Paying off credit cards every month is a negative

[Anonymous]

I did a FICO score today and one of the negatives said this: "You've made heavy use of your available revolving credit."

Uh yeah, and I pay them off every month on time. Some of us make a decent income and can afford to do this. And this is a negative on my score? Unbelievable.

[RobertEG]

I would not interpret this as a negative on your score.  The comments portion of your CR is merely a general warning that certain practices may, on the average, indicate potentail risk to future credit score.  High usage of revolving credit is, potentially, a risk factor for most consumers.

But it is NOT a comment about you, individually.  If you PIF each month, those comments have NO relevance to your score.  FICO does not score on how much you charge each month, only on the CL vs the reported balance. 

Comments do not equal credit score impact.

[Anonymous]

Paying your CCs off before the due date to avoid finance charges is a good thing, but that does not affect your utilization.

For example, if I have a card with a $10,000 limit and charge $2,000 every month and PIF after the statement is cut, my utilization is 20% -- not 0%.

Since the optimal utilization is between 1% and 9% of both individual cards and your overall credit limits (and to not report a balance on all your cards -- most people here on the forums suggest to only have one CC report a balance), you would want to have a $899 or less statement balance to report. The way you would do that is to make a payment to the card before the statement cuts.

The other option in the above example would be to secure a higher credit limit. If you were charging $2,000 per month and you wanted 9% utilization without paying before the due date, you would need a credit limit of at least $22,223.

I hope that helps.

[vanillabean]

It can be added that many credit cards unfortunately do not report their credit limits. You may have a credit limit total of $100,000, but the reported total may be $0. So if you charge just one dollar per month, your available credit is negative.

Credit limits not reporting for some of your cards may cause a utililzation of say 90% instead of an otherwise expected utililzation of say 5%. The scenarios are endless. A score report generally does not list how the utililzation is calculated.

Calculating the average age of accounts is easy because everything counts. Calculating the utililzation, monthly balances in percent of credit limits, is not like that. Some count and some do not count, and that provides plenty of entertainment in this forum.

[haulingthescoreup]

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@Anonymous wrote:

I did a FICO score today and one of the negatives said this: "You've made heavy use of your available revolving credit."

Uh yeah, and I pay them off every month on time. Some of us make a decent income and can afford to do this. And this is a negative on my score? Unbelievable.

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This means that your statement balances (amount due) are reporting to the credit bureaus. Once they're on your reports, they're used in calculating your util (revolving utilization.) The credit bureaus don't report whether or not you then pay them off in full before the due date, so there's no way of determining whether you're carrying balances (possibly due to money problems) or PIF'ing (paying in full.)

The credit bureaus chose to use this figure for reporting purposes. I think it would have been much more informative to report balances as of the due dates, but no one asked me.

So even though it's dumb, it's easily fixed. Pay all your accounts a few days early, so that all but one reports $0. Let that one report $10, and then don't forget to pay it off. Let all these $0's (and the $10) report, and check your scores again. I think you'll have a nice surprise.

Yes, it's silly. But if you want to make the system work to your advantage, now you know how.

[Duke-of-Earl]

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@haulingthescoreup wrote:

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@Anonymous wrote:

I did a FICO score today and one of the negatives said this: "You've made heavy use of your available revolving credit."

Uh yeah, and I pay them off every month on time. Some of us make a decent income and can afford to do this. And this is a negative on my score? Unbelievable.

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Yes, it's silly. But if you want to make the system work to your advantage, now you know how.

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+1 to both parts of this statement!  The silliness factor was much in my mind while signing my name endlessly, closing on my refinance last week:  To make this quarter-million-plus mortgage loan work, I had to crap around at the ten-dollar level on my credit cards!  But it did work.  Thanks to all for recent advice.

[Anonymous]

I guess to me playing games is not my style. I think this whole scoring/credit system becomes a scam in the end. It's as if they're not telling the entire story. How about having a PIF (Pays in Full) column? That way, the creditors can actually see what's going on and tell the entire story. Another "negative" on my credit report was that I didn't have any revolving car payments. OK, so I paid for my car in cash. And that's a bad thing? In the old days when you could write off any kind of interest (back in the 70s), I could understand having a car loan. Since rules have changed and you can't deduct that kind of interest any longer, why pay it in the first place if you don't have to? 

[haulingthescoreup]

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@Anonymous wrote:

I guess to me playing games is not my style. I think this whole scoring/credit system becomes a scam in the end. It's as if they're not telling the entire story. How about having a PIF (Pays in Full) column? That way, the creditors can actually see what's going on and tell the entire story. Great point. See if you can persuade all three credit bureaus to start reporting this. Since they don't report it, the scoring formula can't consider it. If it's not on your reports, it can't be factored in. Another "negative" on my credit report was that I didn't have any revolving car payments. OK, so I paid for my car in cash. And that's a bad thing? In the old days when you could write off any kind of interest (back in the 70s), I could understand having a car loan. Since rules have changed and you can't deduct that kind of interest any longer, why pay it in the first place if you don't have to? Agreed. FICO scoring should take second place to good personal finance practices. Out of curiosity, is this the last or nearly last negative factor in your scores? There are always 4 negative factors listed on the full reports that lenders pull. (We see fewer than four on myFICO score reports as scores rise.) My guess is that the high reported util is a major hindrance to your scores, and the lack of an installment loan isn't that big of a deal. We have members here with long, clean credit, only 3 open CC's, and no loans or mortgages reporting, and their scores are in the 800's.

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I hear you about the game playing. And some people are so perturbed about the system that they opt out entirely, choosing to live off the credit grid.

But in anything that we do, there's a certain amount of games going on, and learning how the game is played can make your day go better. At work, it's smart not to cross the receptionist, unless you want to have every nuisance call sent directly to your phone. In relationships, insisting on always having the last word and winning every argument might soon lead to not having anyone to argue with. In football, showing happiness at making a big play seems to now result in a 15-yard penalty for illegal celebration, so it appears that players should now just trudge back to the line of scrimmage and start the next play.

I don't think that the current system of scoring is particularly fair to each individual, but the dreary world of statistics has shown that it's a pretty good risk predictor in general. (And I loved statisics so much that I had to take it twice. ) So if I can learn enough about what the scoring formulas consider, and I can tweak some of my habits enough to make the algorithm "happy", I will certainly do so. I'm certainly happier with my scores now than with the 590 I had in the late spring of 2007.

And I get much better deals, including rewards, on my credit products as a result.

[Anonymous]

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@RobertEG wrote:

I would not interpret this as a negative on your score.  The comments portion of your CR is merely a general warning that certain practices may, on the average, indicate potentail risk to future credit score.  High usage of revolving credit is, potentially, a risk factor for most consumers.

But it is NOT a comment about you, individually.  If you PIF each month, those comments have NO relevance to your score.  FICO does not score on how much you charge each month, only on the CL vs the reported balance. 

Comments do not equal credit score impact.

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I don't think that you want to say it that way.  Your FICO score does not taker into consideration whether the reported balance isall being financed or are simply monthly purchases that are PIF each month.  Your score is affected by the balance on your CC.

i agree with you though that the comments are often worthless and sometimes even misleading.

[Anonymous]

I appreciate all the replies here, but ultimately I think two things would make a more realistic "creditworthyness" report.

One, to put another column for those who PIF each month - stating how many months they had PIF.

But the ultimate reality check would be to tie your credit history with your [verified] income.

Now THAT would be the real picture.