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The Truth about Credit Card Utilization

Your FICO® Scores can impact your loan interest rates, terms, approvals and more.
New Member

Re: The Truth about Credit Card Utilization

Thank you Arkane for your response.

 

I understand that if I decided to stop paying they're on the hook.  They should consider that when they process my application and agree to provide a certain amount of liability when they know how much I make and what accounts are already open.  I've had several banks cut my limit despite me making payments on time for all of my accounts.  Businesses need to limit their liability and there are no laws that prevent them from offering a teaser limit only to reduce it later.  Many consumers are penalized because of their incompetence to properly assess liability when they process an application dropping their credit scores, an then penalizing them again when they reduce their limit changing their credit to debt ratio.

 

CLD's are also done because banks are worried about news that inflation is rising, the FED is raising borrowing rates, and they pass those costs onto consumers through higher interest rates, reducing perks and increasing fees.

 

I understand that a higher credit utilization on a single card will drop your credit score, but the penalty creates a domino effect that penalizes consumers unfairly.  One of my bank cards had a 0% balance transfer deal and when I called to ask about it suddenly they doubled my credit limit.  I transfered three balances for cards that had 18% interest that were only about 30% utilization on each card.  This was going to save me $1,600 and I'm positive that I can pay off the card 3 - 4 months before the transfer runs out.  By saving money I'm lowering my score, which makes other banks drop my limits which drops my score even more.  That's legal but it's not fair to consumers.  The only way to raise your score is to stay in debt and make rich people richer, but make no doubt, the game is rigged against consumers and you'll never stay on top of the game.

 

As far as keeping your accounts active, making small purchases and paying them off in full every month was something I tried but again, since I wasn't carrying a balance they dropped my balance.  If you don't carry a balance you're not paying interest and you don't need a higher limit.

 

 

Message 11 of 88
Frequent Contributor

Re: The Truth about Credit Card Utilization

Back on topic...  Smiley Wink

 

ABCD...are installment loans viewed the same as credit cards in FICO's eyes? 

 

If I had multiple loans say car, home and a motorcycle, will they be scored like credit cards (Individual and aggregate) or are they lumped together in one bucket? 

Message 12 of 88
Established Contributor

Re: The Truth about Credit Card Utilization


wrote:

Back on topic...  Smiley Wink

 

ABCD...are installment loans viewed the same as credit cards in FICO's eyes? 

 

If I had multiple loans say car, home and a motorcycle, will they be scored like credit cards (Individual and aggregate) or are they lumped together in one bucket? 


They are scored both individually and aggregated, but I believe the scoring is much more lenient for high balances than unsecured debt. revolving loans.

 

EDIT: as pointed out not all unsecured debt is revolving, and not all revolving is unsecured.

Message 13 of 88
Valued Member

Re: The Truth about Credit Card Utilization

Thank you so much for posting these in depth breakdowns. They have helped me tremendously. I' printed both Fico score breakdowns/utlizations breakdowns off to keep them handy. 

Just wanted to say THANK YOU! 

Message 14 of 88
Frequent Contributor

Re: The Truth about Credit Card Utilization

Do store cards count towards the "minimum 3 cards for best score" rule?

    EQ=823        TU=816         EX=807      INQ=1/2/4     UTIL=1%         AZEO
Message 15 of 88
Community Leader
Super Contributor

Re: The Truth about Credit Card Utilization


@Kreewrote:

wrote:

Back on topic...  Smiley Wink

 

ABCD...are installment loans viewed the same as credit cards in FICO's eyes? 

 

If I had multiple loans say car, home and a motorcycle, will they be scored like credit cards (Individual and aggregate) or are they lumped together in one bucket? 


They are scored both individually and aggregated, but I believe the scoring is much more lenient for high balances than unsecured debt.


 

Hi Kree!  Slight change in wording.... the distinction is not so much between secured and unsecured debt but between revolving and installment debt.  FICO does one set of "utilization" calculations for revolving debt (e.g. credit cards) and another set of util calculations for installment debt.

 

Within those account types I don't think there is any evidence that it treats secured debt (e.g. a secured credit card, a share secure loan, an auto loan) different from unsecured debt (typical credit card, unsecured personal loan, etc.).

 

The installment utilization calculations probably do not consider individual utilization (only aggregate) but revolving calculations care about both total and individual.

Message 16 of 88
Community Leader
Senior Contributor

Re: The Truth about Credit Card Utilization


@OmarRwrote:

Do store cards count towards the "minimum 3 cards for best score" rule?


Yes, with one caveat. On a few profiles, we've seen that if a store card is the one card to report a non-zero balance, the score isn't quite as high as when the non-zero balance is on a major card.

Message 17 of 88
Community Leader
Super Contributor

Re: The Truth about Credit Card Utilization


@OmarRwrote:

Do store cards count towards the "minimum 3 cards for best score" rule?


Yes.  Store cards count just like any other credit card as far as FICO goes.  Other scoring models (such as the non-FICO models used by the insurance industry) penalize you for having store cards.

 

PS.  Just saw Heaven's post.  That's interesting.

Message 18 of 88
Frequent Contributor

Re: The Truth about Credit Card Utilization

Thank you both!

    EQ=823        TU=816         EX=807      INQ=1/2/4     UTIL=1%         AZEO
Message 19 of 88
Super Contributor

Re: The Truth about Credit Card Utilization

I personally on my profile have never experienced a scoring variance in letting a store card be my AZEO card verses a major bank card.  I only have 1 store card, but do recall it being my only card with a reported balance back in 2016 and did not see a penalty.  That's not to say it can't happen on a different profile, but it didn't matter on mine.  My file at the time was dirty, just to provide that data point.

Message 20 of 88