Utilization down to 39% from 65%, but...

[KeithW]

After paying off 4 of my 13 credit cards, and dropping my utilization from 65% down to 39%, my scores have only gone up about 10-15 points Does this make sense when utilization is such an huge factor in scoring???

Myfico's credit report lists the following reason for my score being low:

1. You have a serious delinquency (60 days past due or greater) or derogatory indicator on your credit report. I had a 60 day late on one CC in 2009, but perfect payment history since then.

2. You've made heavy use of your available revolving credit. Is 39% really considered heavy usage???

3. You have a short credit history. My oldest acount is 16 years and 11 months. Isn't this age descrimination? My AAOA is only 4 years.

4. You've recently been looking for credit. I have 6 hard inquiries on my account from buying a car, and applying for a mortgage.

Above that information is has the color coded dots showing how you fare on different factors. Mine are as follows:

Payment History = Very Good

Debt Amount = Good

Length of Credit History = Good

New Credit = Fair

Now, knowing all of this, what do you think I should be focusing on to get my score up? I keep looking over my report, and can't see anything that looks like it warrants my score being down in 600 ranges listed in my signature.

[jamie123]

You have three things working against your score:

1. For every card more than 1 that reports a balance you will lose 3 to 5 points. I'm sure that there is an upper limit to this rule and with your 9 cards reporting a balance you may have reached it. In other words, I'm not exactly sure that you will gain back points for every card that you pay off because you have so many that are reporting balances. I have lost 3 points for having a second card report a balance of $3.

2. You are getting nicked a few points for having more than 50% of your credit cards reporting balances. Once you get 7 cards paid to $0 you will pickup a few points for this. (This is what "Heavy use of credit" means.)

3. Yes, 39% utilization is too high. You will get your highest scores if you have 1 card reporting less than 10% of its credit line.

My suggestion is to pay off as many cards as you can to $0. That means start paying off the cards with the smallest balances first. You will gain points two ways with this method. You will gain points by having lower utilization and points for having less cards reporting balances.

You will acheive your highest scores once you have 1 credit card reporting a balance somewhere between 1% to 9% of its credit line. Do not pay off all your cards to $0 or your score will actually drop. You do NEED to have 1 card reporting a small balance.

If you are currently in the mortgage process DO ABSOLUTELY NOTHING except pay off your credit cards. The chances of screwing up the mortgage process is extremely high if you try messing with your reports and fixing credit issues now.

If you are not in the process of getting a mortgage in the next 6 months you need to try and get that 60 day late off your reports. Its killing your scores.

Questions?

[Anonymous]

jamie123 - great explanation!

[NRB525]

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@KeithW wrote:

After paying off 4 of my 13 credit cards, and dropping my utilization from 65% down to 39%, my scores have only gone up about 10-15 points Does this make sense when utilization is such an huge factor in scoring???

Myfico's credit report lists the following reason for my score being low:

1. You have a serious delinquency (60 days past due or greater) or derogatory indicator on your credit report. I had a 60 day late on one CC in 2009, but perfect payment history since then.

2. You've made heavy use of your available revolving credit. Is 39% really considered heavy usage???

3. You have a short credit history. My oldest acount is 16 years and 11 months. Isn't this age descrimination? My AAOA is only 4 years.

4. You've recently been looking for credit. I have 6 hard inquiries on my account from buying a car, and applying for a mortgage.

Above that information is has the color coded dots showing how you fare on different factors. Mine are as follows:

Payment History = Very Good

Debt Amount = Good

Length of Credit History = Good

New Credit = Fair

Now, knowing all of this, what do you think I should be focusing on to get my score up? I keep looking over my report, and can't see anything that looks like it warrants my score being down in 600 ranges listed in my signature.

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This is probably the main reason for the pressure keeping your scores down in the 600's. When that drops off, the score will probably become more normal.

Yes, 39% utilization is still considered high utilization, and a change from 65 to 35 is a minor shift within the "high utilization" range. As to the comments about individual cards reporting, it may have some effect, but that is only within the range determined by your payment history and utilization, the most significant factors. Multiple cards reporting is not going to make enough of a difference to be a reason to not use the cards while you are trying to build payment history. (You should separate the Store Cards from the real VISA, MC, Discover and if you get one, AMEX cards in your siggy. The emphasis now should be on getting real CC, not Store Cards)

As to the other two notes, these "reasons" lists typically have four entries. As you go down the list, they can become irrelevant.

How long have the car loan and the mortgage been reporting payment history? If these are very new, they may have a short term negative effect on score. It takes a few months for that "new credit" ding to bounce back.

[KeithW]

Thank you for the replies.

We don't currently have a mortage as we are waiting until our middle lowest score is above 680, as requested by the lenders we talked to.

Our car loan is 5 months old, and we still still owe 45K on that, but it's at 1.9% interest and we are paying $1K/mo, so it is going down fast.

Does utilization on a car loan count negatively? I can't imagine it would, but nothing would surprise me.

[MarineVietVet]

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@KeithW wrote:

Thank you for the replies.

We don't currently have a mortage as we are waiting until our middle lowest score is above 680, as requested by the lenders we talked to.

Our car loan is 5 months old, and we still still owe 45K on that, but it's at 1.9% interest and we are paying $1K/mo, so it is going down fast.

Does utilization on a car loan count negatively? I can't imagine it would, but nothing would surprise me.

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Although installment loan utilization is looked at it's such a tiny part of scoring that it can really be ignored.

[tonyjones]

I'm very curious to see your scores after you bring it down further, I'm in your same situation, my current utilization is at around 60%, TU08 (Walmart) Score is 663. I'm hoping to jump above 700 after I bring it down to below 10%.

[jamie123]

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@KeithW wrote:

Thank you for the replies.

We don't currently have a mortage as we are waiting until our middle lowest score is above 680, as requested by the lenders we talked to.

Our car loan is 5 months old, and we still still owe 45K on that, but it's at 1.9% interest and we are paying $1K/mo, so it is going down fast.

Does utilization on a car loan count negatively? I can't imagine it would, but nothing would surprise me.

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Utilization on the car loan is a minor issue as far as points are concerned but your monthly payment will count in your DTI calculation when you apply for a mortgage. You really should have bought the car AFTER you closed on the house. This is still a pretty new account at 5 months old so you are losing points for having a new account and the inquiry that was used to get this loan is costing you points. You will recover some of these points after it becomes 6 months old and all the points once it is 1 year old.

You really do need to get that 60 day late removed from your reports. It is old enough that most lenders won't be adamant that it stay on your reports, especially if your account is still open and active and you have demonstrated good payment history since then. You need to visit the "Rebuilding Credit" forum on this website and find out how to do GW (Good Will) letters. Be straight up and tell the lender that the 60 late is preventing you from receiving a mortgage. If your sob story is good enough they will remove the 60 day late. Keep sending letters as sometimes it doesn't work the first time. It is very difficult to estimate how much the 60 day late is costing you in points because it seems to affect individuals differently depending on the totality of their reports, but you can expect to pickup anywhere from 20 to 75 points if you have this successfully removed. The last baddie on your reports has a huge negative affect on your scores. In other words, the first baddie you get will usually knock your scores down the most.

EDIT: The balance on your car loan is irrelevant to your scores and DTI for the mortgage. It is the amount of the monthly payment that will matter in the DTI calculation and you can't change that. Quit paying down the car loan any faster than the normal monthly payment because the interest is only 1.9% and take the extra money and pay off your credit cards as fast as you can. Others here have stated that having more than 1 card report a balance is only a few points and not worthwhile to worry about but you need every single point you can get right now. Get as many cards to $0 as you can.

[KeithW]

The company that I had the 60 day late with is Credit One Bank. Two years ago I tried writing a good will letter, and sending them an email. No response to either. I will give it a try again though.

We didn't want to wait until after we bought a house to get the new car, as we needed a larger car for our expanding family, and new that by the time we got our house we would have another member or two to carry around.

How accurate is the FICO score simulator? For some reason it shows that if I pay my accounts for another 19 months by scores will be up around 800! Yet if I max out all my cards, my scores would only drop by 15-20 points. This makes me think that in my case, the utilization isn't the dominant factor, either that or the simulator isn't that accurate.

[j_ayala]

Well let tell you my case I paid the pay off my car or auto loan and my Fico score dropped 23 points, I down all my 5 credit card to 23 % and still dropped my score, now American Express is zero the balance and just gave 5 points? Wow , can someone explain why?