance on the final card... but FICO scoring likes to see, generally speaking, less debts.

The idea is that you want to show that you're using your revolving credit just a little, that is, letting one revolver report a small balance as you are showing responsible revolving credit use... but showing more revolving credit use (more revolvers with balances) can be viewed under FICO scoring as more risky, hence the lower potential score.

[Anonymous]

Hi Joesef.  The statisticians at FICO found many years ago that having a very low total CC utilization was not the only factor associated with a low risk of severe delinquency (which is what the FICO score measures).

Also predictive of low risk was having most of your cards showing a $0 balance.

In other words, suppose Bob and Ted have four credit cards, 3% total utilization, and identical profiles in almost every other respect.  The difference is that Bob has his CC debt spread out over all four cards, whereas Ted has three of his four cards showing a $0 balance.  Ted will tend to be at a lower risk of delinquency than Bob.  Therefore Ted will tend to get a higher FICO score.

The older FICO models (e.g. the ones used by mortgage models) are especially sensitive to a person having most of his cards at $0.  (That's according to contributor Thomas Thumb, who's carefully tested this.)

[Anonymous]

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@Anonymous wrote:

Why just the one card showing a utiization at 9% or lower and the others carrying a zero balance for maximum scoring? Why couldn't you have balances on other cards as well but as long as your overall utilization totals 9% or under as well. I don't see what the diffrence would be.

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PS.  For what it is worth, I don't know of any evidence that an individual utilization of 9% or lower has any value.  Penalties for high individual U do exist, but they do not begin until you get much higher. 

[Anonymous]

I I was thinking you can have balances over many cards but if you're responsible with them and keep them low then what's the problem? But with how these wacky scoring systems work I can see how that could be better. Crazy stuff. Lol. I'll rotate my cards so they stay active and don't close. Thanks for the info!

[Anonymous]

Well bear in mind that the scoring advantage for both utilization and number of cards showing a positive balance is something you can get at the drop of a hat.

In other words, suppose Bob does this All Zero Except One thing every month for 24 months in a row. 

Fred, in contrast, doesn't worry about it.  Fred doesn't even worry about his utilization.  Some months his total util is 35 or even 45%.  Most months all of his cards report a balance.  But then at Month 23 he switches to the All Zero Except One approach.

If Bob and Fred have identical profiles, they will both have the same score at month 25.  Bob got no scoring advantage from doing the AZEO approach every single month -- unless that is, he needed to apply for credit in that time.

So many people just use their cards naturally and then do AZEO 45 days before they need their score to be at its best.

[Anonymous]

So this one card method is only useful for when you need your score at it's best before a mortage or car loan then? I realize it's a good practice to have and to follow. My situation is I'm planning on buying a home this time next year and want my score at a minimum 700. I'm at 650 now. I don't wanna last minute bump my score up to 700. I want it there for awhile.

[Anonymous]

Doing the AZEO approach every single month sounds like it will also just make you happy.  Or equivalently, if your score drops three months from now because all your cards report a balance and your utilization is at 15%, that will stress you out, even if you are assured the score loss is temporary.

Knowing what will make you happy is a key part of life.  So in your case, I would do AZEO every single month, at least until you own your home. 

Certainly you should absolutely do it for the next two months, and then get your mortgage scores.  The mortgage models are especially sensitive to how many $0 balances you have. 

[Anonymous]

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@Anonymous wrote:

So this one card method is only useful for when you need your score at it's best before a mortage or car loan then? I realize it's a good practice to have and to follow. My situation is I'm planning on buying a home this time next year and want my score at a minimum 700. I'm at 650 now. I don't wanna last minute bump my score up to 700. I want it there for awhile.

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If you are planning on buying a home in a year or so, you definitely want to adopt a PIF strategy as soon as you can.  I'd definitely let only 1 revolver report at any given time for the time between now and when you apply for that mortgage as not only will it give you the best score at the time you apply, but it is also a very good and healthy credit look to not be carrying any revolving debt for a year prior to apping.

[NRB525]

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@Anonymous wrote:

So this one card method is only useful for when you need your score at it's best before a mortage or car loan then? I realize it's a good practice to have and to follow. My situation is I'm planning on buying a home this time next year and want my score at a minimum 700. I'm at 650 now. I don't wanna last minute bump my score up to 700. I want it there for awhile.

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What is the factor which is putting your FICO 8 score at 650? Is it high utilization or some form of late pament in the past?

What is your age of file, oldest account and average age of accounts?

The number of cards reporting, percentage of the cards reporting anything, is a factor in the scoring, but also keep in mind the mortgage scoring algorithms are slightly different in their inputs, vs the FICO 8 commonly discussed here, which is used most often for credit card applications and tracking.

I've got about 70% of my cards reporting some sort of balance, some carrying balances, other just with a small amount based on that month usage that is paid in full. With a long history, though, that allows my scores generally to be relatively high. The count of cards is a factor, but I consider it a minor one. If there are other more significant factors in your score, those would need to be considered as well.