4 burning questions about credit scores
Dornhelm says a consumer's score takes the greatest blow as the person approaches 100 percent utilization, but could not
offer an ideal threshold for consumers to heed. He says if people want to know whether their balances are too high, the score factors or
reason codes provided to them when they purchase their FICO scores will indicate if
high balances are keeping their score down.
Davidson contends that credit scores start to suffer after anything above 10 percent utilization, which she acknowledges
is very low. "That's why experts say 50 (percent) or 30 percent," she says. As for those recommendations, she says, "30 (percent) is better than 50 (percent), but it's
not as good as 10 (percent). "
People who pay off their balance each month should still mind what they charge. If the issuer reports your payment data to
the credit reporting agencies before you pay in full, then the amount reported will be the statement balance. If your statement balances
are high, your utilization will look high even though you pay off your balances.
Davidson says one way keep your utilization down without getting a new card is to request a credit limit increase.
If you are in good standing with the issuer and know a higher credit limit won't tempt you to spend more, this can be a
good way to bring down your utilization and boost your credit score.
Requesting a credit line increase may or may not result in a hard inquiry, which can ding your credit score. Davidson
recommends people call their issuer and ask if the request will produce a hard inquiry. You can always ask how likely you are to be
granted the increase, she says. The reduction in your utilization could be worth the ding from the inquiry.
4. Does it help to spread your debt across all your cards?
The short answer: Sometimes.
The long answer: Dornhelm says that the FICO scoring model considers utilization by looking at
your balances divided by the credit limits on all your cards, as well as the single highest utilization on your credit cards. He says it's
possible for two consumers owing the same amounts and having the same credit limits to get different credit scores if one puts a large
balance on a card with a low limit, causing that card to have a high single utilization compared to the other consumer.
Spreading your debt across multiple cards generally won't help your credit score, unless putting all your charges on one
card would put that card close to being maxed out. "In any other situation, it's not going to help your score," says Davidson.
Having one credit card with a low credit limit could harm your score if you charge up a high balance on it, but your score
could also suffer if you charge high balances on all your cards. Dornhelm says his company's research has shown that people with balances
on a number of cards are more likely to mismanage their credit. "As such, there can be an impact to your score of having a large number of
credit cards that have high balances on them," he says.
Don't go nuts
Credit management decisions shouldn't come down to the credit score alone. "The most important thing is spending patterns and tendencies,"
says Hardekopf. "The credit score is a far second."
When you obtain cards that meet your financial needs, concentrate on paying on time, keeping your utilization down and
applying for new credit sparingly. Good credit management should save you money and help you build a better credit score.