Utilization: Overall, or by card too?

[gamegrrl]

I'm getting majorly dinged on utilization, and want to make this go away as quickly, and wisely, as possible.

My questions are: Is Utilization purely an overall thing (total of balances divided by total CLs)? Does it matter if your balance is all on one card or spread over multiple cards?

My situation: I have the following accounts showing in my credit reports. Below are the accounts, including credit limits and current balances. My current Utilization is 54%, and I need to get that down. I'm trying to figure out if I should 1) Pay off the Capital One account first or 2) Focus on paying down the Wells Fargo balance 3) Or maybe it doesn't make any difference at all.

As you can see in the chart below, my Wells Fargo account is 0% interest, and the Capital One is $17+%. I'm inclined to pay off the Capital One first, due to the interest rate, plus the fact that it will be PAID OFF, which is an emotional boost for me. But I'm willing to sacrifice that emotional boost if it's smarter to pay down more on the Wells Fargo first.

[llecs]

FICO looks at both individual and overall util. FICO also likes to see $0 balances, so if I was paying it off, I'd pay off CapOne too and chisel away at the rest. I'd continue to use the other cards (if I didn't want them closed) but I'd use them to buy a cup of coffee every 3 months and PIF.

BTW, high util can certainly lead to AA by your CCCs, but IMO, paying all the cards to $0 and getting one of those to report a small balance for max points is only important if you are approaching app time for new credit. Any damage is short term and your scores bounce back as balances come back down. 

[chasmith]

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@gamegrrl wrote:

I'm getting majorly dinged on utilization, and want to make this go away as quickly, and wisely, as possible.

My questions are: Is Utilization purely an overall thing (total of balances divided by total CLs)? Does it matter if your balance is all on one card or spread over multiple cards?

My situation: I have the following accounts showing in my credit reports. Below are the accounts, including credit limits and current balances. My current Utilization is 54%, and I need to get that down. I'm trying to figure out if I should 1) Pay off the Capital One account first or 2) Focus on paying down the Wells Fargo balance 3) Or maybe it doesn't make any difference at all.

Account Credit Line Balance Interest Rate

Wells Fargo $7,700 $6,203 0%

Capital One   1,000       582 17.9%

Capital One   1,000            0

Amazon/Chase      400    0

Best Buy      800    0

Orchard Bank      500    0

Orchard Bank            300    0

Giant Eagle                750    0

      $12,450 $6,785

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I understand from following this forum and other information that BOTH overall utilization and card-by-card utilization impacts your score.  I also understand te recommendations are to get total utilization below 10%, have a majority of your cards reporting zero balances (but not all reporting zero - have at least one balance report), and keep per-card util low as well.

I can tell you that I just got proof of the effect an individual card can have because First Premier moved the cutoff date this month, so I didn't drive them to zero as planned - but dropping that card from 84% to 72% gained 9 points on Equifax (I have Scorewatch, got the balance decrease and score increase simultaneously).  So my score went from 668 to 677!

I should drop my total utilization from 27% to under 20% this month, I'm not sure whether that will move me across a boundary as well, and get me to 680.  But I believe that next month when I get total util under 10% I will be able to break 680.

Looking at your numbers, this may be a case where real economics and credit scoring are in conflict.  Your total utilization is about 55%, Wells Fargo is your highest utilization / lowest interest rate card (over 80% utilization).  So you'll pay a little more in interest if you focus on the Wells Fargo, but you need to get the util on that card down to move your score, IMHO.

Here's what I would do if I were you:

Get total util below 50% ASAP, and get Capital one below 50% (under $500).  Then focus on driving Wells Fargo down while paying mimimums on Capital One, when Wells Fargo is below 50% then pay off Capital One.

Now remember there are lots of other variables so your mileage may vary, but I hope this helps.

[gamegrrl]

Great responses! Keep 'em coming!

I like this plan:

• Get Capital One under 50% - I can do that. In fact, I just threw another $100 at it, taking my balance down to $482.
• Focus on getting Wells Fargo under 50% ($3,850). Factoring in my current pending payment, my real balance right now is $5,988.88, leaving me with a distance of $2,138.88 between me and the 50% utilization point for this account. I'll throw as much money as I can at that to get it below 50% as quickly as possible.
• Pay off Capital One once Wells Fargo is under 50%.

Wells Fargo addendum: I had NO idea that the Wells Fargo account would report as a credit card. But I desperately needed a new roof, my scores were in the dumper, and not only did they agree to extend credit to me (miracle), I was able to get 0% through my construction company. The credit limit is $7,700 but $1,540 of that total is tied to the account's Home Projects Visa. When I look at my statement, the Visa card on this account has a $1,540 limit, with $1,497 available credit on the card. In other words, my payments so far have all gone towards the Visa portion of the loan.

[chasmith]

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@gamegrrl wrote:

Great responses! Keep 'em coming!

I like this plan:

• Get Capital One under 50% - I can do that. In fact, I just threw another $100 at it, taking my balance down to $482.
• Focus on getting Wells Fargo under 50% ($3,850). Factoring in my current pending payment, my real balance right now is $5,988.88, leaving me with a distance of $2,138.88 between me and the 50% utilization point for this account. I'll throw as much money as I can at that to get it below 50% as quickly as possible.
• Pay off Capital One once Wells Fargo is under 50%.

Wells Fargo addendum: I had NO idea that the Wells Fargo account would report as a credit card. But I desperately needed a new roof, my scores were in the dumper, and not only did they agree to extend credit to me (miracle), I was able to get 0% through my construction company. The credit limit is $7,700 but $1,540 of that total is tied to the account's Home Projects Visa. When I look at my statement, the Visa card on this account has a $1,540 limit, with $1,497 available credit on the card. In other words, my payments so far have all gone towards the Visa portion of the loan.

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The way WF is reporting can help you because it appears as a high limit account, and as you drive the balance down it will help keep your other util low.  It may be it is reporting as "revolving" which is a bigger category than credit cards.  Revolving lines of credit (where you can borrow again up to the limit) count for utilization both the limit and the balance used.

[gamegrrl]

I just took a look to be sure: On my TransUnion CR, Wells Fargo is showing up under the "Revolving" category, and for Type it says "Credit Card".

[chasmith]

So credit cards are a subset of revolving credit, which may also include lines of credit.  It sounds like you have a hybrid account which is a VISA plus an LOC.  Once you can reduce utilization this is probably helpful to your score...

[RobertEG]

The difference between revolving and installment credit is based on the account defines the credit offered.

Revolving lines of credit give you an approved limit or line of credit that you can draw upon at your discretion.  The actual amount of your credit obligation at any time "revolves" around what you choose to use.  LOCS and credit cards dont send you a set amount of cash.  You determine how much of the line of credit you wish to use.

Installment lines of credit are for a fixed amount of credit, with the fixed amount of $$s sent to you or the creditor/lien holder.  You thus have a fixed debt that you cannot further draw upon.  The debt is paid back in fixed, usually monthly, payments, or "installments."

Installment lines of credit are usually secured by your property, and are thus much less likely to be defaulted on.  FICO recognizes this, and thus puts much, much lower weighting on installment credit when assessing your payment risk on an account.

[gamegrrl]

Thanks for all the info!

I sure won't be using this account after its paid off, but it will be great for my Utilization at that point. I guess that's a good reason to keep it open. 

I really need to get things whipped into shape so that I can get a fairly sizeable loan for my kitchen rehab. 

[Anonymous]

I'm pretty sure ulit is calculated by card too. There is this senior member on here who goes by ID Marinevietvet, who posted a three or four step util calculation procedure somewhere on this forum that also said cards are factored for util individually. I'm saving atleast 20 points every month eversince I came across that post :-)