hypothetical question regarding utilization

[Anonymous]

Just reading various threads about utilization and affect on credit score. For example. If a person had 4 credit cards. 2 cards have $5000 credit limits and the other two much lower limits. The higher limit cards both have around 10% utilization, but the other two have for example 90-95% utilization. So, for example sake say total utilization over all 4 cards is areound 30%.  Which would be the better target in terms of quickly increasing a FICO score, spreading out the $$ over all 4 each month. or paying enough on the higher utilized cards and dropping them to 79% utilization? Then is subsequent months keep focusing on those.  For example, a person has x amouint of $ to pay each month and they can either pay minimum on the lower utilized cards and really focus heavily on the higher utilized cards or just pay equal amounts to all 4 cards each month.  I assume you would see a bigger score impact of dropping those two below 80% vs lowering the overall utilization a few % points each month.

As I was proofreading this, it dawned on me that a better way to ask the question would be, "Which is a better plan, focus on getting all cards to an individual lower utilization %  Or, just pay evenly on all focusing on total utilization %?"

[Anonymous]

I'm also in the boat of extremely high utilization and good scores.

Unfortunately, I wasn't able to get my question answered as to why. While I do have an "exceptional" payment history and other "exeptional" factors according to myfico report, it's a conundrum that remains unanswered here.

However, with that said, I would personally recommend taking care of the individual accounts with very, very high utilization first. That's what I'm doing. The overall utilization will eventually take care of itself.

I think just based upon what I've learned here, creditors will look at both overall AND individual account utilization.

While it's just anecdotal, I would surmise that one account at 99% with an overall at 80% (for example) probably looks worse than all accounts at 85% overall. 

Good luck.

[Thomas_Thumb]

Scoring factors include: individual card UT%, aggregate UT% and # open accounts reporting a balance.

1) Too many open accounts reporting a balance hurts your score

2) Reporting high UT% on a card hurts your score. Always best to keep a card below "Max out UT%" - which is somewhere in the 85% to 90% range. Also, some profiles report seeing a point gain when a card UT% drops from above 50% to below 50%.

3) A high aggregate UT% hurts score more than a high card UT%. An AG UT of 30% is typically described as an upper limit for responsible credit management in articles. Ideally, bring this down to below 9% and maintain it there.

In your particular situation it would be best not to report a balance on either of the low limit cards. That will give you some added points per #1 above. It will also give you points per #2 above - because your low limit cards currently show UT% in the max out range.

[Anonymous]

Good response by Thom Thumb.

Note one important thing.  You don't have to choose between either focusing on your overall utilization or lowering the utilization of the nearly maxxed out cards.  By trying to pay off those two nearly maxxed out cards you will necessarily be lowering your overall utilization.

Your goal in your particular situation, as TT observes, should be to pay off the two low CL cards so that you can create some $0 balance cards, lower your per-card U, and lower your total U.  The last caveat to such advice is that someone might make a different choice if the two nearly maxxed out cards were 0% and the other two cards were high interest -- not because of credit scores but because of a desire not to pay high interest.

[RobertEG]

Fair Isaac, in the regular webinars it conducted several years ago, stated that scoring of % util is based on three primary components:

1. Overall % util of all combined revolving accounts.

2.  The % util of each individual account, and

3.  The percent of accounts that carry a balance.

The relative weighting of each is in that order.

The scale for scoring of % util is not linear, which means that the same increase in % util at higher levels hurts more than the same increase at low levels.

A 10% increase from 70% to 80% has a proportionally higher score impact that an increase frrom, say, 20% to 30%. Utils above 90% are killers.

Thus, paying the same combined $ in a given month will have the same effect on overall % util regardlless of which cards it is applied against, but will have better scoring impact if paid agaisnt the cards carrying the highest current individual % utils.

The hidden impact in carrying an individual card at high % utils is that it might cause heartburn with the creditor, who may then decide to reduce your credit limit on that card as you pay down the debt, thus removing the ability to reduce that card's % util due to reduced denominator.

I would concentrate on the highest % util cards if your goal in FICO score improvement.

[NRB525]

My overall utilization has been coming down, but in June 2015 I crossed a point where all individual accounts went below 50% utilization individually, and there were several that made that crossing within a few weeks. All bureau scores did a nice increase throughout June as this played out.

A few months ago, through various spend and BT activities, several cards including the two $500 secured cards, each went above, then below 50% individual utilization, and I saw score moves tracking those on EX and EQ, but not so much on TU. TU seems to respond more to number of cards reporting, at least where I am in the utilization area. I usually have all cards reporting something, recently only 2 cards of 20 cards have zeros.