What is the ideal credit utilization ratio?

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Luxe
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What is the ideal credit utilization ratio?

Postby Luxe » Sat Apr 13, 2013 11:36 pm

I have been keeping my statement balances low and paying them off in time so that my cards report low but non-zero utilization. Before the end of each statement period I pay off my entire balance except for $1 or so - I never pay interest. When the statement date arrives, I then pay the small balance in full and repeat.

This takes some planning and effort each month though. Am I crazy?

  • Is it important to keep some credit utilization, and not PIF before the statement date?
  • Should I do this for each card? If I use a card but always PIF before the statement date, will the CRAs think I have zero utilization and penalize me for "dipping into reserves" if that card reports a balance one day?
  • Is FICO score based on average utilization or is once occurrence of high utilization considered bad? It's interesting if I can have 1% utilization for 9 months and then have 90% utilization in the 10th month for an average utilization of under 10%. In that case really small statement balances could build up a nice safety net.


3MDR
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Postby 3MDR » Sun Apr 14, 2013 12:44 am

Unless you are planning on applying for a big loan in the near future, don't pay too much attention to how utilization will affect your score. Even if you pay in full, lenders will know how much balance you had each month. They also see far more than just $0 at the end of each month because issuers also report highest balance and monthly payment which show up on your credit report.

Furthermore, utilization is not averaged and its history is not important at all. However, it's important to keep it around or below 10% before applying for credit cards and loans. I suggest that you pay in full every month.

Luxe
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Postby Luxe » Sun Apr 14, 2013 2:15 am

So current utilization is much more relevant than past utilization. I'll just PIF whenever I see my balance above 10-20%. That is great to hear, thanks.

MemberSince99
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Postby MemberSince99 » Sun Apr 14, 2013 8:02 am

No one knows what your past utilization was in terms of your score. For scoring purposes you want 1 to 4% to report ideally, if you care about every last single point you can get, on one card.

Few of us are that fanatical about it. I've even gotten to the point I don't really care much what reports. I pay in full as soon as charges post, so sometimes things get in what reports. I have gotten to the point I just really don't much care. I'd rather use my energy for the important things in life than worrying about that.

DavidNY
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Postby DavidNY » Sun Apr 14, 2013 9:24 am

I have never done this and my scores are excellent.

Luxe
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Postby Luxe » Sun Apr 14, 2013 4:45 pm

PIF when charges post is perfect. I treat my credit cards as debit cards that build credit and don't require having all of the money in a checking account at the time of purchase. I might even set up auto-pay. Thanks, everyone.

MemberSince99
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Postby MemberSince99 » Mon Apr 15, 2013 6:27 am

DavidNY wrote:I have never done this and my scores are excellent.


True, but if you want every last point possible, you'd do it like say you were about to apply for a mortgage. Granted once you hit 760 it really doesn't matter anymore....

Daniel
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Postby Daniel » Mon Apr 15, 2013 3:04 pm

Luxe wrote:So current utilization is much more relevant than past utilization. I'll just PIF whenever I see my balance above 10-20%. That is great to hear, thanks.


Remember, your utilization is based off of your statement balance, not how much is revolving on your account.
([current spending]+[leftover Balance])/[credit limit].
As such, you do not need to revolve any balance to optimize utilization ratios. In more plain english DON'T PAY ANY INTEREST!



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