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FROM THE FICO GODS' MOUTH - 0% vs. 1% UTILIZATION

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FROM THE FICO GODS' MOUTH - 0% vs. 1% UTILIZATION

I've read the debate about what balances to keep on your CCs...well, according to the Consumer Affairs Manager for FICO, Barry Paperno, he says in a BANKRATE.COM article this:

 

"That said, a tiny reported balance can trump a zero balance. 'In short, the lower a consumer's credit utilization, the better, but having a small balance is slightly better than having no balance at all,' says Barry Paperno, consumer operations manager for FICO, the Minneapolis-based company that created the popular credit scoring formula.

In other words, a teeny charge does a FICO score good. Use the card on an inexpensive item and then pay off the balance when you receive the bill. The small reported balance will help your score, and you'll avoid finance charges at the same time."


Here's my story:

Okay, so I'm in the middle of escrow on a home and my credit is sitting at 706. In order for me to qualify for my loan I must stay above 700.  Two weeks from now the lender will check my score again right before closing. This has me very concerned since I'm hovering very close to 700.  One wrong move and I stand to lose my new house and my earnest money. So, the only part I can control is my utilization, which is at 3% (AMEX - 0%, Wells - 0%, Citi - 3%).  I had paid two cards completely off last month and left the other at 3%. I was hovering around 17% before.  My score went down 6 points. I did have two inquiries from the bank during this time. So, was it the inquiries or the 0 balances?  Well, it might be both according to Mr. Paperno. 

So, the question at hand...should I put a small $25 purchase on my zero balances (AMEX and Wells) to encourage a small boost in score? 

 

Also, what if the banks hard inquiries put me below the threshold of 700. Does that mean I don't get the loan? Do they take that into consideration?

 

 

Message 1 of 14
13 REPLIES 13
Valued Contributor

Re: FROM THE HORSES MOUTH - 0% vs. 1% UTILIZATION

Just on one card. That's the best. Pick the card that will report the soonest on your reports. Most report a day or so after the statement cuts.


I have reestablished credit over the last couple years
so my moniker is, well, rather out of date.

WM Discover $1800, WF Plat 12k, Chase Freedom Siggy18k, Amex Plat (60k H/B), Citi AA EWMC 25k
Message 2 of 14
Member

Re: FROM THE HORSES MOUTH - 0% vs. 1% UTILIZATION

Hey cash' - I did exactly that. I have 3% on one and zero balances on the other 2 and my score went DOWN 5 points. I'm suspecting it's the two hard pulls, but surprising that it didn't counter it enough to avoid the 5 poiont drop. 

 

I'm just curious how this guy who works directly for FICO says the opposite of what many credit vets say on this sight. Should I risk putting small balances on the cards? Or keep them at zero?? UGGGHHHH!

Message 3 of 14
Valued Contributor

Re: FROM THE HORSES MOUTH - 0% vs. 1% UTILIZATION


@nomad0792 wrote:

Hey cash' - I did exactly that. I have 3% on one and zero balances on the other 2 and my score went DOWN 5 points. I'm suspecting it's the two hard pulls, but surprising that it didn't counter it enough to avoid the 5 poiont drop. 

 

I'm just curious how this guy who works directly for FICO says the opposite of what many credit vets say on this sight. Should I risk putting small balances on the cards? Or keep them at zero?? UGGGHHHH!


Well, he does say "a" small balance, not balances.  In particular I had small balances reporting on all my cards at one time back a few years ago and my score dropped over 60 points. It happened on the old FICO 4 EQ when my oldest account reached 4 years. Suddenly having all cards reporting a small balance was a killer. As my accounts ageed the effect diminished. Optimium back then was all balances at 0 except for one card.


I have reestablished credit over the last couple years
so my moniker is, well, rather out of date.

WM Discover $1800, WF Plat 12k, Chase Freedom Siggy18k, Amex Plat (60k H/B), Citi AA EWMC 25k
Message 4 of 14
Member

Re: FROM THE HORSES MOUTH - 0% vs. 1% UTILIZATION

Empirical data like yours and a ton of others on here certainly seems to support the zero balance theory, but take a look at this aritcle he wrote last year on his site SPEAKINGOFCREDIT.COM:

 

"The closest we can come to a rule that applies universally to utilization percentages, whether considering a single card or all cards combined, is:  The lower your credit utilization is, the better — but it’s better to have something (a percentage higher than 0) than nothing.

Why higher than 0 percent? Going back to the idea that the percentage ranges are based on research into the behavior of millions of consumers, it turns out that the risk of default has actually been found to be a little higher at 0 percent utilization than at slightly higher-than-0 percentages. The main reason for this odd occurrence is that a $0 balance — which leads to 0 percent utilization — is often the result of not using credit regularly, which research has shown to indicate higher future risk. That’s right, not being in debt makes you a higher risk. Go figure."

 

At this point I will probably stay status quo. But, I have emailed to ask him specifically if he's referring to aggregate or the individual cards. 

 

 

Message 5 of 14
Valued Contributor

Re: FROM THE HORSES MOUTH - 0% vs. 1% UTILIZATION

Letting a card report 0 balance for 3 or more months can also reduce scores. Cards have to have a certain activity level or they get put in an unsued category. I haven't personally experimented with letting a card go unused more than 3 months or so but it has been reported by others here and it can reduce a score slightly.

 

I always let my balances report except when I want to "optimize" and then I prepay all but one. That seems to result in better (5 to 10 points) FICO scores than prepaying all of them. I don't actual;ly do that in order to aapp for credit. It's just interesting to experiment.


I have reestablished credit over the last couple years
so my moniker is, well, rather out of date.

WM Discover $1800, WF Plat 12k, Chase Freedom Siggy18k, Amex Plat (60k H/B), Citi AA EWMC 25k
Message 6 of 14
Member

Re: FROM THE HORSES MOUTH - 0% vs. 1% UTILIZATION

Barry replied to my email regarding this issue:

 

"The impact to your score will only be on the aggregate level, but, of course, that will mean at least one card will need a small amount to show on a billing statement."

 

So, it sounds like you were right. Good to know the info is consistent.

Message 7 of 14
Moderator Emeritus

Re: FROM THE HORSES MOUTH - 0% vs. 1% UTILIZATION


@cashnocredit wrote:

Letting a card report 0 balance for 3 or more months can also reduce scores. Cards have to have a certain activity level or they get put in an unsued category. I haven't personally experimented with letting a card go unused more than 3 months or so but it has been reported by others here and it can reduce a score slightly.

 

I always let my balances report except when I want to "optimize" and then I prepay all but one. That seems to result in better (5 to 10 points) FICO scores than prepaying all of them. I don't actual;ly do that in order to aapp for credit. It's just interesting to experiment.


I know I've heard that before and even pontificated it myself, but it's certainly longer than 3 months though it may depend on lender.

 

I do know when a recent 8 month no activity card (Wally) had a balance land on it my FICO 8's didn't move at any rate.  




        
Message 8 of 14
Super Contributor

Re: FROM THE FICO GODS' MOUTH - 0% vs. 1% UTILIZATION


@nomad0792 wrote:

I've read the debate about what balances to keep on your CCs...well, according to the Consumer Affairs Manager for FICO, Barry Paperno, he says in a BANKRATE.COM article this:

 

"That said, a tiny reported balance can trump a zero balance. 'In short, the lower a consumer's credit utilization, the better, but having a small balance is slightly better than having no balance at all,' says Barry Paperno, consumer operations manager for FICO, the Minneapolis-based company that created the popular credit scoring formula.

In other words, a teeny charge does a FICO score good. Use the card on an inexpensive item and then pay off the balance when you receive the bill. The small reported balance will help your score, and you'll avoid finance charges at the same time."


Here's my story:

Okay, so I'm in the middle of escrow on a home and my credit is sitting at 706. In order for me to qualify for my loan I must stay above 700.  Two weeks from now the lender will check my score again right before closing. This has me very concerned since I'm hovering very close to 700.  One wrong move and I stand to lose my new house and my earnest money. So, the only part I can control is my utilization, which is at 3% (AMEX - 0%, Wells - 0%, Citi - 3%).  I had paid two cards completely off last month and left the other at 3%. I was hovering around 17% before.  My score went down 6 points. I did have two inquiries from the bank during this time. So, was it the inquiries or the 0 balances?  Well, it might be both according to Mr. Paperno. 

So, the question at hand...should I put a small $25 purchase on my zero balances (AMEX and Wells) to encourage a small boost in score? 

 

Also, what if the banks hard inquiries put me below the threshold of 700. Does that mean I don't get the loan? Do they take that into consideration?

 

 


OP, you should check the dates each of your three cards statement is cut, and then presume it will report a few days later.

 

Citi: You have a balance on this card as of the last statement. Ensure that the next statement prints that exact same balance. You will need to make at least the minimum payment, but then charge something to get the open balance back to what it was reported last month.

 

The other two cards DO NOT CHARGE ON THEM for now. Going from the current $0 on the last statement to any new balance,even $10, will hit your score immediately. Leave both at zero until after your mortgage funds. The fact that they are zero for another statement will not have any bearing to how they are reported subsequently.

 

The main thing here is, you do not want any changes in your reported balances leading up for the next two weeks.

 

Now, having said all that, I think the main purpose of the final credit check is just to be sure you have not gone out and charged up a million dollars on your cards. So for the most part, you have nothing to worry about, even if the score changes a few points. They are just looking to verify reasonable stability. However, rather than asking generic questions of writers, or us amateurs here on MyFICO, your best next question is to your mortgage broker / underwriter to verify whether this next HP is just a verification of the earlier credit check (as I think is the case) or will potentially impact your mortgage result.

High Bal Jan 2009 $116k on $146k limits 80% Util.
Oct 2014 $46k on $127k 36% util EQ 722 TU 727 EX 727
April 2018 $18k on $344k 5% util EQ 806 TU 810 EX 812
Jan 2019 $7.6k on $360k EQ 832 TU 839 EX 831
Message 9 of 14
Valued Contributor

Re: FROM THE HORSES MOUTH - 0% vs. 1% UTILIZATION


@cashnocredit wrote:

Letting a card report 0 balance for 3 or more months can also reduce scores. Cards have to have a certain activity level or they get put in an unsued category.

 

Are you sure?

 

 


I haven't personally experimented with letting a card go unused more than 3 months or so but it has been reported by others here and it can reduce a score slightly.

 

 

Oh I see, lol.

 

Message 10 of 14
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