I read a lot on this board that a great way to raise scores is to pay off current debt. And I read some conflicting information in a recent article in the Reader's Digest. They put out what I thought was a pretty good article on how credit scores work. They supposedly did a lot of research and had a lot of inside info. about what raises and lowers scores. Anyway, in the article, they said it was best [for your score] if you left your balances at about HALF, as opposed to FULL or LOW or NOTHING. They said that Full is not good but paid off entirely was good but wasn't as good as HALF because other creditors want to see that you actually use the credit that's available to you. I've got all of our cards now paid down to just under HALF. I thought I was doing the right thing. Any comments?
Never carry a balance if it's not necessary. Also, utilizing half of your available credit line is a warning signal to creditors and you may well find your interest rates increasing. THe average consumer who does carry a balance only uses about 22% of available credit.
It's pretty simple. Creditors want to make money so they want you to carry a balance. So half is about right, because they are making interest and you are not seen as a big credit risk. Also if you never carry a balance, it may show that you are in fact a credit risk waiting to happen because you do not know how to carry and handle debt. It the "bad credit is better than no credit" concept. Now hypothetically it is perfect for you the consumer to have the max balance that allows the max finance charge without going over your limit forever. But in real life, that basically means you are about to default and have no money. My advice is to pay off whatever you feel like you want to pay off and use your cards wisely. Basically use your CC here and there, pay off whatever feels comfortable. Dont overuse and dont ignore your credit cards. Thats the ideal consumer, one that uses his cards, has the ability to pay them off if needed, but is relaxed about it, leaves a reasonable balance, hence letting the CCs make money. Thats what used to do before I ran into money troubles and had to rely on CCs. I had great credit (ahh reminiscing)
Once again, I agree with Keepmine. Its best not to carry a balance, but you need to use the card every month to show activity. L
Lewis, There is more to your FICO score than just how much {if any} balance do your carry. www.myfico.com has a brief explanation at the bottom of the page about how different variables factor into your score.
I've always carried about a 30% balance on my cards, and have had good results. I do however disagree that most consumers carry around a 22% balance on their credit cards. FYI, FICO states that the VAST MAJORITY of us have credit scores in the 700's. I think we all know that's a bunch of hogwash. Most people probably carry a heck of alot more than 22% on their cards, this is not a good thing, but is alot more realistic than this "pie in the sky" crap FICO dishes out.
To get the best FICA score it is best to have a cumulative balance of under 15% of total credit line. As far as what creditors want, that's a different story. There is another type of scoring called profitability scoring. Creditors want you to pay some interest so they can make more money. Paying an occasional late payment fee may even help your profitability score but it will definitely hurt your FICA score. Another point about FICA scoring is that if you say have 6 revolving cards, you do not want to have a balance on more than 2 or 3 when you want your score to be high. What I do is one month I run a visa card up to 30% to 50% and pay it off. The next month I do most of my charging on Visa card two and make a under $50 charge on one or two store cards and also put a 5$ charge on an old visa card to keep it active. Then I pay off all cards and move on to Visa Card number 3. I run that up to 50% and pay it off. Then I start over again. If I want to apply for credit I pay off all cards and wait about 7 weeks for all cards to show zero with the CRA's.
jrjr, According to Visa/mc from last year. only about 38% of cardholders carry a balance from month to month. With less than 5000 members, many who do carry large balances, we are nowhere near the profile of the average consumer when it comes to credit card usage. The 22% utilization figure is fairly recent. It was published in July I believe.
I carry large balances when the rate is low, otherwise no balance. I don't know what my FICO is, but it is not 700+. I have all the credit I need and keep getting increases and lower rates. The use of credit should be restricted to what you can afford to pay. The rest should be invested, if the return is higher than the cost or kept idle for emergencies. Just my approach. www.creditsense.com
Hey, if you combine the 22% average usage with the $8,500 average household credit debt statistic, then the average household would have $38640 total credit limits. How accurate does THAT sound? -ingenue
I guess we are WAY above average...($38640 total credit limits) My MBNA QUANTUM and DISCOVER PLATINUM CARD together EXCEEDS THAT...
That's an interesting question. Has anyone ever seen data on average total credit lines, maybe broken down by demographic? I always wondered how my credit measures up. Not exactly dinner table conversation, though. EDIT: Oh yeah, and no matter what anyone says, we've all seen that lower utilization equals higher scores, period. My FICO jumps 20-30 pts when I transfer my balance between cards and "hide" it for a few weeks. In the same time, if I'm at like 2% utilization (until x-ferred balance updates), and a different card updates taking me to like 6%, there go a few more points.
Well keepmine, I understand what you're saying but, from those same credit card companies we are hearing that the "average" consumer carries approximately $9000 in credit card debt, and that the "average" consumer carries around 4 cards. Therefore, assuming $5000 per card, making a grand total of $20,000 in credit, and a balance of $9000, that looks alot closer to 50% usage than 22%.
LOL GEORGE, I believe my math is correct, if I'm not mistaken $9000 is 45% of $20,000, and that seems much closer to 50%. But what I'm really trying to say here is, FICO, CC companies, and the Banking industry in general, seem to want us to believe these statistics that just don't seem real, in order to justify their outrageous interest rates. I'll give some examples, I personally have a FICO of just over 700, yet when I look at the graph FICO shows, it says that I'm in the 40th percentile, meaning that 60% of americans have a better score than 700? Does this sound realistic?........ I have a friend who actually manages several cellular phone outlets, and he tells me that at least 8 out of 10 people that apply for a phone have some kind of "ding" on their credit. Where the hell are all these folks with the 750 FICO's???????
Just to clarify my comment about interest rates, I was trying to say that it seems like creditors want us to think that those of us who have flaws in our credit are in the minority, and therefore can penalize us with outrageous interest rates because we're not keeping up with the Jones's.
jrjr35, Here's what you're missing. The vast majority of consumers don't carry credit card balances from month to month. Members of this site are in the distinct minority when it comes to an average consumer profile about credit card usage and carrying balances. With 2/3's of the card carrying public carrying no balance from month to month I think it's pretty easy to see a 22% utilization rate.Also, it's not unusual to see people with $100K total credit available to them. So, carrying a 20K balance would get you to 20% pretty easily.
Totally agree. There are billions of untapped credit in the US. That was one of the major reasons we founded CreditWorks, LLC. We mistakenly thought that the people with idle credit and great rate offers would jump at the opportunity to earn money with their credit. It turned out that only our immediate family thought it was a good idea. We now have paid off 95 loans since 1996, for a total over a 1,700,000, obviously the utilization on these accounts has been a lot more than the 22% avg., but given the low number of participants, it is obvious that must people are the exception, not the rule on the 22% utilization. www.creditsense.com
jymlewis Part of the answer would depend on what you are trying to accomplish. From a mortgage standpoint, the higher your credit card usage, the more money/payments percentage that you have tied up. This will not only cause you a lower score but also hurt you because more of your debt ratio will be used. From my understanding within the mortgage industry, the lower the utilization, the better the score. There was a posting by lizardking recently concerning this subject called "boosting scores for mortgage app" here is the link: http://consumers.creditnet.com/stra...threadid=35071&perpage=20&pgnum=&pagenumber=1 fla-tan
Where are all the 800 people???? According to the SIMULATOR, I will NEVER get 850, or even 825, or even 810!!!
