Lowering utilization effect on scores?

[lg8302ch]

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@Wangta wrote:

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?

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If I would use only 1 card that would defeat the purpose of having rewards cards. I am all in for maximize rewards and not scores. I am using all of mine for their purpose and only pay before statement cut date to report 0 balance if I want to apply for anything. There is no need to have my scores in best shape the other times of the year. Way too much stress to micromanage my payments 😜

[Anonymous]

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@Wangta wrote:

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?

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Hello Wangta.  It depends on what you mean by better.

If you mean, "better for gradually improving your score over time" -- then there's no particular advantage to ONLY use one card.  For long term strategy, it's just as well to use whatever cards naturally make sense each month.  That might mean using 7 out of 7 cards that month, or only 1 out 7.  Just depends on what cards you have and what you needed to buy.

But in rare situations -- a very specific moment in time -- you need to squeeze out every extra available point of your score.  Like when you are getting ready to close on a house, say.  In those situations, you want to do the All Cards At Zero Except One rule (with an ultralow utilization).  That will -- very temporarily -- optimize your score with respect to your CC balances.  But doing that over a long period of time --- many months in a row, say -- will benefit you no more than if you had just used your cards naturally and then optimized in the last month.

[Anonymous]

I agree with Credit Guy in Dixie - he has been at this much longer than me and is a consummate credit guru. My advice is the same but I tend to always say keep less than 9% on only one card.

I think a lot of people here used credit like cash - each case will vary. For me - not paying interest and using points is my goal so I tend to advise that way. It is a great habit to get into and a safegaurd from running into trouble at some point. Plus, why build up all those great points just to pay 13-20+ points in interest.

Best of luck on your journey

[Thomas_Thumb]

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@Wangta wrote:

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?

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It is adviseable to use all your cards on a periodic basis - at least every 3 months to avoid cards potentially being tagged as inactive. How many you use each month is up to you and how you want to leverage rewards.

You do want to maintain aggregate utilization under 9% to maintain best score potential. Will your score go down if you let a card report a 30% balance and you maintain aggregate utilization under 9%? - probably not. Go ahead and test it to see how your profile reacts. That's the only way you truely know how the scoring models treat your credit profile.

If you have sufficient credit lines to let balances report naturally without approaching 9% aggregate utilization, give it a try. In general, I am not a pre-pay before statement advocate because you lose the benefit of interest free float time on your charges.

Yes,  # cards reporting a balance is a factor in scoring. Will reporting a balance on 2 or 3 cards (as opposed to one) hurt your score? Probably yes if you have a thin profile and only a few cards. Perhaps no if your profile is thick and well aged.

The best way to understand your profile's reaction to indiividual credit card utilization, aggregate credit card utilization and # cards reporting is to test them yourself. There is no harm in this as impact is point in time only - scores when pulled are always based on latest factor values. As the saying goes: "trust but verify".

Good luck on your journey.through MyFICO world

[ch8ngeurstars]

Hi everyone,

     I have been working on building my credit for a few years now. I paid off all collections a couple years back and now I finally paid off all my credit cards from 98% utilization. My FICO suggested that paying $189 a month on my overall balances would increase my score to 688 in two years. Like most people I didn't  want to wait that long so I paid them off at once with the exception of the highest one. The highest card had a balance of $3,150.00. I paid it down to $752.00. I did this all a weeek ago and today I got an alert from Myfico showing a change to my experian report. So I logged on and my score jumped 46 points just from one of the cards repsorting that I paid off. It went from 562 to 608. Then this afternoon I got another alert and my transunion score jumped 38 points from 577 to 615.  I could not be happier because I'm thinking they're both going to go up quite a bit more once the other two cards report their balance change.

[tcbofade]

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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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Well, the good news is that I hit 660 this morning! 

The better news is that there are still a few cards reporting maxed out that will update in the next five or six days...when I get to having zero cards maxed out, I expect a significant bump in score. 

The bad news is that two accounts aren't reporting properly, so my util is going to report a little higher than I wanted. 

Either way, I've hit 660 and I'm certain my scores will continue to climb over the next six days.

Is it March yet? 

[LilyBee]

Hello - New to this thread.

What is the formula for 'utilization' of cards?  Does home equity figure into the score?

Also, there were some comments about using all your cards or 'there will be dire consequences' or something.  I have about 15-20 cards, but only use one or two if necessary. 

What up?

[NRB525]

You have 850's across the board and have not been below 800 in the last 10 years?

Apparently you are doing it right

Home equity doesn't figure in. The mortgage loan has a starting balance, and a current balance. That would relate to Mortgage or Term Loan utilization, a separate component in the FICO metrics from Revolving Credit utilization.

Utilization of credit cards is strictly revolving credit card limits and their associated open balances, in simplified terms.

The concern about not using a card is, some CCC will close the card after some extended period of non-use. Dire consequences is a bit strong language, since if one is not using the card, one likely doesn't really need the card. A well-aged card can help with average age of accounts, but if two are serving your needs, that's what you should use. It is a good idea, if you want to keep a card reporting with good age, to use that card now and then, though the necessary time gap is not any scientific formula.

[Thomas_Thumb]

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@LilyBee wrote:

Hello - New to this thread.

What is the formula for 'utilization' of cards?  Does home equity figure into the score?

Also, there were some comments about using all your cards or 'there will be dire consequences' or something.  I have about 15-20 cards, but only use one or two if necessary. 

What up?

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Hello LilyBee:

Not sure what you are asking regarding utilization of cards but, a few things come into play such as:

A. Adverse Action due to non use

Using cards periodically to maintain them in active status. This is not directly credit score related. The risk of not using a card in more than 6 months is the credit card issuer may tag it as inactive. An inactive card may be subject to adverse action (AA): Credit line decrease (CLD) or closure. Timelines reported for AA due to non use have been as early as 7 months to as long as never. If you have a store card that you used at least once, odds are the store won't close the account until at least 4 years of non use. Also if you have annual fee cards it is unlikely they will be closed.

The highest risk of AA appears to be with "bank" cards which includes AMEX and possibly Discover. I have a Fidelity FIA Visa card that suffered AA 4 years ago. I only used it once in an18 month time span and FIA slapped me with a $7k CLD. Not real happy about that. Now I make sure I use all my CCs at least once every 4 to 5 months. A few posters reported having their CC accounts closed with only 7 to 12 months of inactivite (Wells Fargo for example). When that happens you lose the CL associated with the card which then increases aggregate utilization % at the same total balance.

B. Number of cards reporting a non zero balance

It is commonly known that a balance needs to report on at least one revolving credit card each month. If no cards report a balance, Fico 08 score will drop quite significantly. Typical drops are in the 25 to 35 point range.

It is generally understood that one card reporting a balance punches the ticket. Reporting balances on too many cards, even if the balance is quite small, can cause a drop in score. That drop can be 20 points depending on ones profile. How many cards can report before a score drop and magnitude of the drop is profile dependent. In your case, my guess is you can allow a balance to report on at least 3 cards without any affect on Fico score- assuming you maintain aggregate utilization across all revolving accounts under 9%..

C. Individual CC account utilization

The amount one allows to report on a given credit card relative to its limit (UT%) is a factor in Fico scoring. How high a utilization one can put on a card before it negatively impacts score depends on how it influences aggregate utilization and on one's profile. In your case, I am fairly certain you could allow an individual  card to report at least 49% utilization without any affect on Fico 08 Classic score - as long as AG UT is maintained under 9%. Frankly, I suspect you might be able to let a low limit card report up to 80% without an impact.

D. Home equity

I assume you are referring to an installment loan (mortgage). It is generally believed having an open installment loan is important for Fico 08 scoring. It does not need to be a mortgage. The installment loan may be "worth" up to 30 points, if the aggregate balance to loan ratio is low. Based on data presented on MyFICO, it appears the thresholds for balance to loan may be "under 70%" and "under 10%". Do you need this ratio to be under 10% to reach an 850 Fico 08 score? Certainly not with mortgages - I'm at 40% and was over 50% at 850. 

Not sure that I answered your questions.

P.S. I would recommend you purchase a 3B report at least once to see your mortgage ant other Fico scores. Other than Fico 09 Classic, the other Fico scores don't have a buffer at the top end. I find them helpful in determining how my profile reacts to "disturbances".

[LilyBee]

NRB and TomT - Thank you both for the education on elements of utilization, et al.   I guess the application I was thinking about is the Revolving Credit percentage.  It's been mentioned quite a bit, but I never really thought about it.  I'll need to copy your in-depth responses for my own information and for future reference.

NRB, my scores have probably been high for a long time because I've never been late with a payment on anything, and usually pay off any charges as soon as possible.  (My folks taught me well.)  I do have a mortgage though with only 9 years left, and one upcoming credit charge.  I really think I'm allergic to credit cards. 

Thanks again.