Utilization drops significantly and so do scores? Why?

[Anonymous]

Ok guys, question for you.

2 Cards. Capital One Secured (6 months) and Merrick Bank (4 months). Always pay the balances off but Utilization last month was at 29%. This month utilzation is 2% and Equifax drops 8 points and TransUnion 7. Makes no sense to me at all. Transunion merely says in it's negative note "your total balance on all your bankcards has chaged to $128. Um, yeah, that's GOOD isn't it? NOT BAD? The only thing I can figure is that all of my balance was on Merrick and now the total is on 2 cards - so Capital One went from $0 to $72 (but the credit line also increased to $1300).

Correct me if i'm wrong but I assume those numbers won't be adjusted until my next statements are issued or do they ever review their math? Do I drop my utilization to 1% to increase scores as it seems 0% is not ideal. Any advice would help. I was hoping to apply for the Capital One Quicksilver this month because i was pre-qualified, but now I'm thinking wait another month or two until the scores reflect my responsibility.

Thanks for any thoughts.

[Anonymous]

Manhattanland - you ask a good question. For myself the best utilization rate is 1%. Now in reading other posters on this site and others the magic number could vary some from this. Other posters will offer their own view. My credit file is quite thick and clean. So o o it may vary. Some people may say stay under 10%. Others may say stay under 30%. For me I have tried different points using the real credit bureau over a two year period and found my best place.

[Anonymous]

Thanks Spider,

I'm going to try 1% and see how it goes. 

[CH-7-Mission-Accomplished]

---

@Anonymous wrote:

Ok guys, question for you.

2 Cards. Capital One Secured (6 months) and Merrick Bank (4 months). Always pay the balances off but Utilization last month was at 29%. This month utilzation is 2% and Equifax drops 8 points and TransUnion 7. Makes no sense to me at all. Transunion merely says in it's negative note "your total balance on all your bankcards has chaged to $128. Um, yeah, that's GOOD isn't it? NOT BAD? The only thing I can figure is that all of my balance was on Merrick and now the total is on 2 cards - so Capital One went from $0 to $72 (but the credit line also increased to $1300).

Correct me if i'm wrong but I assume those numbers won't be adjusted until my next statements are issued or do they ever review their math? Do I drop my utilization to 1% to increase scores as it seems 0% is not ideal. Any advice would help. I was hoping to apply for the Capital One Quicksilver this month because i was pre-qualified, but now I'm thinking wait another month or two until the scores reflect my responsibility.

Thanks for any thoughts.

---

I think you are 100% correct -- the reason your score dropped is because you are showing a balance reporting on 100% of your cards.  It would be an interesting experiment, but I would bet you that having a 2% balance and only one card reporting a balance would give you a higher score than a 1% balance reporting and 100% of cards reporting a balance (2/2 cards).

[Anonymous]

ah, that's an interesting theory! i always thought you got punished for not using your cards much...if i had a clone I'd try both strategies simultaneously.

[Thomas_Thumb]

---

@Anonymous wrote:

ah, that's an interesting theory! i always thought you got punished for not using your cards much...if i had a clone I'd try both strategies simultaneously.

---

You will see a score drop when showing a non zero balance on 100% of your cards - this is well documented by posters. It should show as a reason statement on your report. You will also get dinged if you don't report a non zero balance on at least one card - "for not showing use of available credit".

Percent of cards reporting is a factor in scoring and that could be what adversely affected your score. General rule - you want more than 0% (of cards) showing a balance and less than 100%. Effect of any % in between depends on the profile.

In your case (2 cards total) you should report a balance on one card for top score. Amount reported should equate to less than 10% aggregate UT for best results. However, UT in the 10% to 19% range is typically not a big hit.  [ Given you only have 2 cards, showing a zero balance on both cards may be worse than showing some non zero balance on both]

P.S. I have seen no impact on score by allowing aggregate UT % to float between 1% and 6%. If you take UT down to1% from 2% and your score changes - look for other factors in your reason statements as the change in UT% is most likely not the reason.

[NRB525]

---

@Anonymous wrote:

Ok guys, question for you.

2 Cards. Capital One Secured (6 months) and Merrick Bank (4 months). Always pay the balances off but Utilization last month was at 29%. This month utilzation is 2% and Equifax drops 8 points and TransUnion 7. Makes no sense to me at all. Transunion merely says in it's negative note "your total balance on all your bankcards has chaged to $128. Um, yeah, that's GOOD isn't it? NOT BAD? The only thing I can figure is that all of my balance was on Merrick and now the total is on 2 cards - so Capital One went from $0 to $72 (but the credit line also increased to $1300).

Correct me if i'm wrong but I assume those numbers won't be adjusted until my next statements are issued or do they ever review their math? Do I drop my utilization to 1% to increase scores as it seems 0% is not ideal. Any advice would help. I was hoping to apply for the Capital One Quicksilver this month because i was pre-qualified, but now I'm thinking wait another month or two until the scores reflect my responsibility.

Thanks for any thoughts.

---

Define Pre-qualified? Did you get a paper mailer that is an offer? Was there a specific APR on that?

If you go to the Capital One site and do the prequalification there, what are the results?

Your scores are probably good enough for Capital One now, and regardless of whether this first card they give you is a low limit, by using it and showing good payment history, when you apply for your next Capital One card, a year or so from now, it will result in a higher limit and perhaps better APR.

Having that third card may lessen the noise you are seeing in scores if two of two report. But, my opinion is that cards should be left to report naturally, 3 of 3 or in my case 17 of 17. That isn't getting the last points out of the score, but those last points in CC apps don't make much of a difference.

[Anonymous]

Hi NRB525,

I checked on the capital one site and was prequalified for both the quicksilver (which says it's a 3k minimum) and the VentureCard (5k minimum), but i think the quicksilver would be easier to get and as i need to buy some new computer equipment and pay for it over 3 months, I like the 0% balance for 6 months that the card provides. Haven't applied yet though and was just going to wait until next month when my utilization shows as 1% on each of my 2 cards and the 23% cl increase Capital One gave me this month on my secured card.

But question for you can you clarify what you mean when you say "my opinion is that cards should be left to report naturally, 3 of 3 or in my case 17 of 17."? i'm not sure I understand. If you have 3 cards should you be making sure to have a small utilization on each? That seems like a lot to manage especially when you get to that 17 your speaking about.

thanks for your advice.

[NRB525]

---

@Anonymous wrote:

But question for you can you clarify what you mean when you say "my opinion is that cards should be left to report naturally, 3 of 3 or in my case 17 of 17."? i'm not sure I understand. If you have 3 cards should you be making sure to have a small utilization on each? That seems like a lot to manage especially when you get to that 17 your speaking about.

thanks for your advice.

---

Yes, it gets to be a lot to manage, so I'm not suggesting you apply for 17+ cards I got here over a long time period, but I got here from huge open balances, over $100k, and have been paying them down for several years.

The clarification about "number of cards reporting a balance" relates to how many points one can expect, realistically, to see if only a few of the cards (1 of 2 or 1 of 3 for example) are allowed to report. With your situation, you have a prequalification with Capital One and the card you end up with may not be too much different, whether you app now or wait a month or more. If you wait 6 months, then your card would probably be better, but with another card, 3 total in your active file, the number of OK months will grow faster. While your file is improving, your score should keep improving gradually month by month. So, you may see a few points change when you went to 2 of 2 cards reporting, If you aren't applying right away for any card (or you have a virtual pre-approval for another basic card now) then you can relax the efforts to try to force cards to report zero. The point of having the cards, particularly the rewards cards, is to use them for charging and earn rewards. Ideally they should be paid in full, and the normal expectation of the CCC and the card underwriters is, people use their cards, balances report, and that's a normal use of cards. myFICO'ers see that they can eek a few more points out of their file because the scoring improves with fewer cards reporting, and so many have determined that this is The Best Way To Go. In the credit card approvals, those few points may or may not make much difference, at any particular score.

Regarding going from 2% to 1% utilization, I really doubt you will see more than 1 or maybe 2 points change due to that. Once you get below 9%, the marginal score benefit gets really small. In my case, I'm seeing big improvements in score, but I'm coming down through 20% overall utilization.

[Thomas_Thumb]

I concur with NRB525 on having cards report naturally. I also allow cards to report naturally - this does not mean balances will/should report on all cards every month (just those that are in use).

Allowing cards to report naturally means whatever charges you put on a card (or cards) in a given month - let the full amount report on the summary statement. (Generally then PIF by due date - unless 0% interest promotion is in effect) .

For example: If you charge $1000, let the full amount report "naturally" as opposed to prepaying $990 so only a tiny balance of $10 shows on your statement. In other words, don't worry about pre-paying before statement cuts to show an artifically low utilization rate.

P.S. As a rule of thumb the "allow to report naturally" approach works best when you aggregate CL is at least 50% of your yearly income - IMO.