Help me wrap my head around this

[Anonymous]

So my reports updated today and I was so excited because I was going to be under 10% utilization and was looking forward to the score boost.  I have 9% (9.1324% to be exact) reported utilization, down from 17% and saw absolutely no score increase.  and when i look at the score factors this pops up.  Can someone explain to me how 10% reported utilization (even though its not 10%) is HEAVY?! 

[Anonymous]

Funny you should mention this.  Just yesterday I posted the following (in blue below) on another person's thread.  He also had been told to get his utilization to under 10% and he would get a big score boost.

Bear in mind that the FICO algorithms round all percents up.  Thus, to get to the spot of being under 10%, you actually need to get to under 8.99%.  A util of 9.01% gets rounded by FICO to 10%.  And 10% is not less than 10%.

I wish we would do a better job here on the forum of quoting 8.99% as the breakpoint and reminding people about the "rounding up" issue.

BTW, when FICO uses the word "high" and "heavy" in the reason description, it's just general boilerplate language meaning "still sufficiently high that you are getting some kind of scoring penalty."

All that said, there still might be something else going on with your CC balances.  A few questions....

*  What credit monitoring system did you use that produced that particular "reason" statement and the accompanying percent assessment of your CC utilization?  Was it Credit Check Total?  The myFICO 3B Ultimate package?  Something else?

*  What was the individual utilization on each of your cards?  Was each card, considered by itself, at < 28.99% of its credit limit?

*  Were any of the following true about any of your cards?

            One of them was a charge card, rather than a true credit card

            One of them was an AU card, rather than a card in your name

            One of them has a huge credit limit?  Like > 51k?

[Anonymous]

One last question.... are your certain that the 9.13% figure is based on the CC balances as they appeared on the report at that instant?  In other words, are you certain that all of your new CC balances had updated in this particular CRA's database?

[Anonymous]

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@Anonymous wrote:

One last question.... are your certain that the 9.13% figure is based on the CC balances as they appeared on the report at that instant?  In other words, are you certain that all of your new CC balances had updated in this particular CRA's database?

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Yes Im positive that the 9.13 was what was on the report at that instant.  There is only one card reporting a balance and that is divided by my total available balance

[Anonymous]

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@Anonymous wrote:

Funny you should mention this.  Just yesterday I posted the following (in blue below) on another person's thread.  He also had been told to get his utilization to under 10% and he would get a big score boost.

Bear in mind that the FICO algorithms round all percents up.  Thus, to get to the spot of being under 10%, you actually need to get to under 8.99%.  A util of 9.01% gets rounded by FICO to 10%.  And 10% is not less than 10%.

I wish we would do a better job here on the forum of quoting 8.99% as the breakpoint and reminding people about the "rounding up" issue.

BTW, when FICO uses the word "high" and "heavy" in the reason description, it's just general boilerplate language meaning "still sufficiently high that you are getting some kind of scoring penalty."

All that said, there still might be something else going on with your CC balances.  A few questions....

*  What credit monitoring system did you use that produced that particular "reason" statement and the accompanying percent assessment of your CC utilization?  Was it Credit Check Total?  The myFICO 3B Ultimate package?  Something else?

*  What was the individual utilization on each of your cards?  Was each card, considered by itself, at < 28.99% of its credit limit?

*  Were any of the following true about any of your cards?

            One of them was a charge card, rather than a true credit card

            One of them was an AU card, rather than a card in your name

            One of them has a huge credit limit?  Like > 51k?

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I used CCT

Individual utilization.  The one reported card is at 1848/3000 so ~61%.  No charge cards, no AUs, no huge limits

[Anonymous]

Thanks for the quick reply.  The thing I suspected is in fact the case.  You are indeed involved in the heavy use of a credit card.  FICO considers individual utilization as well as total.

An individual utilization of 61% is very high.  It is likely that the message you saw was referring to the very high use of this card.

Next steps:

    * Leave all the other cards at $0.  (Good choice, btw.)

    * Pay your current card down to < 26.99% (individual util).  In theory, 28.99 is probably all you need, but you are getting charged interest each month too so I would give yourself a little wiggle room).

The result will be that your total utilization will have no penalty (< 8.99%) and your individual penalty will (in my opinion) also likely disappear completely.

[Anonymous]

The card is at a 4 year 0% interest promo that we took for some furniture, so no interest, and Id rather keep the money in my account to earn interest than pay off the debt.  Guess Ill just ride it out for a while!

[Anonymous]

You may choose a compromise, which would be to lower it to < 48.99%  There may well be a breakpoint there for indiviual util.  That would also lower your total util to < 7.9%.

Are you thinking about buying a house in the next few years?  One thing you will be doing by carrying a balance for the next several months is that you will be establishing a history inside your credit report of doing that.  People who carry a balance each month are called revolvers.  (Contrasted with a person who always pays his cards in full, who is a transactor.)  Until recently, nobody was looking at that T-R distinction, because the CRAs gave them no way to do it.  Now it is possible for creditors to do that, and indeed Fannie Mae updated her underwriting software to look at whether potential borrowers are more of an R vs. a T.  R's have been shown as  group to be far riskier.  Other kinds of lenders may be doing that too, though the T-R distinction is not part of FICO 8 (since that model was created way back in 2007/2008).

If you still decide to be a revolver on this account for a while, after weighing the pros and cons, I would still encourage you to make at least double the minimum payment (plus one more dollar).  T-R analysis software can do quite a lot in principle, and one of the things it should in principle do is distinguish between the R's who usually pay very close to the minimum payment, vs. R's who always pay a lot more than the MP.  The latter kind of R is less risky than the former.

[Anonymous]

I didnt know lenders could now see your balance history with a specific account.  If thats the case I guess I should pay it off.  Good to know!

[Anonymous]

Hard to know how many lenders currently consider the T-R distinction.  But you are right that it is possible for them to do that.  And it is certain that more will do that over time -- and that when they do, they will be able to look back pretty far at your balance and payment patterns (at least 24 months back).

If you do decide to pay off all your CC debt, do be sure to continue to use at least one card each month and let it report a positive balance (which you can pay off in full once the statement prints).

I still think a reasonable compromise in your position is to pay it down to under 48.99% and then make steady big payments moving forward.  The pattern of making steady big payments (that are much larger than the MP) should be picked up by a T-R analysis module.

On the other hand, you may be doing the math and have figured out that the amount of interest you will save over the next year (by having that money in a 1% savings account) is pretty tiny, and that maybe it's simpler to pay it off.  I am sure you'll make the right decision for you.