Utilization %s

[Anonymous]

I currently have a lot of debt.  I've evenly (by % utilization) spread it out on about 8 cards, which range in credit limits from about $2K to $15K.  My utililization is about 40-50% on each card.  As I pay the debt down, what utilizations should I shoot for?  For example, is a 24% utilization much better than 26%....20% the same as 23%, etc?

Also, is it better to get a smaller credit card from 50% to 10% utilization or a larger one 50% to 40% with my money? 

Thanks all in advance for your feedback.

[haulingthescoreup]

Hi, welcome to the forums! Util seems to move in tiers, and we spend a lot of time guessing where these tiers are, but they appear to be just under a multiple of 10: 29%, 19%, 9%... I didn't think that 20% would be a break point, but when TU has been calculating my util wrong, things changed when I went from 21% to 19%, so it looks like that's one, anyway.

So I doubt that 26% to 24% will do a whole lot.

Good question about drawing them all down evenly vs reducing a few radically! We debate this a lot. I'm guessing that as long as none are over 50%, and none are paid off, you won't see a difference. What might help is paying off the smaller cards, if you have enough cash available to pay off half of your cards. There are brownie points for having fewer than half of all accounts, including mortgages, car loans, CC's, you name it, showing balances, and also for half or fewer of all CC's with balances. (I may have reversed that, but I think that's correct.)

Since by definition all open loans have balances, that can put you into a scramble to pay off a bunch of your cards. That might not be immediately possible, but it's a goal, anyway. I use all my cards a lot, but I pay them off before their statement dates so that they report a $0 balance, leaving only one card with a balance transfer, currently at 44% util, and maybe one more with a minuscule balance. Even though my overall util is very low, I still get scolded for that BT card, though. Before I had the BT, my overall util was under 1%, and it really helped scores.

[Logical]

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haulingthescoreup wrote:
Util seems to move in tiers, and we spend a lot of time guessing where these tiers are, but they appear to be just under a multiple of 10: 29%, 19%, 9%...

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I've read this idea of tiers in books on credit and on the net, but I wonder if it is true.  Fico is a measure of risk and I find it difficult to believe the actual risk would jump at different tiers. Fair Isaac publishes a bar graph showing the increased risk at higher utilizations. The bars are 0-19, 20-39, 40-59, 60-79, 80-99, 100%. This, it appears to me, is where folks got the idea of tiers. I don't think it was intended that way. I think it was just a visual. The actual risk would be a curve. Here is a link to the graph:

http://www.ftc.gov/bcp/creditscoring/present/sld029.htm

[Anonymous]

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Logical wrote:

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haulingthescoreup wrote:
Util seems to move in tiers, and we spend a lot of time guessing where these tiers are, but they appear to be just under a multiple of 10: 29%, 19%, 9%...

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I've read this idea of tiers in books on credit and on the net, but I wonder if it is true.  Fico is a measure of risk and I find it difficult to believe the actual risk would jump at different tiers. Fair Isaac publishes a bar graph showing the increased risk at higher utilizations. The bars are 0-19, 20-39, 40-59, 60-79, 80-99, 100%. This, it appears to me, is where folks got the idea of tiers. I don't think it was intended that way. I think it was just a visual. The actual risk would be a curve. Here is a link to the graph:

http://www.ftc.gov/bcp/creditscoring/present/sld029.htm

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I have experienced the effect of tiers firsthand.  I got nothing for going from 14% to 12%, but got a nice little boost for going from 12% to 9%.

[haulingthescoreup]

After my recent app spree, TU re-bucketed the fire out of me, plus it seems to be including my car loan in util , so it thinks that my util is WAY higher than it really is. I had a score report saying that my util was 21% (NOT), and this was in the negative column. The next score report said it was 19% (again NOT), and it was in the positive column, praising my low balances.

I think the the scoring formula would be even more unwieldy than it already is if it recalculated scores every time your util changed by a couple of points. So it makes sense to me that it would consider ranges, or tiers, or levels of util and assign risk accordingly.

[Anonymous]

I thought that scores were just a snapshot in time....meaning that someone has to request a score for it to be calculated, and the calculation is based on what is in the report at that moment in time.......

Is this not the case?

[Anonymous]

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Boscoe wrote:

I thought that scores were just a snapshot in time....meaning that someone has to request a score for it to be calculated, and the calculation is based on what is in the report at that moment in time.......

Is this not the case?

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Yes, it is a snapshot.  I'm not sure how the discussion of utilization tiers is inconsistent with it being a snapshot.  Could you clarify your question, please?

[Anonymous]

Unless you need to keep your scores high because you're getting a mortgage or such, why worry about fine-tweaking utilization?

Getting overall utilization down, starting with the highest interest rate cards, will be what is best for your pocketbook.

[Logical]

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cheddar wrote:

I have experienced the effect of tiers firsthand.  I got nothing for going from 14% to 12%, but got a nice little boost for going from 12% to 9%.

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First, I'm not saying there are not tiers, just saying it makes no sense that there are. They have probably 100's of millions of calculations on the risks of the entire range utilization. They don't have to have ranges, they know the risk at every percent.

That said, your experience does not prove tiers because a curve could do the same thing. The slope of the curve could be steeper around 10% than 13% and that would easily explain it. Plus, is it really possible to isolate one factor? I've seen my scores go up and down and not having a clue what caused it. Something did! Perhaps there are tiers, but I doubt it.

[Logical]

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haulingthescoreup wrote:
I think the the scoring formula would be even more unwieldy than it already is if it recalculated scores every time your util changed by a couple of points. So it makes sense to me that it would consider ranges, or tiers, or levels of util and assign risk accordingly.

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But it recalculates your scores every time you pull it! Plus it is quite simple to run the data through a curve fitting program to make one formula for the entire range 0-100%. They only have to do that once a year, or whenever they reevaluate the risks (I'm sure it changes over time). When that's done it could automatically update lookup tables or insert the new curve into the formula for the next year (or so). At minimum it would be no more unwieldy than tiers, probably less so. And more accurate. And Accuracy is what they are selling.

Again, I'm not saying there are not tiers, but mathematically and programming wise it doesn't make sense and it would be less accurate.

On a slight diversion:  "Really, really done credit hunting; time for credit gardening."
                                     I'm adopting that as my credit goal this year