Lowering utilization effect on scores?

[tcbofade]

OK, so I'm about to play some "musical balances" that will result in my utilization going from 80% ish to 50% ish.

Currently, I have quite a few "maxed out" credit cards, but will soon have none.

Scores in the 630s.

In 30 days or so, when I have zero maxed out cards, and under 60% utilization, do you think I will see any real score improvement?

660's ?

[SouthJamaica]

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@tcbofade wrote:

OK, so I'm about to play some "musical balances" that will result in my utilization going from 80% ish to 50% ish.

Currently, I have quite a few "maxed out" credit cards, but will soon have none.

Scores in the 630s.

In 30 days or so, when I have zero maxed out cards, and under 60% utilization, do you think I will see any real score improvement?

660's ?

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Absolutely

[Anonymous]

30% of your Fico score is "amount owed"

Sweet spot appears to be less than 9% on one card and zero balance on all others.

Yup, reduce below 50% and you will see a spike, below 30%, much bigger spike and below 9%, you are optimized.

Good Luck!

[tcbofade]

So, in other words, if I can change the plan a bit and get under 50% util, you think I'll see a noticeable difference?

[Anonymous]

Hi Tcbofade!  Keep in my mind that there are three scoring factors for CC debt:

     (a) Total Utilization (counting all cards together)

     (b) Individidual Utilization (counting each card and its limit by itself)

     (c) Number of cards witth a positive balance

As you move your cards from being completely maxxed out, down to 90%, then to 80%, 70%, 60% (etc.) you are affecting both (a) and (b).

You will be affecting (b) the most the closer your cards were to being maxxed out.  Thus taking a card from 99% to 79% is giving you far more scoring points from factor B than taking it from 59% to 39% (say) -- though in both cases you will also be getting an additional bonus from lowering your total utilization (A) -- the same in both scenarios.

So the bottom line is this.  Suppose you had four cards total and they were all at 95%.  Suppose you then paid them down at the same percentage rate.  You would get a huge benefit at first (since you'd be getting bonuses from both factors A and B).  Then gradually as your individual utilization got lower you would get less and less benefit from factor B but still a lot from factor A.  As your individual utilization became < 49%, you'd want to start thinking about creating cards with $0 balances, which would give you points from factor C.

Here's a question for you.  Have you considered the possibility of paying down all your cards to $0?  The way you are thinking about paying down CC debt appears as though it may be based only on the benefit it would give to your FICO score.  There are, however, many reasons for paying off the CC debt in entirety, reasons that are far more important than the effect it could have on your FICO 8.

[tcbofade]

First, thank you for an awesome post, Dixie.

We are just now turning the corner from a negative cash flow to a positive one.  Tomorrow will (SHOULD) be a huge day in that process.  Some of the positive details are fixed and I have no control over them.  Some are not, and I can steer them carefully wherever I want to.

At this moment, lowering our total cost of operating our household is my highest priority.  Followed closely by our FICO scores.  While you are certainly correct that paying off x amount of credit card debt completely is a better option, it is also true that a balance transfer card with a zero percent introductory period carrying the same x balance is less expensive than carrying x debt on a card that is charging interest.

Yes, I know that it is a shell game of some variety, but paying $100 per month on ONE larger zero percent card costs us less dollars than paying six  $25 dollar payments on six cards that ARE charging us interest.  Also, every dollar I pay will actually reduce debt instead of paying interest.

However, in order to obtain a decent zero percent balance transfer card, one must have the FICO score...

Methinks I might have pulled all of my hair out by the end of this year. 

[Anonymous]

Hey!  I think your idea of a 0% card and a balance transfer is awesome.  And it will be even better if you can find a card that will give you the 0% rate and no BT fee.

If you can swing that or anything close to that, I would forget altogether about FICO scores.  It's fine if that 0% card has a very high (individual) utilization.  It won't matter in the long run because you will then be steadily paying it down.

Look closely at the terms of any 0% card offer.  The two things to know are (a) what is the fee for a balance transfer (if any) and (b) what happens if you don't pay off the card by the time the introductory period comes to an end?

Best of luck!

[masscredit]

This is what worked for me when I was paying down my balances. It allowed me to pay little to no interest while keeping my utilization low and scores high (well, high for me ).  First I staggered my due dates. Spread them out throughout the month. My Cap 1 cards have no BT fee so I put them at the beginning of the month. Most of the other cards are around the middle of the money. 

After that was set up I did the following -I'd pay my Cap1 card down to an amount that is equal to the monthly expenses that I usually put on my credit cards.. That statement closes on the 6th. On the 7th, I'd balance tranfer all of my other cards over to that one so they would report a zero balance when their statements closed.  Then I'd pay the Cap 1 down again the next month and repeat. Some months I'd use the cards more than others but I'd always pay it down to that set amount (usually $795.00).  This helped clear out all of my other cards, just had one reporting a balance, it kept my utilization low and it gave most of them use. You might have cards that will allow you to do the same thing. Or if anything, run as much as you can though your cards instead of paying with cash/checks but... make sure you pay that amount off.  What that will do is lower the amount that the finance charge is being based on. I found that to work when I needed it. 

Just a suggestion.  Good luck! 

[Wangta]

Wow.  I'm a newbie to FICO score analysis but read this thread and am facscinated yet confused. 

Completely get the utilization metric.  And it seems that the "sweet" spot is having < 9% overall utilization of total credit with only one card holding that balance.  

But I'm confused - is it better to ONLY use one card and make sure that it's lower than 9% utilization on a monthly basis?  Or is it better to use multiple cards on a monthly basis, but pay down completely all except one card on a monthly basis, and have <9% utlization at the end of the month?  I was under the impression it was better to use mutiple cards every month?

[Anonymous]

How many cards you have/want and how you use them is an individual choice. There are plenty of people here that think winning the game is having as many cards as CCCs will give them. Nothing wrong with that. Others will tell you, three is enough. All up to you.

Tribal knowledge (stole that from a thread I read earlier) is: use as many cards as you want, take advantage of rewards but pay all off but one prior to statement cut and let one report below 9%.

Good Luck!