Utilization Question.

[Anonymous]

I have 7 cards with 42k total available credit.  My total Util is always <2% because I typically pay all of my cards down to <8% before statements cut and PIF after staement posts. Is it that beneficial to pay EACH card down below 8% BEFORE statement cuts, if my total util is less than 8% without doing this?  A good example is my AMEX BCE card has only $500 SL and it's a card my wife uses a lot for groceries. Will my score be adversely affected if I let this card report with a $300 balance which is 60% Util if I PIF after statement cuts?  

[SouthJamaica]

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@Anonymous wrote:

I have 7 cards with 42k total available credit.  My total Util is always <2% because I typically pay all of my cards down to <8% before statements cut and PIF after staement posts. Is it that beneficial to pay EACH card down below 8% BEFORE statement cuts, if my total util is less than 8% without doing this?  A good example is my AMEX BCE card has only $500 SL and it's a card my wife uses a lot for groceries. Will my score be adversely affected if I let this card report with a $300 balance which is 60% Util if I PIF after statement cuts?  

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Absolutely. Any card reporting at 30% or more will cost you some points.

[Anonymous]

This is a great question because it addresses lots of key issues for anybody handling his credit.

First off, lets tackle your question about CC balances.  There are three different factors in play:

(1)  Total utilization (counting all credit limits together)

(2)  Individual utilization (counting each card with its own credit limit by itself)

(3)  Number of cards reporting a positive balance

#1 is the most important.  You have it totally right here.  To avoid all scoring penalty, you need a total U < 8.99%.  You also need at least one credit card showing a positive balance.  That card needs to be a card in your name (not an AU card) and needs to be a true credit card (not a "charge" card.  You should also make sure that this one card is showing a balance of at least $5.  Ultratiny balances like $1-2 are sometimes treated as $0. 

#2 also matters, but only when the individual U is much higher.  Assuming that your total U is very low, many veterans have tried to detect a score change in the range of 1-48% and have found that their scores did not budge even a tiny bit.  Your example of a 60% U would probably cause a penalty but it would probably be small.  As it went higher, the penalty could become much more pronounced.

#3 also matters, and this factor may be profile dependent.  But you would likely get the most points from having most of your cards reporting at $0.  Certainly that cannot HURT your score and it helps most people.

The much deeper issue that your question raises is should you care about your score taking a slight dive -- either because on a given month you have several cards reporting a positive balance (#3) or because one card is reporting a balance in the range of 51-68% (#2).

The answer is no, because all the points you lose will come back as soon as you start reporting mostly $0 balances with all cards at < 29%.  The key idea is that credit scores only matter when you need them for something -- typically applying for a new card, or a car loan, or a home loan.

So use your cards naturally and then, in the 45 days before any important credit application, make sure that all cards are reporting $0 with one card reporting a small balance (e.g. $10).

I will say that you should have a goal of raising the credit limit of your Amex BCE.  That's easy to do.  Assuming you don't have any negatives, just optimize your CC balances (as described above) and then make a soft-pull credit limit increase request.  Amex will triple your credit limit the first time you ask (though you may have had to have had the card for at least 6 months or a year).  You can chat with people on the forum about the exact details of that.

[Anonymous]

Thank You CGID.  This sums it up perfectly. I'm done applying for cards and don't have daily need to see my score increase but wanted to make sure I was doing things the best way possible for future CLI and overall credit management. For the record I will never let a card report at 60% Util.

Even though it wouldn't have a drastic effect on my score I wouldn't be able to sleep at night.  

[Anonymous]

Very good advice above.

Definitely keeping all of your balances low will put you in the best position to receive and receive favorable CLIs.  Often you see people not care about the minimal amount of points lost by having a card or two report high utilization because they have no intentions on apping (which is fine) but if they are also trying to build their current array of cards under review this behavior isn't looked at nearly as favorably as someone with all low balances.

[SouthJamaica]

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@Anonymous wrote:

Very good advice above.

Definitely keeping all of your balances low will put you in the best position to receive and receive favorable CLIs.  Often you see people not care about the minimal amount of points lost by having a card or two report high utilization because they have no intentions on apping (which is fine) but if they are also trying to build their current array of cards under review this behavior isn't looked at nearly as favorably as someone with all low balances.

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You never know when you might need a good credit score, it comes up at odd times...    e.g. getting cell phone service, renting or cosigning for an apartment, getting a new car insurance policy. I think it's worthwhile trying to keep the scores good at all times.

[Anonymous]

Oh I agree with that, don't get me wrong, I maximize my scores at all times even when I have no intentions of apping.  I just think there are a lot of people that don't and I don't fault them for this.  The 5-10 point difference or so (tops) from having the ideal utilization amount on your personal profile likely isn't going to be a make or break situation for anything.  The good thing about utilization is that it can be fixed in under 30 days and I don't think it's often that someone needs to app in less than 30 days notice.  Of course, there are exceptions as always.

[Anonymous]

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@Anonymous wrote:

I have 7 cards with 42k total available credit.  My total Util is always <2% because I typically pay all of my cards down to <8% before statements cut and PIF after staement posts. Is it that beneficial to pay EACH card down below 8% BEFORE statement cuts, if my total util is less than 8% without doing this?  A good example is my AMEX BCE card has only $500 SL and it's a card my wife uses a lot for groceries. Will my score be adversely affected if I let this card report with a $300 balance which is 60% Util if I PIF after statement cuts?  

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Thanks PinkFloyd for asking this question.  I have read all the replies, and this is a much needed thread that I think all of myFICO needs to see.  There were excellent discussion here, and I have copied/pasted to my computer to share with others in the future.

(-:

[Revelate]

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@Anonymous wrote:

Oh I agree with that, don't get me wrong, I maximize my scores at all times even when I have no intentions of apping.  I just think there are a lot of people that don't and I don't fault them for this.  The 5-10 point difference or so (tops) from having the ideal utilization amount on your personal profile likely isn't going to be a make or break situation for anything.  The good thing about utilization is that it can be fixed in under 30 days and I don't think it's often that someone needs to app in less than 30 days notice.  Of course, there are exceptions as always.

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I'd word this more strongly: it won't be on any moderately built and aged file, with the obvious exception of a mortgage application if you're not gold plated anyway.  Maybe an auto loan too as that's another big ticket item.  It doesn't take much of a FICO score to get a cell phone or utility or similar.  

I would certainly not suggest anyone go run up a bunch of CC balances other than 0% but that's a financial decision that happens to be good for one's FICO too, as long as you're a transactor you'll be fine regardless of what mess of balances you're showing month to month in my opinion.

That said if you can move your FICO scores ~30ish points with a share secured loan trick for those without installment history, do that.  Anything that's more than call it 20 points is worth doing regardless in my opinion if it's cheap and easy to maintain.

[Anonymous]

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@Anonymous wrote:

Thank You CGID.  This sums it up perfectly. I'm done applying for cards and don't have daily need to see my score increase but wanted to make sure I was doing things the best way possible for future CLI and overall credit management. For the record I will never let a card report at 60% Util.

Even though it wouldn't have a drastic effect on my score I wouldn't be able to sleep at night.  

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Had to learn this the hard way too.

I have a Citi Secured card with a $200 credit line. Always used it to the max since I can easily PIF anyways. I've been letting the my statement cut with almost 80% utilization. I thought it was 30% utilization through all the cards. Yes, and I did not know it matters to single cards as well.

MINDBLOWN!

Lesson learned! Now I bareley spend $20 on that Citi Secured Card.

After learning this.. My scores have been pointing north.