Balance Reporting: 1% to 10%

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CarefulBuilder14
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Balance Reporting: 1% to 10%

Postby CarefulBuilder14 » Sun Aug 24, 2014 2:40 pm

I realize this topic might be answerable only by a FICO employee, but figure someone here might have read something authoritative and recent on the topic.

Many of us have heard that for ideal FICO scoring, it is best to have between 1% and 10% of your credit limit report to the credit bureaus (and then pay it off during the grace period to avoid interest). It is also important, we hear, to only let one card report with a balance and pay the others off in full before the statement date.

I was wondering:

Is it considered bad for a FICO to have less than 1% report but more than $0? A $1 balance on a $5,000 card is less than a full 1% but it still reports to the bureaus that you're using it.

Is there some reason that multiple cards with tiny balances are considered bad? If I was a lender, I'd rather see two cards reporting showing $20 balances than one card reporting showing 10% of a high credit limit.
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Postby MemberSince99 » Mon Aug 25, 2014 6:43 am

My experience has been, by allowing small balances (under 100 total) report on three cards one month (not something I typically do, usually they all report 0) only TU punished me on my score for it, and the TU they had (and still have I think) at the time was the old version, TU98. EX and EQ did not punish my score.


So I think based on what I saw this certainly was true in the past but now it seems less so with the newer models. Ideally just to be safe, if I were going to let a balance hit (and I pretty much never do unless it's a screw up on my end OR an annual fee I can't avoid hitting) I'd do the one card small amount thing. We never know which model a potential lender may use so it can't hurt to be safe.

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Postby takeshi » Mon Aug 25, 2014 8:04 am

CarefulBuilder14 wrote:Is it considered bad for a FICO to have less than 1% report but more than $0? A $1 balance on a $5,000 card is less than a full 1% but it still reports to the bureaus that you're using it.

Nope. There's a hit associated with 0. Anything greater than 0 isn't 0 so there isn't the same hit.

CarefulBuilder14 wrote:Is there some reason that multiple cards with tiny balances are considered bad?

It's a matter of risk analysis. More balances is generally regarded as a greater risk. Tiny balances, however, are generally not a big deal. In theory they're really looking to see if one is accumulating debt and increasing risk and number of balances is just one of the factors that they consider.

CarefulBuilder14 wrote:If I was a lender

Be careful using that line of thinking. It's likely that nothing will make sense if you rely on what you'd do.

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Postby CarefulBuilder14 » Mon Aug 25, 2014 1:45 pm

Those replies make sense. With several generations and variants of FICO scoring, I can see how 2 or 3 cards with small balances could potentially be a problem just because they 'set off alarms' as potential credit risks. Even to a thorough risk analyst, I guess seeing two cards with a $5 balance could be interpreted as a potential sign of disorganization or something like that.

I do sometimes assume that other people will respond to a situation the way I would, and I know they often don't.
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Postby marlonbishop » Mon Aug 25, 2014 5:27 pm

MemberSince99 wrote:My experience has been, by allowing small balances (under 100 total) report on three cards one month (not something I typically do, usually they all report 0) only TU punished me on my score for it, and the TU they had (and still have I think) at the time was the old version, TU98. EX and EQ did not punish my score.


So I think based on what I saw this certainly was true in the past but now it seems less so with the newer models. Ideally just to be safe, if I were going to let a balance hit (and I pretty much never do unless it's a screw up on my end OR an annual fee I can't avoid hitting) I'd do the one card small amount thing. We never know which model a potential lender may use so it can't hurt to be safe.

i heard its a max utilization of 40%
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Postby CarefulBuilder14 » Mon Aug 25, 2014 5:47 pm

You will have your scores hurt a lot with anything close to 40%. I'm not totally sure about the rules of 40% on a $300 CL, but if a CL is a few thousand dollars, 40% utilization is definitely bad.
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Postby popamode72 » Mon Aug 25, 2014 6:03 pm

If I do carry balances on certain cards, I always make sure they aren't a HUGE part of the credit limit and also focus on keeping my overall utilization as low as possible. On the lower limit cards especially.
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Postby CarefulBuilder14 » Mon Aug 25, 2014 6:16 pm

popamode72 wrote:If I do carry balances on certain cards, I always make sure they aren't a HUGE part of the credit limit and also focus on keeping my overall utilization as low as possible. On the lower limit cards especially.


When my one and only card had a $600 limit, I was definitely not a fan of all the micromanagement it required. I was paying in full every 3 days, and I am happy to have gotten beyond that stage!
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