Using high utilization on just one credit card?

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Generallisimo
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Using high utilization on just one credit card?

Postby Generallisimo » Fri Oct 22, 2010 1:29 am

I opened up a credit card with a fabulous 0% for 9 months offer (at least for in these days it is). However, it has a lower credit limit than all my other cards (probably because of the 0% APR and I bet that if I ask in a few months they'll raise it). I brought the utilization ratio to over 50% by charging several large purchases and I can pay it off, but don't see the need to for several months and can instead do other things with that money (and of course I will be budgeting for paying off the card when the time comes for no more 0% APR) and could use some extra in reserve as I am moving soon.

I could wait a few months until I feel like I want to throw away some money and pay to see my credit score, but probably won't (unless MyFico will let me check again for a free 10-day trial), so I am dieing to know how badly does everyone think will my credit score by dinged?

Although I know >50% utilization is bad and I have always avoided that, I feel it probably will not ding my score more than 10-20 points because it is on just 1 out of a few credit cards and my total utilization ratio is still under 10%.

What I am even more curious about is, for how long does a high utilization affect your credit score?

For example, suppose for the past 10 years, you held a really high utilization ratio (let's assume someone held 50k on a 100k limit out of all available credit lines), and then you pay it all off and have 0%, if you apply for some credit the next month, is your utilization now 0% or is there some sort of averaging going on here? I am guessing that no one can actually know this though as the credit scores are all secret algorithms, which brings up another musing that I will post in a separate thread.


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Mogul of Pineapples
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Postby Mogul of Pineapples » Mon Oct 25, 2010 9:27 pm

From what I read credit utilization is counted in two ways for FICO scores.

One way is the average utilization across all accounts.

The second way is based on individual accounts. If there is one account with a high CUR it won't mess up the average, but it will mess up this part.

As far as how long credit utilization affects your credit score, I don't know. Does anyone else have any clues?
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Cucumber
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Postby Cucumber » Sat Oct 30, 2010 3:42 pm

I've heard the same thing as above.
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Generallisimo
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Postby Generallisimo » Thu Dec 02, 2010 12:24 am

Well, it's official (at least for this one case, which actually doesn't make it a certitude, but hey)- having a very high utilization rate on one card does not mess up your overall score- I just applied for and got a new credit card.

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Postby bong_me » Sun Dec 05, 2010 4:57 am

Wait a min are you people saying that carrying a high balance is bad for credit???? Doesnt doing that help your credit to use the card more?

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Postby Mogul of Pineapples » Mon Dec 06, 2010 4:55 pm

Generallisimo, because you were approved for a new card that doesn't mean it didn't affect your credit score. The CUR if high, even on one card, will adversely your score. That has been reported on the FICO website so it's not a rumor.
Disclosure: I am a moderator/paid staff of this site, which does have advertising relationships with some credit cards that are discussed and linked to. Regardless, anything I say is my honest opinion.

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JL70
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Postby JL70 » Mon Dec 06, 2010 9:26 pm

bong_me wrote:Wait a min are you people saying that carrying a high balance is bad for credit???? Doesnt doing that help your credit to use the card more?


Using the card more, yes-Having high utilization, not really.

Why does the amount of debt matter?

Again, there is nothing wrong with being in debt as long as it is managed responsibly and it doesn’t get to the point where it can be overwhelming. Your creditors will do their best to ensure that you won’t get overextended. When you apply for a loan or for a credit card they check your credit reports and measure your level of debt. If it’s excessive they will simply decline your application or counter offer with a loan product that’s more in line with your current level of debt. This is how the industry polices itself. While this works some of the time there are many more instances where overly aggressive lenders grant credit with little regard for the consumer’s debt load. The result is a consumer with so much debt that they are literally one paycheck away from not being able to make their minimum payments. They have become a high-risk borrower without having missed a payment. Research has proven this to be a statistical fact time and time again.

Common sense also dictates that a consumer that is heavily in debt is a poor credit risk compared to someone who has a low to moderate amount of debt. Ask yourself this question…would you rather lend $1000 to someone who has borrowed $1000 from everyone on the block or someone who has no debt?


Credit Improvement Part 2: Your Amount of Debt | Credit.com

The Impact to Your FICO® Credit Score

The FICO Credit Score is the standard credit scoring model used in today’s lending environment. Each of us has three different FICO scores, one generated from each of our three credit reports. It’s important to become familiar with the impact your amount of debt has on your credit scores.

Thirty percent (30%) of the points that make up your FICO credit scores is based on your amount of debt. This makes Amount of Debt a close second behind your Payment History. The higher your revolving utilization percentage the fewer points you will earn and therefore the lower your scores will be.
How can you ensure earning the maximum points available out of the Amount of Debt category?

Here are some simple steps you can take to ensure earning the most points out of this category…

* Keep your revolving balances as low as possible. The lower your balances the lower your utilization percentage will be.
* Try and increase your credit limits. Revolving Utilization is really nothing more than a math problem. If you can’t decrease your balances then you can have the same effect by increasing your credit limits. However, you must have enough self control to not use up the increased credit limit or you’ll make your situation worse.
* Do NOT close unused credit card accounts. The most common and, unfortunately, most incorrect advice given to improve your credit scores is to close unused credit card accounts. This does not increase your scores and can wreak havoc on your revolving utilization thus causing your scores to go down.
* Don’t let your creditors close your unused credit cards for you. If you have credit cards that you do not use the credit card companies will eventually close them. They are losing money on you each month that you don’t use your card and eventually they’ll have had enough. Use your card once or twice every few months for dinner or some other low dollar item and pay it off once the bill comes.
* Don’t worry about paying all your credit cards down to zero. You don’t need to have 0% utilization in order to maximize your credit scores. Most people don’t have the means to simply write a check and pay off all of their credit card balances. For this category it’s not necessary to do so. Endeavor to pay them down so your utilization percentage is as low as possible and you’ll be fine.
Last edited by JL70 on Mon Dec 06, 2010 9:30 pm, edited 2 times in total.

Generallisimo
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Postby Generallisimo » Mon Dec 06, 2010 9:55 pm

Yah, I agree, I overstated when I said, "It's official," don't want to throw anyone off reading this forum.

The balance I am carrying is low (<$2,000) and my other cards have < 10% ratio, so yah as JL70 is pointing out, I don't owe money to everyone on the block, and I guess the card approver took that into consideration.

Mogul of Pineapples wrote:Generallisimo, because you were approved for a new card that doesn't mean it didn't affect your credit score. The CUR if high, even on one card, will adversely your score. That has been reported on the FICO website so it's not a rumor.

JL70
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Postby JL70 » Tue Dec 07, 2010 9:10 pm

And also found this about utilization:

Your Revolving Utilization – Revolving utilization is the amount of your revolving credit limits that you are currently making use of. Remember that a revolving account is an account where your monthly payment is based on your balance. The majority of revolving accounts are credit cards or retail store cards of some type. There are some Home Equity accounts that are also considered revolving. Here is how you can determine your revolving utilization…

1. Look at your credit reports and identify all of your revolving accounts. Each of these accounts has a Credit Limit (the most you can spend on that account) and a Current Balance (the amount that you currently owe on that account).
2. Add together all the Credit Limits on all of your revolving accounts. We’ll call this your “Total Credit Limit.”
3. Add together all of the Current Balances on the same revolving accounts you just used to determine your Total Credit Limit. We’ll call this your “Total Balances.” Total Balances should be less than your Total Credit Limit amount.
4. Now divide the Total Balances amount by the Total Credit Limit amount and multiply that number by 100. This will yield Your Revolving Utilization percentage.

Example – If I have 2 credit cards each with a $5,000 Credit Limit then my Total Credit Limit is going to be $10,000. If I have a $2,500 balance on each of those cards then my Total Balances is going to be $5,000. I divide $5,000 by $10,000 and I get .5. Multiply .5 by 100 and you get 50%. My Revolving Utilization is 50%.

Total Balances ÷ Total Credit Limits = Your Revolving Utilization

Generallisimo
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Postby Generallisimo » Wed Dec 08, 2010 2:40 am

JL70 wrote:
2. Add together all the Credit Limits on all of your revolving accounts. We’ll call this your “Total Credit Limit.”


Don't forget the the no-preset spending limit cards (e.g., Amex charge cards, Visa Signature, World Mastercard) do not report your total credit limit to the credit bureaus (or in Amex's case, even to you) , so that should not be included as your total credit limit. If it is used for your ratio, only take the high-balance. Although technically it shouldn't count towards your ratio, it does (mine did on a recent Equifax credit report check (free annual, no score), although, they also included a ratio calculation for 'installment' loans such as on an auto loan, which gave me over 90% for obvious reasons).

See this excellent article for further details on these types of cards.
Be Wary of Credit Cards With No Spending Limits - NYTimes.com



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