Credit Card utilization.

[SouthJamaica]

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@Anonymous wrote:

A credit report that consists of exactly one card and no other accounts (closed or open) would not be a good thing in preparation for a mortgage.  On the other hand, our OP and his wife might both have several accounts on their three reports, including loans, and perhaps even an LOC.

This is why I asked our OP the questions I asked.  We need to know more before we can advise him about his real concern, which is how to best prepare for his mortgage.

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I don't think adding new accounts is a good idea when preparing for a mortgage.

[Anonymous]

Hi SouthJ.  There isn't a single answer for this that applies to all situations.  Many mortgage lenders will not lend to people with exactly one account, or they will make it much more difficult.  The time frame for the home purchase matters a lot too when advising someone -- if the plan is to buy a house in the next month, then opening new accounts is less likely to be a good option than when the person is planning to buy a year from now.  (Our OP indicated that the purchase might not be until a year from now.)

It's always a good idea to learn more about the person's specific situation.  Certainly it can't hurt.  I suggest we learn more and then we can advise the couple best.

[HeavenOhio]

Welcome, @Anonymous.

When you say that your and your wife "share" a card, do you mean that you have a joint account? Or is one of you an authorized user with the other being the primary user?

[Anonymous]

I had this exact question over a year ago when I wanted to start building credit. I'd heard so many different things from so many different people and didn't know who or what to believe. Everything from under 9% utilization is the best to 40% is best. There were a lot of good people who helped me and a ton of other people's knowledge. This was the post I guess: https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/What-actually-is-the-quot-sweet-spot-quo...

I still only have one credit card. After six months (was told it takes at least six months to get an actual FICO credit score history) my credit score was 738. Now it's 778.

I definitely do not know as much as most of the people here. But just from my personal experience with one credit card, the lower the utilization the better. After coming here I always kept it under 9%. It seems like when I started trying to always keep it less than 2% is when my score went a lot higher up. The only time my credit score went down (according to my Discover FICO history at least) was when I let my credit utilization go to 5%. It went down by 4 points.

I try to always let less than 2% of my credit limit show when Discover reports to the credit bureaus. Which in my case is two days after my billing cycle.

Hope I was able to help a little.

[SouthJamaica]

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@Anonymous wrote:

I had this exact question over a year ago when I wanted to start building credit. I'd heard so many different things from so many different people and didn't know who or what to believe. Everything from under 9% utilization is the best to 40% is best. There were a lot of good people who helped me and a ton of other people's knowledge. This was the post I guess: https://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/What-actually-is-the-quot-sweet-spot-quot/td-p/4890659

I still only have one credit card. After six months (was told it takes at least six months to get an actual FICO credit score history) my credit score was 738. Now it's 778.

I definitely do not know as much as most of the people here. But just from my personal experience with one credit card, the lower the utilization the better. After coming here I always kept it under 9%. It seems like when I started trying to always keep it less than 2% is when my score went a lot higher up. The only time my credit score went down (according to my Discover FICO history at least) was when I let my credit utilization go to 5%. It went down by 4 points.

I try to always let less than 2% of my credit limit show when Discover reports to the credit bureaus. Which in my case is two days after my billing cycle.

Hope I was able to help a little.

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It doesn't surprise me that 2% utilization is better than 5% utilization; that's true whether you have 1 card or 100 cards.

What none of us really knows is this: when you have just 1 card, is 2% utilization better or worse than a zero balance.

[Anonymous]

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@SouthJamaica

What none of us really knows is this: when you have just 1 card, is 2% utilization better or worse than a zero balance.

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My vote is that 2% is better than 0% in terms of scoring.  The penalty associated with no revolving credit use IMO is going to be stronger than the penalty associated with all revolvers (100%) with a balance.  I would think this would be super simple to test and that the test has been done a lot over the years, although I've never researched it.  Since the test only involves 1 account, all it takes is someone with 1 revolver that typically keeps a $0 balance on it to allow it to report $0 and then a small balance or vice versa.  Of course it would be beneficial to know some other information regarding their file such as it's age/thickness.

While not the same test as having just 1 revolver, the initial results of my test in going from 0% to 100% of revolvers with a balance shows that the penalty is greater with all revolvers at $0 (16-22 points) where the penalty realized on my file for 100% of revolvers with a balance is less (0-15 points).  That 0 was on EX, btw, which doesn't seem to care about number of cards with balances on my file for whatever reason.

[Thomas_Thumb]

A few points worth mentioning here.

Fico states "too many accounts with balances" Not "too high a percentage" of accounts with balances". It is known there is a significant score penalty on Fico 8 accociated with "no recent revolving account activity" when zero accounts report a balance. That penalty is 15 to 20 points for most profiles.

Inverse tested repeatedly impact of # cards reporting small balances on score. He had 3 cards. When 2 cards reported balances he took a 2 to 4 point hit compared 1 card. When 3 cards reported his score dropped 5 to 8 points compared to 1 card reporting. These drops are substantially less than the "no recent activity" penalty associated with zero balances.

Profiles with one card only are better off having a small balance report as opposed to a zero balance report. Optimally, the card should report a balance representing less than 9% utilization. However, even for single card profiles where AG UT% = card UT%, a reported card utilization in the 9% to under 29% range will be almost certainly be less impactful than a zero balance. All bets are off for one card profiles where the card utilization is 29% or above.

Note: The older Fico 04 and Fico 98 algorithms are more sensitive to # cards reporting balances than is Fico 8. However, regardless of the model 1 of 1 reporting a small balance will not be subject to "too many reporting" and avoids the "no recent revolving activity" penalty.

As an example, on EQ Fico 04 (score 5) my score dropped  to 764 once and 765 points another time with 6 of 6 cards reporting. In comparison my score with 2 of 6 cards reporting was 809. The 44 and 45 point drops are large in comparison to the penalty for "no recent revolving activity". In contrast, score drop on EQ Bankcard Fico 8 dropped 10 and 11 points with all cards reporting 'moderately small" balances compared to optimal reporting.

[Anonymous]

TT, it sounds like the data from the test you referenced by another member above mirrors my results, which is that 100% of cards with balances verses 0% results in a smaller score drop.  I'm curious what's different on my profile compared to his where I see no scoring impact at all on EX from number of cards with a balance, where I see clear impacts to my TU/EQ scores.

It's also worth mentioning on my file I have just 1 non-revolving account open, an auto loan, which naturally has a balance by default.  That being said, if 6 of 8 of my revolvers have a balance (for example) it means that 7 of 9 of my total accounts have a balance.  The numbers follow each other very closely.  The only real difference is when I'm at AZEO on revolvers, 1 of 8 accounts with a balance, I'm really at 2 of 9 total accounts with a balance due to the auto loan.

[Thomas_Thumb]

BBS - Inverse had three open credit cards, two mortgages and two Auto leases. His profile had quite a few closed accounts with more closed accounts being installment loans than credit cards. His AAoA was around 8.5 years as I recall and AoOA in the 18 to 20 year range. I am going off memory on the ages so, I could be off a bit. He had zero INQ on one CRA, one on another and two on the 3rd under 12 months

Side note: His testing was done while he still had a tax lien on file and his Fico scores were in the 740 to 755 range. When his tax lien was removed his scores went to 840, 845 and 850 depending on the CRA. The after scores correlated to # INQ on the CRA report.

I realize that Fico may treat # cards reporting differently depending on dirty/clean. I have no doubt that that thin files would be better off reporting token balances than all zeros. This includes 1 of 1 better than 0 of 1 and 2 of 2 better than 0 of 2. It would be nice to get some rigorous clean file data points on this to quell the skeptics. Unfortunately you have too many cards/accounts - ideal candidate would have a "stable file" with one open installment loan and one or two open cards. QTY of closed accounts not critical.

[Anonymous]

I've learned a lot over the past two years observing my father-in-law who maintains a 850 FICO, consistantly.  He gets the best interest rates on car loans and bought a second home with virtually no down payment.  The man is military disciplined (Marines, 25 years, Gunnery Sargent) in that every Sunday without fail does his "paperwork", or in other words - pays his bills.  I'm not kidding - it's like a ritual in that he gets his glass of soda, smokes a cigar, cranks his military music on his stereo, etc.  And it's ALWAYS done before the game comes on television.

He has several credit cards like AM EX, Discover, Chase, CAP One, etc. - all with limits between $5k to $12k and one car loan that he recently paid-off.  A Chevy Silverado Texas Edition he paid $55k and paid off over 36 months.  The payments were huge but he didn't care.  The key is that the credit cards are ALWAYS paid off each month, and he rarely charges any of them above $300-$500 and always seems to rotate their use and utilization so none appear dormant or forgotten about. 

On a few occasions he has had major home repairs that have cost $3k to $6k, but he always works out a schedule on how to pay them off within 3-6 months.  He's always saying - "I only have 2 more payments to pay-off the A/C repair or a couple more payments to go on the Home Depot bill.  If someone were to review his spending/bill paying habits, they would get the impression that he always has some sort of plan.  It's my undertanding that the credit card companies write software algorithms that can evaluate and predict a persons risk by the means and methods they pay their bills.  Similarly, a wise boss i once had said he could always, without fail - predict a persons personality by looking at the inside of their car.  If it's real messy, dirty and full of trash - the person is likely always late, unorganized and not dependable.  On the other hand, if their car is impeccably clean inside and out, they are likely on time, dependable and take pride in their work.  I think the same can be said about not just when a person pays, but how that person pays their bills.  Organized, consistant payments, low balnces paid-off each month and large balances never maintained longer than 6 months.  And consistantly done this way for years.  Just my opinion.