The Truth about Credit Card Utilization

[sarge12]

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@SouthJamaica wrote:

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@sarge12 wrote:

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@Anonymous wrote:

Not to be controversial in any way and with all due respect, but in order to determine or even attempt to determine utilisation thresholds, you have to use the same utilisation calculations that the algorithm is using, meaning you have to calculate it yourself from the data in your credit report and round it up as the algorithm does.

If you use data provided by any other source, it may or may not have calculated it differently. If it was, then it’ll be an exercise in futility, doubts will arise because sometimes it works out and sometimes it doesn’t, and you’ll never be able to pin down the thresholds. Why take a chance,  calculate the data yourself so you know it's correct. JMHO.

And I wanted to add a note that, while I also believe the number of accounts/revolvers with the balance is percentage based, there is a theory that raw number has some effect or may in fact be the method of measuring the metric instead of percentage.

I believe there could be a possibility of raw number being the metric or contribute to the metric on a thin file however, but that’s just an opinion and I have no evidence to offer.

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I hate to tell you this birdman7, but the only way to not be controversial, is to say nothing and post nothing. See, I just proved that by making that statement controversial. I agree that trying to figure utilization is futile, but some might disagree with that too. I hope you take this post in good humor as intended.

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If Birdman7 stopped being controversial I'd be disappointed. Then I'd have to stop being controversial too.

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Agreed, and being controversial is very healthy for learning. I have often learned a lot by listening to those with opinions opposite my own, sometimes even changing my original opinion. It is only when debate breaks down into personal attacks that I abandon debate. I have always felt if someone disagrees with me on anything, debate the issue to try and change my mind. That is admittedly getting harder these days as way too many people get easily offended. Some also seem to think not ever being offended is a constitutional right. If I become offended, that is OK, nothing really bad happens when I am offended. I just marvel sometimes at things that offend people these days. This is not applicable to people in this forum, just general observations of society. Very seldom here have I seen that here. I just miss the days when vigorous debate was welcomed in society.

[Anonymous]

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@SouthJamaica wrote:

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@Anonymous wrote:

Not to be controversial in any way and with all due respect,

You and I are friends, have mutual respect, and have the same goal -- trying to understand FICO -- so don't feel the need to treat me with kid gloves, just spit it out, I won't be offended [I know you well enough to know you will eventually spit it out anyway ]

but in order to determine or even attempt to determine utilisation thresholds, you have to use the same utilisation calculations that the algorithm is using, meaning you have to calculate it yourself from the data in your credit report and round it up as the algorithm does.

I always calculate it myself -- daily.

But as to what the algorithm is doing, I have no inside knowledge of that.

If you use data provided by any other source,

I have to use the data that's in the reports, rather than the actual data that I have, if I'm going to make sense out of the FICO score changes

it may or may not have calculated it differently. If it was, then it’ll be an exercise in futility, doubts will arise because sometimes it works out and sometimes it doesn’t, and you’ll never be able to pin down the thresholds. Why take a chance,  calculate the data yourself so you know it's correct. JMHO.

And I wanted to add a note that, while I also believe the number of accounts/revolvers with the balance is percentage based, there is a theory that raw number has some effect or may in fact be the method of measuring the metric instead of percentage.

True, that's another theory, and it may well be true. As I mentioned, I just don't know. There was one time when I kept gaining and losing 11 points in FICO 2, each time I toggled between 12 accounts with balances and 13. At the time it seemed to me to be based on percentage, because with 12 I was below 40% and with 13 I was above 40%. But then something happened -- I don't remember what it was -- that caused me to doubt my percentage theory.

I believe there could be a possibility of raw number being the metric or contribute to the metric on a thin file however, but that’s just an opinion and I have no evidence to offer.

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😊 Absolutely we are friends and have mutual respect and have the same goal. Agreed. 

What I'm saying is exactly that, you gotta calculate it yourself in Excel or whatever based on the reporred balances in the CR. The only things the algorithm gives us is score and negative reason codes. 

The data, reported balances, etc.. come straight from the CR, so it's reliable, but all the calculations the CMSs do cannot be trusted. If you want to know an aging metric or utilization, you can't count on the CMS calculations. They take data from the CR, but they don't calculate and round like the algorithm. 

So just saying, don't trust CMS calculations, do it yourself from the CR data. JMHO. 

I remember the 12/13 change, 40%. You gave up I think cuz you couldn't confirm the big CL cards were being counted, IIRC. 

@sarge12 You always good!! And usually right! Lol! 😉

[Anonymous]

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@sarge12 wrote:

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@Anonymous wrote:

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@SouthJamaica wrote:

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@Anonymous wrote:

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@SouthJamaica wrote:

3. I would advise someone struggling to improve their credit scores to work on the assumption that 19%, 29%, 39%, 49%, etc are thresholds in aggregate revolving utilization, but I do not know that they are, or even believe that they are. I'm sure that 34% is better than 39% and worse than 29%.

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I believe there is more to this story as well, based on one of the questions the FICO Score Estimator asks (this is not the SIMULATOR):

I don't think that's obfuscation. Also, we know there is a reason code related to 'Amount owed' on FICO 8, and that probably carries some more weight as balances increase above what most people normally report.

For example, 1% of a $1 million total credit line is $10,000, and that's definitely above the $6K or so average balance carried on cards (as recorded by CFPB credit survey).

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Yes but

(1) aren't you one of the people who decry the "front end" codes as having nothing to do with the real FICO algorithms?

If you mean the utilization calculation, definitely. It's using the standard midpoint rounding of most programming languages where FICO is using a simple ceiling function. So I would never use the front-end calculation.

But that has nothing to do with the Estimator either.

(2) how do you know the score estimator is more valid than the demonstrably invalid score simulators?

I give it much more credibility due to the way that FICO has promoted it for over a decade. It's a pretty good range estimator for profiles around 5yrs or less in age, from what I and others have experienced.

They were specific with those percentages for a reason.

(3) why would the score estimator be more valid than the score simulator?

Generally speaking, there is no reason I can point to besides what I mentioned above about my own experience and others below 5yrs total history.

(4) do  you know the source of the coders' percentages?

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Of course not. I just think there may be more to those percentages from FICO itself then other sources. It always needs testing to confirm.

I know for a fact I have a 5% threshold on my scorecard - I've cross it 9 times now, always losing the same EQ 8 -3, TU 8 -1, EX 8 -3 every time I am above 4.00% actual aggregate utilization - ceiling, not front-end midpoint.

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There is still the very real liklihood that utilization percentages might differ among each individuals scorecards. Is 80% utilization treated the same for someone with 3 credit cards with the limit of 500 each, as the same 80% for the individual with 20 cards averaging 10,000 dollars credit limit each? I doubt it. That is the issue with assumptions based on observing only your own credit profile. While the thresholds might remain the same for everyone, it might vary wildly with the effect on your score. While there is a lot of evidence to suggest that less than 9% is a threshold for everyone, the actual cost in points is likely different based on individual profiles. I know that the one card in my name that only my sister charges to as an AU, and she pays the bill, has had no easily noticable effect on my score even when that card went over 50% utilization. It was over 50% when one of my fico 08 scores was 835, and all were 820 or better, so how much could that higher than recommended utilization on the single card really make? Short of what is my normal behavior of PIF every other card, usually multiple times each month, I have found utilization not worthy of any real attention anymore. My normal credit habits keep aggregate utilization very low anyway. In general, I think we give utilization far more attention than it deserves. That is mainly because it is one of the few we can control, other than the obvious avoidance of negative payment and credit mix.

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@sarge12 You are correct that signal strength of scoring metrics vary by scorecard and a thin profile would be punished much more than a thick one for 80% utilization. 

And yes, individual utilization is much less punitive than aggregate. 

[Anonymous]

Question here. My utilization on one of the 2 cards I have a balance left on (total avail on all credit cards is like 23k roughly) of got reported as 85 percent (Cap one balance of 5500ish of 6500 total). It was at like 80 before the interest kicked in this cycle. My other card is a citi AA card and it has a high balance 4400 of 4800 avail credit. My credit score dropped like 50 points on experian solely bc of it. There were no other changes at all bc I looked it over and Im signed up for MYFICO. 

I paid the citicard 1100 bc they report next. So I owe 3300 now. 

Was I right in paying the citi card down because it reports sooner or should I send the money to capital one? Thank you! 

[mowglidude]

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@mowglidude wrote:

@SouthJamaica Can you expalin a little more how this works please?

(c) the percentage of individual accounts reporting greater than a zero balance is a factor.

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@SouthJamaica @Anonymous @sarge12 Thank you all for the robust discussion on my simple question. I'm just gonna assume the more zero balances the better, no less than one. How do I get the interest from the previous month, to not report at the last minute before statement is cut. I paid one down to zero, but reported like $116. Luckily two are Chase, so I will pay those down to zero again, when I need to test a threshold or something later this month, since they report zero balances.

[sarge12]

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@mowglidude wrote:

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@mowglidude wrote:

@SouthJamaica Can you expalin a little more how this works please?

(c) the percentage of individual accounts reporting greater than a zero balance is a factor.

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@SouthJamaica @Anonymous @sarge12 Thank you all for the robust discussion on my simple question. I'm just gonna assume the more zero balances the better, no less than one. How do I get the interest from the previous month, to not report at the last minute before statement is cut. I paid one down to zero, but reported like $116. Luckily two are Chase, so I will pay those down to zero again, when I need to test a threshold or something later this month, since they report zero balances.

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Most cards will report the statement balance, but whether it reported the following interest in most cases does not matter. Try to remember that in the most commonly used fico 08 scores, utilization carries no history. It only matters what it is when pulled. If you had a 70% utilization for 5 straight years, then pay it down to 5%, the next pull after it reports will be the same as it would have been if it had always been 5%, as far as it's effect on a score. There is reports that historical data for utilization might count in fico 09, and other future scoring models, but not in fico 08 or earlier. That is why utilization can create such massive credit score changes in a very short time.

          You can't change anything like AAoA, AOyA, payment history, and such to increase a score 50 points in one month, you can with utilization. Remember though a return to high utilization can also cause the same massive losses on a score. High utilization can lead to more long lasting credit score changes if the high utilization leads to the issuer taking AA by closing cards, balance chasing, or CLD or even their failure to approve a CLI. I personally pay every card in full at least once a month, (that prevents my cards from granting CLI) except 1 card my sister only uses and pays. That alone keeps my utilization fairly constant. The reason for CLI denials are failure to ever use a significant amount of my existing credit limit. They just don't wish to supply me with additional credit limits they know I will not use. They are well aware that many of us raise limits to decrease utilization. They are not interested in doing so just to make it easier for us to have low utilization. Remember that lender can see trends and such in how you use their card, that will not show on a credit report. They actually call strict transactors deadbeats internally.

       Deadbeats to them are those who get rewards, and use their money interest free, while never paying a cent of interest. Deadbeats represent little or no profit for the issuer, but also pose very little risk of default. Rewards and SUB's, eat up most, if not all of merchants swipe fees. Revolvers who do not let the amount of debt they carry to ever become unmanagable, are by far the most profitable for issuers. Issuers loves these revolvers, and since they are why rewards and SUB's exist, so do I. They did not create rewards and SUB's to attract transactors. If every cardholder either defaulted, or were transactors, issuers would remove rewards and SUB's, or go broke, and monthly fees would be imposed. Most, if not all, an issuers profit comes from responsible revolvers.

[SouthJamaica]

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@mowglidude wrote:

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@mowglidude wrote:

@SouthJamaica Can you expalin a little more how this works please?

(c) the percentage of individual accounts reporting greater than a zero balance is a factor.

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@SouthJamaica @Anonymous @sarge12 Thank you all for the robust discussion on my simple question. I'm just gonna assume the more zero balances the better, no less than one. How do I get the interest from the previous month, to not report at the last minute before statement is cut. I paid one down to zero, but reported like $116. Luckily two are Chase, so I will pay those down to zero again, when I need to test a threshold or something later this month, since they report zero balances.

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I would push an extra payment to cover the interest

[sarge12]

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@Anonymous wrote:

Question here. My utilization on one of the 2 cards I have a balance left on (total avail on all credit cards is like 23k roughly) of got reported as 85 percent (Cap one balance of 5500ish of 6500 total). It was at like 80 before the interest kicked in this cycle. My other card is a citi AA card and it has a high balance 4400 of 4800 avail credit. My credit score dropped like 50 points on experian solely bc of it. There were no other changes at all bc I looked it over and Im signed up for MYFICO. 

I paid the citicard 1100 bc they report next. So I owe 3300 now. 

Was I right in paying the citi card down because it reports sooner or should I send the money to capital one? Thank you! 

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      With utilization, the 50 points lost on fico 08 due to increased utilization, will be returned when utilization drops back to previous levels. If the drop was due to utilization alone, every single lost point will be returned. Utilization carries no history in fico 08 or earlier scores. You are wrong however when you say that is the only thing that changed on the report. Your AAoA, AoOA and AoYA, at the very least changed. There also could have been some closed accounts that could have fallen off a report. Attributing a score increase or decrease solely to the change you are aware of is often a mistaken assumption. Time itself changed, and a credit score is a numerical representation of credit risk over time, so time matters. It is often the wrong assumption that leads many to think paying down a debt caused a score drop. They get an alert because they paid off debt, and see a score drop in the new score generated, and think the drop was due to the alert action. It is 2 seperate pieces of information. An alertable action happened, and the score dropped. It does not mean the alert cause the score drop, but could have. Paying down credit card debt will only decrease a score if it results in no credit card debt reporting.

[Anonymous]

@sarge12 

oh ok that makes sense. Excuse me with my newbieness when it comes to this. I didnt understand what happened when I dropped like that when all I have been doing is paying everything. I sent money to the citi card to try and boost up the score since they report next so I dont get killed on the loan app for the car I am buying in a couple weeks. I got a preapproval for 6.85 percent like 5 weeks ago when they did the credit check so they could order the car. Im just trying to get the rate lower when the car comes into the dealer and the point drop I saw today I was scared of. 

Again I apologize for sounding so uneducated when it comes to credit and its something thats so important. Thats my own fault. I should have informed myself years ago but I am learning now. 

[sarge12]

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@Anonymous wrote:

@sarge12 

oh ok that makes sense. Excuse me with my newbieness when it comes to this. I didnt understand what happened when I dropped like that when all I have been doing is paying everything. I sent money to the citi card to try and boost up the score since they report next so I dont get killed on the loan app for the car I am buying in a couple weeks. I got a preapproval for 6.85 percent like 5 weeks ago when they did the credit check so they could order the car. Im just trying to get the rate lower when the car comes into the dealer and the point drop I saw today I was scared of. 

Again I apologize for sounding so uneducated when it comes to credit and its something thats so important. Thats my own fault. I should have informed myself years ago but I am learning now. 

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They are not likely to pull again, but if concerned, after paying the credit card debt down, ask the card issuers to do an off cycle report to the big 3 CRA's. They will often do so if asked. If you actually ask the dealer to pull again to try to receive a lower rate, it might create a new inquiry. Getting multiple pulls at various dealers to rate shop, is all suppose to be counted as only one pull on a house or car, but asking the same dealer to pull again might result in a second pull. I would consider asking the dealer to pull again, a bit risky. Suppose the new pull returns a score below their approval threshold. If not underwater on the car debt, you can re-finance it later when your score is higher. If you owe more than book value on the debt, that might not be an option. Also, please don't apologize for any lack of knowledge, that is why this forum exists, and nobody here learned what we know overnight. I always try to respond when someone says that something is the only change to their report because AAoA, AoYA, and AoOA always changes, and a new pull will reflect the pre-approval inquiry if they did a HP for the pre-approval. If they only did a soft pull, they will likely do a HP before the actual sale.