How does this whole 25% utilization rate work?

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rbai76
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How does this whole 25% utilization rate work?

Postby rbai76 » Sat Jun 01, 2013 8:09 am

I have had credit for about a year.

I currently own

PNC secured CC $250
Citi Platinum Dividend $1000
BestBuy CC $800
Chase Freedom $3000
Discover it $1500

I want to buy as many things with my credit cards as I can so I can get that 1-5% back on what I buy.

My question is how does the 25% utilization rate work? Right now each card is sitting at around 20-25%, if I paid the cards off before the bill is due, does that mean I can spend more until I hit that 25% or should I wait until the next period/statement to spend more?


MemberSince99
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Postby MemberSince99 » Sat Jun 01, 2013 9:05 am

I am not sure why 25% utilization is important here. I guess that number would be considered not too bad by most lenders, and maybe you read an old article that said to keep it at 25% or something?

In terms of IDEAL score, I have read most recently that 1-9% is best, and 1-4% is optimal.

But unless you are going to apply for something, it changes month to month and really isn't a huge deal anyway.

Now utilization works based on what the lenders report to your CRAs. On the date your statement cuts, your balance then is what is typically reported. What you used the rest of the month, if you paid it before that date, will not be factored into your utilization. So say you charge 1500 on your Freedom, but pay it before the statement date down to 500. Even though you used 50% of your available credit, what will be reported is 500 that month.

So if you want to run money through just make a payment say once a week, and pay right before your statement date, to get your utilization down to whatever you would like it to be. All your cards will likely have different statement dates. Credit Karma has a calendar showing the dates your statement cuts for each card to help you keep track of it, as it can be hard to remember all that otherwise.

Spend whatever you are comfortable with, just pay before the statement date, basically an extra payment if you want only a certain % to show.

Does this make sense? If not please ask away and I'll try to help with whatever else I can.

rbai76
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Postby rbai76 » Sat Jun 01, 2013 9:32 am

My goal with credit is to have as high of a CL as possible for emergencies and have a near perfect credit score for the future so if I do need a loan I can get a low interest rate.

Does utilization not really matter unless I'm applying for something or do lenders like to see that you have a low utilization rate which will get me a higher CL in the future?

If that isn't the case then do you just use as much credit as you want and before you want to ask for a CL increase or apply for a loan make sure you have 1-2 months of 1-9% utilization?

MemberSince99
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Postby MemberSince99 » Sat Jun 01, 2013 9:43 am

Technically it's actually not true that it doesn't matter unless you are going for something - I was wrong in saying that. .Let me explain - your current lenders periodically do account review soft pulls on your credit which you can see as AR soft pulls, basically to check that you aren't getting in over your head. If your utilization were to be really high when they do that, then it's possible they might not like that and might do something to protect themselves (like close your account in an extreme case, or cut your limit or something like this). So, it actually does matter to keep it reasonable even if you aren't planning to app for anything just to be safe.

I only thought of this after the fact I'm sorry I didn't mention it earlier.

It's always a great idea before you apply for a loan or even a CLI to know what's on your reports and your score. All you have to worry about is what is reporting on the day you apply and shortly after in case you need to recon. What it was 2 months ago or even last month doesn't matter they won't see that - all they will see is what it is at the time they pull your credit. They can surely calculate it if they want to, I've seen where it reported your high balances so they COULD do that but I've never seen any actually do this - they just care about what your utilization is right at this moment.

So I would try to make sure it stays reasonable even if you aren't planning to apply for anything just to be safe for when they check up on you, and then when you want to apply have it in that 1-9% range and you should be in great shape.

rbai76
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Postby rbai76 » Sat Jun 01, 2013 9:59 am

So in my situation, just trying to build credit and have a history with the cards that I currently have what should be the maximum % to my CL to spend each month on each card, weather I pay weekly, at the end of the month?

Also, how long should I wait before asking for a CLI on the Discover, Chase, and Citi? I opened up the Discover and Chase a few weeks ago and at that same time I asked for a 500 CLI on my Citi card and was approved.

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Postby MemberSince99 » Sat Jun 01, 2013 10:11 am

Spend as much as you want, but do not exceed your limit, not once, ever, but otherwise spend as much as you want and can pay back. Doesn't matter. All that matters is what is reported to the credit bureaus, that's your utilization. You will want to find out your statement cut off date, and make sure that on that date, all cards but one have a zero balance, and that one card has a 1-9% balance. That's really all there is to it. They will all have different dates so juggling them can be a bit of work but as I mentioned CK has a free calendar that reminds you of this and helps keep track.

With Discover you have to wait 6 months to ask. They MAY auto CLI you before then, but it's always YMMV you just never know. So once you've had your Discover 6 months that's when you should ask.

Chase, you can ask them anytime you like, but be advised that 99% of the time when you request it, it's a hard pull on your credit. Citi I have no personal experience with but from what I've read they are probably the best of these cards with CLIs Maybe someone who has Citi can give you more details, I've never had personal experience with them but from what I've read it's like you saw they are pretty good about it.

rbai76
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Postby rbai76 » Sat Jun 01, 2013 11:01 am

Credit Karma is awesome I just set everything up, how do I look at the cutoff dates?

Thanks

MemberSince99
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Postby MemberSince99 » Sat Jun 01, 2013 11:06 am

There is a calendar in there somewhere just poke around, I don't recall exactly where it is, but explore and you'll find it.

im_mr_awesome
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Postby im_mr_awesome » Sat Jun 01, 2013 1:24 pm

Citi has been really good to me, and as a person with relatively young credit history (less than 4 years) I'll say they should be good to you if you keep your account in good shape.

I've heard from others that Citi is indeed good with CLIs. I know from personal experience they are good with product changes, so if you outgrow your card or want better rewards, you can change to a different card. I have a Diamond Preferred card and use it for the 0% balance transfer offer, and will be PCing to some sort of rewards card in about 5 months to a rewards card.

I'd ask them once your intro period is over and then every 6 months assuming <10% utilization.
Scores on the mend...
FICO: 650 (Discover/TU, 6/23/2016)
Cards I Use Citi Double Cash, Chase Amazon, Capital One QuickSilver
Sock Drawer Discover IT, Citi Diamond Preferred, AE Visa, QuickSilver One, Walmart CC, CareCredit, CreditOne (keeping for history for now)
Short Goal Reach 680



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