Is utilization weighted?

[Anonymous]

Hi all

Wondering if aggregate utilization percentage is weighted. 

Say you have:

CC A = $400 use /$500 limit (80% util)

CC B = $100 use / $1000 limit (10% util)

In calculating aggregate utilization, does FICO score them as equal or does CC B get more weight because it has a larger limit?

Thanks! 

[SouthJamaica]

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@Anonymous wrote:

Hi all

Wondering if aggregate utilization percentage is weighted. 

Say you have:

CC A = $400 use /$500 limit (80% util)

CC B = $100 use / $1000 limit (10% util)

In calculating aggregate utilization, does FICO score them as equal or does CC B get more weight because it has a larger limit?

Thanks! 

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It's not weighted. Aggregate is computed by adding up limits and balances and dividing..

[Anonymous]

As SouthJamaica  said, the utilization is computed by adding the balances  and the limits and dividing. So  in your example,

(400+100)/(500+1000)=600/1500=40%

But  you can also  consider it as weighted:   CC A has 80% util and 1/3   (500/1500) of the total credit limit. CC B has 20% util  and 2/3 of the total  credit limit. Hence the aggregate util is

   80% x1/3+ 20% x 2/3=26.66.. %+13.33...%=40%

[Anonymous]

This is really helpful thank you!

I was just wondering if there were utilization benefits to doing the "snowball" CC payment method of paying off low balances first then working up, if lower balances were on low limit cards, that is. If it made no difference, then you could pay off those low limit cards first, and your overall utilisation would go down. But if it were weighted, then it complicates that method a little bit. 

[Revelate]

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@Anonymous wrote:

This is really helpful thank you!

I was just wondering if there were utilization benefits to doing the "snowball" CC payment method of paying off low balances first then working up, if lower balances were on low limit cards, that is. If it made no difference, then you could pay off those low limit cards first, and your overall utilisation would go down. But if it were weighted, then it complicates that method a little bit. 

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3 components of the revolving utilization calculations:

• Aggregate
• Individual
• Number of accounts with balances

Some small benefit FICO wise doing snowball out of that last item, and if you're trying to prep for say a mortgage and you don't have enough free cash flow to get totally out of revolving jail then it's worth chasing.  Beyond that though, I'd really suggest take the biggest financial win which going avalanche but probably for most people it doesn't matter that much in the grand scheme of things what's chosen.