Reason for the drop?

[Anonymous]

Hey guys. I'm curious as to what could've been the reason for a drop in my credit score this month from 675 to 635? I've had 2 inquiries in July, and 100% on-time payment (always pay the next day after statement comes in) of my 2 credit cards. Was it the inquiries that negatively affected it? If so, does that mean that I can never apply for anything if I don't want my score to drop? Doesn't make any sense tho...

Screenshots

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[Edward0215]

Did your utilization change?

[CreditDunce]

It is probably util.  With such low CL's your credit score will jump all over the place based on how much you let report each month.  My recommendation would be to completely ignore it for the next year.    Then apply for a couple of non-AF CC's that your really want.  A couple of months before app'g make sure you only let one CC report a maximum of 9% of that CL.  All other CCs should report 0.   You may need to pay your CC bill before the statement cuts to pretty up your credit score.  But you only need to micromanage like this before app'g.

Note, util has no memory.  It will only effect your score while the high utilization are being reported.  Once you pay down the balance and let it report, your score will go up.

If you want to earn bonus points, you could open a shared secured loan.  It will help your credit mix and give you a better score in a year.  However, it is not necessary to have a good credit score.

[Anonymous]

Gotcha! Thanks a lot. This is all still confusing to me, but from what I understand, I just need to improve and maintain good utilization? 

1. Is the higher % of utilization, the better?

2. How do I increase (better) my utilization?

Thanks again!

[CreditDunce]

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@Anonymous wrote:

Gotcha! Thanks a lot. This is all still confusing to me, but from what I understand, I just need to improve and maintain good utilization? 

1. Is the higher % of utilization, the better?

2. How do I increase (better) my utilization?

Thanks again!

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Lower utilization is better than high utilization, but they want to see you are at least using it.  A zero balance is bad.

Let's say you have three CC's each with a $1000 CL.  You spend $500 on each CL one month.  Each CC has a 50% util (500/1000) and the total util is also 50% ($1500/3000).  You are not maxing out any of the CC's (say 80%+), but your score will suffer that month due to the high utilization. 

To improve your score, you look at your balance and any pending charges on each of your CC's.  You pay two of the CC's down to zero before the statement cuts.  They will report a statement balance of $0 and report the same on your CR.  The other CC, you pay down to between 1-9% utilization.  In general, lower the better, but anything less than 9% is good.   In this case, you could pay $410 before the statement cuts so it reports a balance of $90 when the statement cuts.  Or 9% utilization one one CC and a total util of 3%.

You only need to do this right before applying for something big.  FICO does not have any memory of your previous balances / util.  However, I highly recommend you always pay the full statement balance before the due date.  If you do so, there will not be any interest charged.

Note, some CCC's (e.g. US Bank I believe), report the balance at the beginning of the month, not your statement balance.  For those, you need to pay the bill down to what ever you need before it reports.  Other CCC's may skip reporting a month for various reasons.  For example, Discover does not report the month you have a CLI. 

[Anonymous]

Thanks a lot for this massive post. It's very helpful! But at the same time, it confused me because I had different info.

Basically, I was using two of my CCs because I was told that I need to pay the balance AFTER the statement comes in to help utilization, so that's what I did. If I need to have 0 balance at the time of the statement, that means I might just as well not use CCs, right? I would be more than comfortable with that because I really don't want to use them at all. Only for the credit. 

I now have Capital1 with 300 USD limit, and Discover with 1250 USD limit. Would it make sense to use just one of them (which one), and how much should I charge each month on them and when should I pay off (a day before the statement?) Thanks a thousand times!!

[CreditDunce]

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@Anonymous wrote:

Thanks a lot for this massive post. It's very helpful! But at the same time, it confused me because I had different info.

Basically, I was using two of my CCs because I was told that I need to pay the balance AFTER the statement comes in to help utilization, so that's what I did. If I need to have 0 balance at the time of the statement, that means I might just as well not use CCs, right? I would be more than comfortable with that because I really don't want to use them at all. Only for the credit. 

I now have Capital1 with 300 USD limit, and Discover with 1250 USD limit. Would it make sense to use just one of them (which one), and how much should I charge each month on them and when should I pay off (a day before the statement?) Thanks a thousand times!!

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As long as you are using both CC's each month, it doesn't matter if you pay before the statement cuts or after the payment cuts.    When CCC's report, they report your statement balance, min. payment, how much you paid that month and other details.  Even if you pay before the statement cuts and it reports a zero balance, they will know you are using the credit card.   Note, it can take a day or two once you pay before the CCC credits your payment. 

The advice you got is good advice. As long as you pay in full before the due date, your credit score will increase over time.  However, with low CL's, you credit score will bounce around each month depending on your utilization that month.   Having consistent utilization will not cause your credit score to increase any faster.  It will just keep your score near the top of your range so you can see it rise over time easier.

As far as how much to use your CC's, my advice is to use them in place of cash or debit cards.  Just be careful to not spend more than you would otherwise spend or spend more than you can pay in full each month.   Use the CC that will earn you the most cash back for each transaction.  For example, use your Discover card when you get the 5% categories or are shopping online (via ShopDiscover).    If there are months you only use one CC that is ok.  It is not quite optimal, but your credit score will slowly increase either way.   However, the more you run through the cards, the more likely you are to get CLI's.  While higher CL will not give you a higher credit score, they make keeping your utilization low easier and future creditors like to see higher credit limits.

You will have to experiment to see the exact amounts that will maximize your credit score each month.  The rule of thumb is 1-9% reporting on one CC.  Lower is normally better.  Since your Cap1 CC has a lower CL than your Discover, letting it report a low balance will probably give you a slightly higher credit score since your total utilization will be a little lower.  But you will have to experiment.  The differences will be small between the two choices as long as you are under 10% utilization on one CC.   Moreover, if you want to keep things simple, as long as you pay your bills each month, you credit score will take care of itself.   You don't have to micromanage your credit score each month.  Personally, I only worry about my credit score right before I am going to apply for something big.

A couple of small other points:

1) Discover gives you a free FICO TU-08 score each month.  Cap1 provides a FAKO TU score each month (it is the same score model as CreditKarma).  You can monitor the Cap1 score if you like, but it is not used by CCC's.  It is for educational purposes only.  Note, it doesn't seem to be as sensitive to utilization as FICO scores. 

2) Discover does not report to the CRA's any month you do not have any activity (i.e. don't have any charges or payments).  They also do not report any months you get a CLI.   While it is best to have at least 2 CC's report each month, it is ok if it doesn't report every now and then.

3) If your Cap1 CC has an annual fee, be sure to search the forums on how to contact the EO to have the fee removed/waived next year.  Eventually, you want them to do a product change to a no-fee credit card.   You want to keep your oldest CC's open since they use the age of your oldest TL in calculating your credit age (older is better).

4) In a year or two, you may want to consider adding a third CC.  Two CC's are all you need to build good credit history.  However, the third will make it easier to optimize your credit score when you want the highest possible credit score.  I would recommend an American Express credit card or charge card.   Your Member Since Date will be set to the year you get your first Amex card.  It can be very helpful in 10 to 20 years.