Credit Limit Usage and Credit Rating

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dluds
 
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Credit Limit Usage and Credit Rating

Postby dluds » Thu Aug 22, 2013 1:43 pm

So I've been told it's not good for your credit rating to use all or almost all of your available credit limit. I never really understood this as it seems to me that as long as it's paid off on time each month, it shouldn't matter. Anyways, my question is, if I have 2 credit cards, each with a $5000 limit. Does it make a different if I have $4800 charged on one and $0 on the other versus $2400 charged on each one? In both cases I am using $4800 out of an available $10000 credit limit.

Additionally, if I go over my credit limit one time in my lifetime, but pay it down enough so it's under the limit the same day, how greatly will that affect my credit rating?


JSS3
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Postby JSS3 » Thu Aug 22, 2013 2:32 pm

They report the combined utilization of ALL your cards, so technically, if you have less than 30% on one, and 0% on the other, I'd imagine you'd be good, but IDEALLY, you want <30% on EACH card.

The mindset of paying multiple times a month(and that being the key) needs amending or to be gotten rid of. The most important thing is to pay down to your preferred utilization by your due date and definitely before your credit company reports to the bureaus. Paying multiple times and STILL not getting it down by the time it's reported is not going to do you any good. Nor is leaving a high balance and then paying it in full AFTER your info is collected. It's all about timing.
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Robrus1
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Postby Robrus1 » Thu Aug 22, 2013 3:43 pm

If you pay your balances off before your statement generates, use however much you want. I would say to be safe, especailly if building credit or before going for a loan of some kind, to keep it under 10%. If your card has a no over the limit fee, feel free to go over if you need to. That's why a lot of people on here, myself included, want higher limits on our cards, so that our utilization doesn't report too high, especially on the cards used most often. If you go over the limit you don't need to worry about making a payment the same day, just pay attention to when your next statement is due to print, and pay it before that, so that it won't show up on the statement, and in turn report a high percentage to the credit bureaus. It doesn't really matter if the balance is all on one or split between the two, especially if you're paying it off every month because there's no interest.
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Postby takeshi » Thu Aug 22, 2013 4:08 pm

dluds wrote:I never really understood this as it seems to me that as long as it's paid off on time each month, it shouldn't matter.

It does matter for scoring. It sounds like you need to read up on utilization and credit scoring. Paying the balance by the due date does not mean that a 0 balance is reported. The statement balance is what is reported.

As stated above, 30% or less utilization is generally recommended but for optimum scoring you want as little as possible without going to 0 utilization.

dluds wrote:Does it make a different if I have $4800 charged on one and $0 on the other versus $2400 charged on each one?

Not for overall utilization but $4,800/$5,000 on a card is maxxed out and can be a problem -- especially if carried for a while and only the minimum is paid.

dluds wrote:Additionally, if I go over my credit limit one time in my lifetime, but pay it down enough so it's under the limit the same day, how greatly will that affect my credit rating?

It won't. It can incur you an overlimit fee though. Your utilization is your current utilization. As long as you've reduced it prior to when it reports it really doesn't matter what the balance is. You can repeatedly run your card up and pay it multiple times if needed or desired.

JSS3 wrote:The mindset of paying multiple times a month(and that being the key) needs amending or to be gotten rid of.

Doesn't seem to be an issue to me. Some prefer this approach but I don't recall seeing anyone claim that this is required for maximum scoring.

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Postby JSS3 » Thu Aug 22, 2013 4:46 pm

takeshi wrote:Doesn't seem to be an issue to me. Some prefer this approach but I don't recall seeing anyone claim that this is required for maximum scoring.

I've spoken to people in real life who seem to believe that credit building is really only about paying back(esp multiple times) rather than timing. Some even think that if they pay multiple times, "filling up their card", it's then ok to use it again before the reporting date. For example, if they pay $100 and then $50, they felt it showed creditors that they're doing a "great job" even if paying both times didn't bring down their utilization to the desired range. They get caught up on the technicality that they've paid "multiple times". The key is to pay attention to when your balance reports and not focus so much on how many times you pay UNLESS paying that many times brings down your utilization in time for a less than 30% balance to report. IMO that's what's needs to be stressed because people seem to get the wrong message, as it seems the OP did. He thought paying in full was sufficient enough. I wanted him(and anyone else who's unsure) to understand paying in full, and multiple times, means nothing for your score if it's not done by the time your balance gets reported.
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Postby Robrus1 » Fri Aug 23, 2013 8:14 am

JSS3 wrote:I've spoken to people in real life who seem to believe that credit building is really only about paying back(esp multiple times) rather than timing. Some even think that if they pay multiple times, "filling up their card", it's then ok to use it again before the reporting date. For example, if they pay $100 and then $50, they felt it showed creditors that they're doing a "great job" even if paying both times didn't bring down their utilization to the desired range. They get caught up on the technicality that they've paid "multiple times". The key is to pay attention to when your balance reports and not focus so much on how many times you pay UNLESS paying that many times brings down your utilization in time for a less than 30% balance to report. IMO that's what's needs to be stressed because people seem to get the wrong message, as it seems the OP did. He thought paying in full was sufficient enough. I wanted him(and anyone else who's unsure) to understand paying in full, and multiple times, means nothing for your score if it's not done by the time your balance gets reported.


The people you've spoken to who believe that are misguided, since all the lenders report to the bureaus is "paid as agreed" every month. They don't report "paid multiple times this month as agreed" or something like that, nor do they have any control over helping your score a bit because they're happy you made two small payments instead of one big payment.
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Postby Daniel » Fri Aug 23, 2013 10:46 am

I would like to chime in here about whether having 4800 on one card or having 2400 on both cards makes a difference. For the scoring of your credit file for a new account request it should not matter much as many underwriting algorithms for new accounts do not penalize you for having all of your spending on a single card.

The scoring of your account from either of the two banks the pair of cards are issued by is very different from an account management perspective. In the case of 4800 on a single card, one bank will show 0 utilization(inactive), which would reduce the credit files profitability scores, which can result in fewer and smaller limit increases, but doesn't have to. The bank with 4800 of 5k used will likely score the fact that they have 100% wallet usage positively, however it is >90% utilization, which can be a red flag. I think the likelihood of CLI's here could be a mixed bag depending on how the bank weighs utilization of its credit line against the size of their share of your wallet.

In general, I seem to hear from credit analysts that when your account is scored by the bank you already do business with, they have a wider range of utilizations they will consider safe on that specific account than they consider safe when considering the overall credit file (10-50%) vs (1-30%). But that is purely anecdotal based on a few conversations with friends that are credit analysts.

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Postby thecentury303 » Fri Aug 23, 2013 8:00 pm

I have heard that spending > 90% of your credit limit on any cards is a big no-no.
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Postby amyj » Thu Sep 05, 2013 11:56 pm

When you max out a credit card, it tends to throw red flags up for lenders who look at your credit rating. They look at your credit utilization, and maxed out cards hint that you may not be living within your means. Even if you are paying off the cards fairly quickly, it can still look risky because it might be possible that you are a big spender and when the cards are maxed you are the highest risk for default and other credit issues the lenders want to stay away from. creditdata dot com might have more information you’ll find useful.



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