- Centurion Member
- Posts: 538
- Joined: Fri Mar 09, 2012 9:29 am
- Location: San Francisco, CA
It's more complicated than one calculation. Generally speaking, utilization is calculated on total utilization (ie all limits added together and all balances added together) on revolving credit. But there are other dings for too many balances on cards, individual cards being high utilization etc. But overall utilization makes up th bulk of the category.
in terms on how you should handle it, i think you have an unspoken but misconceived notion on FICO scores. Previous FICO scores have nothing to do with current FICO scores. Basically, FICO scores are calculated at the moment it is called for by looking at your credit report at that moment in time. Obviously a lot of credit report information doesn't really change over time. You aren't going to make your AAoA suddenly higher from yesterday to today. BUT, utilization is one thing that can change very suddenly.
So what does this mean for you? Basically, it means you shouldn't worry about utilization month to month. Don't worry about making your utilization appear low or high. The only time you need to worry about it is when you are going to have a credit event, IE. you are going to apply for credit. So if you are working on your credit, you should NEVER apply for credit without planning for it. Once you score is high enough, you don't need to worry about it, but in the mean time, every application for credit should be planned. Before you apply for credit, you want to make your utilization appear in the ideal state which is 0 balance across all cards but 1 which will carry a small balance (less than 10% of your card's limit).
So what should you do in the mean time? credit card companies report to the bureaus once a month. Every credit card is different. Some report at beginning of month, some when they generate you statement, some when they payment is due, etc. You just need to call your credit card companies and find out when they report for future reference. So if they report when they generate your statement on the X day of the month, you would need to pay the balance a few days in advance (recommend setting up online bill pay in advance) and not use the cards during those few days. If you are curious how much a difference it makes for your score, then try it one month and see. Otherwise don't worry about it unless you are planning to apply for credit.
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