Help with Understanding Utilization

[Anonymous]

Utilization is a confusing topic that I need some clarification on. From my understanding, 1-9% is the ideal percentage to shoot for for the best scoring. 

Would the utility % be based on having one card with a balance and the rest zero?

Can I also have say 2% on one card and  maybe 1% on another at the same time?

Any help or thoughts based on experiences would be greatly appreciated. 

[haulingthescoreup]

The scoring formulas look at both total utilization and individual account utilization.

The bit about having only one card reporting a balance derives from a different scoring issue, number of accounts with balances.

If your total util is low, you might be able to get away with high util on one card. I know that after a BT, I once had 70% util report on one card, but I was still at 8% or so overall, and there wasn't a score change. Others have said the same, but also that if two cards had high util, there was a score hit.

Like everything else in FICO scoring, it varies by individual credit profile.

One error that many people make is in believing that every card has to report between 1-9% util at all times. Not true, and most people will be hurt by having so many accounts reporting balances.

Just don't have all your cards reporting $0 at the same time, because most people (not all) see a score drop when that happens. It's easily corrected though --just let a balance report on whichever account has the next statement due to post.

[Booner72]

Hi there - I did a breakdown of how each card's utilization ended up affecting my scores and it's over in a post called "what will get me from 624 to 640" or something like that here in the Understanding section.  Quickly:  I had 4 cards, thought I had to get 3 to report zero and one to report small balance.  i got the scores I needed by only having 2 report zeros.  We pulled my scores before all accounts updated.  Didn't need to do rapid rescore because I had already made it.

[RobertEG]

FICO reps addressed this issue in broad terms a few years ago in one of their webinars.  They inferred that overall utilization is weighted about the same as the combined effect of looking at the util of individual cards. This implies that with, for example, four credit cards, and one with a high util, the effect of that individual card % util counts about one eight the weighting of overall percent util (1/2 of 1/4).   I think it is clear, at least to me, from both what FICO has said and the comments of others who have posted their own experiences,  that the % util of an individual card counts much less than the overall % util.

It is my understanding that the number of cards reporting a balance as a % of total cards is just one component of the scoring of individual card utilization, and thus would have somewhere near the same effect as % util of one card.  Both being significantly less in weighting than overall % util.

[Anonymous]

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It is my understanding that the number of cards reporting a balance.......would have somewhere near the same effect as % util of one card. 

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It's always tempting to make generalizations based on FICO tidbits, but buyer beware.

Because utilization on one card can vary by 100 percentage points, the potential FICO impact of utilization is a broad brush stroke - add to that the fact that it varies from individual to individual and for one person it'll vary over time depending on other factors in the report.  It may be impossible (or maybe better to say illogical) to compare the FICO impact of number of cards reporting a balance to the FICO impact of utilization of one card.  Just sayin' - because we'll have newbies and some folks who have been around a long time who will put stock in these types of statements and shouldn't.

[Anonymous]

I have another question about my current situation regarding utilization.  I have 3 revolving ccs that are current and only have a balance on 1. Last month this card reported a balance of $281. The balance is currently at $402 and this will leave me at the 3 to 4% utlity range. I am ok with leaving it at this range. 

Should I consider paying down so that it is less then $281 to show that I am making payments or would leaving a higher balance then it was the month before hurt me?

Which option will I benefit more from?

Thanks again in advacne for your help!

[haulingthescoreup]

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@Anonymous wrote:

I have another question about my current situation regarding utilization.  I have 3 revolving ccs that are current and only have a balance on 1. Last month this card reported a balance of $281. The balance is currently at $402 and this will leave me at the 3 to 4% utlity range. I am ok with leaving it at this range. 

Should I consider paying down so that it is less then $281 to show that I am making payments or would leaving a higher balance then it was the month before hurt me?

Which option will I benefit more from?

Thanks again in advacne for your help!

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FICO scoring doesn't have a "memory" for util. It only scores you on what is going on at that moment on your reports.

You shouldn't leave a balance --that means you're paying interest. Just pay it off before the due date. Use the card again, and let a balance report again next month if you choose. Then pay it off before the due date again. Wash, rinse, and repeat.

If next month's balance is way higher, you might lose some points, but only if your util rose significantly.

[Anonymous]

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@haulingthescoreup wrote:

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FICO scoring doesn't have a "memory" for util. It only scores you on what is going on at that moment on your reports.

You shouldn't leave a balance --that means you're paying interest. Just pay it off before the due date. Use the card again, and let a balance report again next month if you choose. Then pay it off before the due date again. Wash, rinse, and repeat.

If next month's balance is way higher, you might lose some points, but only if your util rose significantly.

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My utility last month from FICO EQ was 2% with the $281 balance and I gained +3 points from it. I do plan on paying it off before the statements cuts ( 22nd of each month) but I also need to use the card for a $400 purchase before the end of the month. If I leave it at the $400, the utility will only rise up to about 4% max. I do not see this as something that will hurt my score. I am hoping it doesn't.

[Anonymous]

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@Anonymous wrote:

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@haulingthescoreup wrote:

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FICO scoring doesn't have a "memory" for util. It only scores you on what is going on at that moment on your reports.

You shouldn't leave a balance --that means you're paying interest. Just pay it off before the due date. Use the card again, and let a balance report again next month if you choose. Then pay it off before the due date again. Wash, rinse, and repeat.

If next month's balance is way higher, you might lose some points, but only if your util rose significantly.

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My utility last month from FICO EQ was 2% with the $281 balance and I gained +3 points from it. I do plan on paying it off before the statements cuts ( 22nd of each month) but I also need to use the card for a $400 purchase before the end of the month. If I leave it at the $400, the utility will only rise up to about 4% max. I do not see this as something that will hurt my score. I am hoping it doesn't.

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I've read on this forum that some people have a higher score with 4%UTL than with 1%UTL.  Like just about everything with FICO, YMMV.  The general rule of thumb is 1-9% just to be safe!

[Anonymous]

I'm assuming CU applies to unsecured personal lines of credit as well.

I have a LOC with wells fargo for 5,500 and pulled 5,000 from it last month for two weeks.  I paid it back and just checked my credit today and its showing on my credit report that I have a balance of 5k.  I know there is a lag time for credit agencies to update their information.

My question is: Should I keep my CU under 70% which is no more than 3,850? Or is it ok to pull the full the full amount from time-to-time? 

I use my LOC to do day trade and need the extra leverage at times.

Thanks.