How Accurate is FICO Score Simulator for Utilization?

[lamplight2012]

Hello, all.

I recently switched from Credit Check Total to MyFico monitoring. One of the things I noticed is CCT adds up your credit-limits, and then advises to keep that total under 10 %

With MyFico it looks like it's done per card. Currently, I'm at 16 % util on one card. $128 balance out of $800. The simulator predicts to get a 10 point jump it'll need to be between 6 and 7 % util.

I was just wondering if I should pay down my balance by $76? What I'm scared of is the simulator being wrong, and then my score dropping.

*My other CC has $0 balance.

Thanks!

[Anonymous]

To address your first question:  simulators are notoriously unreliable and often give misleading advice.

Happily we can probbly give you much better advice.  If I understand you right, you have exactly two credit cards.  (You have no other cards, right?)  Here are their balances and credit limits:

Card 1.  Balance = $128   Credit Limit = $800

Card 2.  Balance = $0       Credit Limit = _____  ?

We can help you better if you tell us what the credit limit is for the second card.

In the meantime, we can promise you that bringing that balance down to report at a smaller positive number will certainly not hurt you.  For example, if it reported at $20 that would be fine.  We just can't promise it will help.

The CL for card 2 is the key.  If that CL is $1000, then I am doubtful you will get any help at all, since your total util will already be at < 8.99%.  But if your CL is $200, then your current total U is 12.8% and you will benefit from bringing it down.

Your individual util for both cards is already < 29%, and I am very skeptical that anyone gets penalized for an individual U lower than that.  Total U is the bigger driver in that case.

[lamplight2012]

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@Anonymous wrote:

To address your first question:  simulators are notoriously unreliable and often give misleading advice.

Happily we can probbly give you much better advice.  If I understand you right, you have exactly two credit cards.  (You have no other cards, right?)  Here are their balances and credit limits:

Card 1.  Balance = $128   Credit Limit = $800

Card 2.  Balance = $0       Credit Limit = _____  ?

We can help you better if you tell us what the credit limit is for the second card.

In the meantime, we can promise you that bringing that balance down to report at a smaller positive number will certainly not hurt you.  For example, if it reported at $20 that would be fine.  We just can't promise it will help.

The CL for card 2 is the key.  If that CL is $1000, then I am doubtful you will get any help at all, since your total util will already be at < 8.99%.  But if your CL is $200, then your current total U is 12.8% and you will benefit from bringing it down.

Your individual util for both cards is already < 29%, and I am very skeptical that anyone gets penalized for an individual U lower than that.  Total U is the bigger driver in that case.

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For Card 2, the credit limit is $500. I don't have any other credit cards.

I appreciate the help!

[Anonymous]

Your total utilization right now is 9.8%.  Did you see how I got that number?

FICO rounds all percents up.  Thus, even if your utilization was 9.01%, FICO would round that up to 10%.  You want to have a total utilization of 9% or less.  That means in practice a utilization of less than 8.99%.or less.  So....

      800 + 500 = 1300.

      1300 x 9% = $117

      So you want a total debt of $116 or less.

Tell me if that makes sense.  Given your current profile, you will get maximum scoring points with one card showing $0 and the other card showing somewhere between $5 and $116.  (Ultralow balances, like $1-3, can sometimes get reported as $0.)  You can still use your credit cards a lot.  They just need to report with those balances.

That's for the short term.  In the medium to long term, there are other ways to improve your credit score.

[Thomas_Thumb]

You want your aggregate credit card utilization (all cards combined) to report below 9%.

So in your case total reported balance should be less than (800+500) x 0.09 = > less than $117.

That is the most critical factor for Fico 8 score with respect to utilization. A secondary considereation for score optimization relative to utilization is specific to individual cards. On a card or cards that report a balance, general rule is to report less than 29% of the cards CL - in your case:

1) On your $800 CL card => less than $232

2) On your $500 CL card => less than $145

Clearly, for your situation (only 2 cards) the limiting factor is maintaining aggregate utilization under 9% (under $117)

The number (%) of cards you allow to report balances can influence score as well - You do want one card to report some non zero balance.

[awp317]

I have perpetually about 10% reporting, the credit karma simulator says my score will drop if I lower my balances 5k. So When it started telling me my score would drop by lowering my UTL (but not to 0%) 

[Thomas_Thumb]

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@awp317 wrote:

I have perpetually about 10% reporting, the credit karma simulator says my score will drop if I lower my balances 5k. So When it started telling me my score would drop by lowering my UTL (but not to 0%) 

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The credit Karma simulator relates to VantageScore 3.0 estimates.

My actual score on VS 3.0 suggests 4% to 5% aggregate utilization is optimal. I lose 2 or 3 points when utilization is 1% and 5 to 7 points when utilization (including AU card) was in the 7% to 9% range. The CK simulator was in-line with results for my profile - for changes in aggregate utilization. Refer to below paste on score change predictions from the CK simulator.

[Anonymous]

Hello AWP!  Thom Thumb knows quite a bit more about how the VantageScore model works (Karma uses VS rather than FICO).  With FICO there's no scoring advantage of (say) 6% vs. 3% vs. 0.3%.  For FICO, those all belong to the same optimal ultralow range.  (As long as you have one card showing a positive balance.)

With VS, it may be different.  I think TT conjectures that there is a small but distinct advantage to 4% over 0.8% (say).  Thus with VS you might get a small reward for keeping your util a tiny bit higher than rock bottom.  He may be able to tell you more.

You do not tell us what your utilization is now.  If it is > 9.000% now, you would benefit from keeping it a bit lower (for both FICO and Vantage).  With FICO it could be much lower and it would be fine.  With Vantage there might be some tiny penalty for going much below 4% or so.

Regardless, for both FICO and Vantage, you can get these scoring benefits in a month's time by just altering your CC balances.  So there's no reason to worry about this on a month to month basis.  Even if your utilization goes up to 45% one month, it's no big deal, as long as you bring it back down in a month or two.

[Anonymous]

PS.  I see Thom Thumb chimed in.  Good.

Note to AWP: your total credit limit is (as you know) ginormous.  There is no practical way to keep your total utilization in the 4-5% range without spending an s-ton of money.  Therefore I would ignore whatever Vantage penalty might exist for a utilization of 0.1% vs. 4%.  TT conjectures it is just a few points anyway.  And any lender or CC issuer you might apply to will probably be using FICO anyway.  Practical advice is to just use your cards for whatever you need them for, but without worrying about making your util be "high" enough.  Almost all months it will likely by < 2% which is fine.

[Thomas_Thumb]

Simulators are often inaccurate and can be misleading - especially when a simulation based on one scoring model (VS) is being used to predict cause/effect for another scoring model (Fico).

The various Fico models all want to see aggregate utilization below 9% . As CGID said, there is no scoring disadvantage for ultra low utilization with Fico as long as utilization is not zero. I let aggregate utilization float between 0.4% and 6.0% as a general rule - from a Fico 9, Fico 8, Fico 04, Fico 98 perspective it's all good.