Credit utilization

[Shaman0429]

is the utilization ratio based on total balances to available credit or does having individual accounts that have higher ratios maintain the negative effect.

I've been paying off large chunks of balances but there's one that's inactive but has a ratio of 70%. So I'm trying to decide if I should spread my lump sum around or knock that one down? What do you guys think?

[Anonymous]

FICO takes into account your highest individual utilization on a single card AND the total you owe across all accounts vs your total credit line.  That 70% on a single card is hurting your score.  What is your overall UTI?

[Shaman0429]

so my overall uti is 47% and my scores are TU 661 EX 664 EQ 639. FICO sim shows if I pay off everything scores will move to plus 700 on all but EQ. 

As a side note I have a pretty big student loan that the MYFICO simulator says will improve my score 30 pts if I pay down 15% of the total which I'm prepared to do as well. Will those increases be on top of those gained from improvements in UTI?

Thanks again for the support

[Anonymous]

The simulator is fun to play around with but don't rely on it.  For optimum scoring(I assume this is what you are asking), you want your total UTI to be 8.9% or lower but not zero.  You can have up to 28.9% UTI on a single card without taking major point deductions.  There are quoted point gain threshholds for UTI.  88.9%, 68.9%, 48.9%, 28.9%, and 8.9% being ideal.  Once your single and total UTI cross these thresholds from where you are now, you will start seeing significant point gains.

I can't make any recommendations because I don't know how many cards you have, your total credit lines, or anything else.  From your data above, I would start paying that 70% card down.  This will obviously help both your single and total UTI at the same time. 

FICO treats installment debt far more favorably than revolving debt but the same brackets apply.  When you get your installment down to 8.9%, you will be in the optimal bracket from a scoring perspective.

[Anonymous]

OP, what do you mean by the 70% utilization card being "inactive?"  Do you mean closed?  If it's closed, utilization on the card is viewed as 100% / maxed out.  If you're at 70% on an open card it means you're making payments on it, or it's balance is rising due to interest and new balances are being reported monthly.  These things mean that the card is indeed active.  Just trying to get clarification here on what exactly you have going on with that card.

[Shaman0429]

The TL is open on that card. I just havent been using it. 

I'm really trying to boost my scores in preparation to purchase a home. 

[Anonymous]

Gotcha.  It's then considered active, even if you're not using it.  Inactivity means that your card has a $0 balance on it and isn't being used, that is, the reported information for the card wouldn't change from month to month.  Because you're carrying a balance and making payments, your card is indeed active.

[Anonymous]

What is your timeline for the home purchase?

It sounds like you have no problem paying all your revolving accounts (cards, etc.) to $0.  You should do that immediately.  The only tweak is to leave about $10-15 on one card.  Then moving forward, always have that card reporting that small positive balance with all other cards reporting $0.

Note:  The card that reports a small positive balance should be a true credit card (not a charge card) and a card in your name (not an AU card).

You should not at this point make any extra payments on your loans.

You should obtain some free tools to help you see when all the credit cards have their new (much smaller) balances reporting.  We can suggest some tools for that if you like.

Once all the cards are reporting properly, you should obtain your mortgage scores, which are very different from the FICO 8 scores that the simulator has been advising you about.  Again, we can tell you how to do that.

[Shaman0429]

Wow thanks you guys!
 
I am fortunate to be in a position where I'm a pretty high income earner, but to get there I had to change companies and the first year had me making 1/5 of my previous salary. This position came to me very quickly and I didn't have time to adequately prepare. So to make ends meet I had to lever up and for a 30 day period I missed several payments about 2 years ago. Fast forward to today and my income exceeds my previous by nearly an order of magnitude, but my credit scores are poor and I am unable to purchase a home due to high UTI and late payments. So I've been using my earnings to significantly delever every month. I'm down to about 18k from 53k in two months and should be able to payoff all of that this month. I will leave a card with a balance at 8.9% I have an Amex and a Discover that I use for everyday purchases and payoff every month.

My student loan is a 200k at 6.25% APR anchor around my neck. I need to get rid of that debt as its costing me 12k a year and seems to be hurting my scores because the princple isn't declining. We live pretty austerely so once the revolving debt is handled I can dedicate a significant amount of cash towards that.

The thing that is the most frustrating about the situation I'm in is that I earn a high six figure income and can't qualify for a home loan. Whereas I've seen people come out of bankruptcy with fewer problems.

[Anonymous]

Thanks, very helpful.

It sounds like you would very much like to buy a home, but don't have an urgent need to do that any time soon.  I.e. it's not like you have buy a house in the next three months.  Is that right?

If so, can you describe some different timelines that you would be ok with?  For example, you might say:

I know I need time to get my scores up, so six months is what I am shooting for though I'd be ok with 12 months.

That's just an example.  We need to know timeline because depending on what you tell us different strategies for score improvement will be open to you (or closed).

When do you you think you can have all your credit card debt paid off?  Personally I would pay ALL of it off (and then keep a small positive balance reporting on one card, like $15) rather than what you are suggesting, which is to pay down to 8.99% and then (if I understand you right) carry a balance. 

Have your pulled your three credit reports and gone over them with a fine tooth comb?  A crucial step right now for you is to make a list of all the "derogs" (lates, collections, chargeoffs, etc.) as they appear on each report, along with the date that each appeared.  I recommend using the free site AnnualCreditReport.com -- which is the gold standard for accuracy in your reports.

It's quite possible (depending on your timeline) that some or all of these derogs could be completely removed from your reports.