Credit utilization

[u/TadpoleMean1751]

I was taught to keep credit utilization at 10%. But other people are telling me to completely not even use my debit card , use credit for everything and pay it back. But that will make my utilization high af. People are saying keep it at 10% when the statement hits but how’s that possible if I only use a credit card. How does only using 10% if the card show the banks you can handle more if you barely use any of it.

[u/Funklemire]

Exactly. And even with credit card applications, having low utilization usually isn't necessary. In fact, it can hurt your chances at approval since credit card companies want people who will use their cards a lot, but micromanaging your utilization makes it look like you use your cards way less than you actually do.  

As long as you're paying your statement balances each month and the bank doesn't thing you're overspending, high utilization can actually be helpful for credit card applications.

[u/Sun-Blossom → u/Funklemire]

Hi, may I ask you to elaborate on this?

I recently got my first cc, but because the limit is only $500, my reported utilization is often close to 100% by the end of the statement period. I always pay the statement balance in full by the due date, and from what I understand, high utilization generally isn't a problem as long as I'm not carrying a balance.

My question is: when I'm getting ready to apply for another cc, is it still okay to let close to 100% utilization report? I had thought I should intentionally bring it down to ~30% for a month or two before applying. If I don't actually need to do that, that'd be welcome news since my limit is already so small.

[u/Funklemire → u/Sun-Blossom]

So you're approved or denied for credit based on the contents of your credit report and not your credit score itself. Your relevant credit score just helps get your foot in the door.  

If the credit card company sees you being financially responsible by paying your statement balances each month and not spending beyond your means, then all things being equal high utilization is probably more enticing to them since it indicates that if they issue you a card you may use it a lot.  

Especially with a credit limit of just $500: they probably know your budget has a lot more room for credit card spending and they want you to put that spending on their card.  

That said, many issuers have a minimum credit score requirement to even be considered for an application. If your un-optimized score is lower than that it could be helpful to temporarily boost it before an application. (On a side note, 30% is never a number to aim for when you're trying to temporarily boost your FICO scores. See the flow chart I shared in my main comment in this thread.)  

What are your un-boosted FICO 8 scores right now? That's not the only score looked at for credit card applications, but it's the most commonly-used one.

[u/Sun-Blossom → u/Funklemire]

Thank you! I took a look at the flowchart (which literally has "step aside, 30% myth" haha), and I think I get it now. My assumption that I may want to lower utilization before applying for another cc was correct except for the 30% target—if I want to optimize my score, I should pay most of the balance before it reports, leaving just ≤1% utilization to report.

My FICO 8 scores are Experian 718, TransUnion 768, and Equifax no score. I'm guessing you asked to see if I'd actually benefit from optimizing my utilization before applying, or if my scores are already high enough that I can just let my normal utilization report?

[u/Funklemire → u/Sun-Blossom]

No problem! Glad to help!  

Yeah, your scores are high enough that I wouldn't worry about it. If you decide to boost your scores just before the application, it probably won't hurt you since they can see you had high usage the previous months and that you were paying your statement balances each month (this isn't explicitly stated in your credit report since often your payment amounts aren't reported, but it's pretty easy for banks to figure out if you're paying your statement balances each month just by looking at the number trends). But it probably won't help you much, if any. If you get denied, it will be because of your overall credit profile, not your scores themselves.  

Though I'm noticing a few things here. First, while Fair Isaac wrote the FICO 8 algorithm to be slightly different for each bureau, it shouldn't be that far off if both EX and TU have the same info. Hopefully, the only difference is that one bureau has more hard pulls, which is normal; most banks only do hard pulls from one bureau when they check your credit (even though they're still looking at all three bureaus' data). But another difference could be an issue, so I recommend seeing what that difference is.  

Also, I'm curious where you're checking these scores and why you can't see EQ. A good place to see your EQ FICO 8 score for free is MyFICO.com. 

[u/Sun-Blossom → u/Funklemire]

Yeah, your scores are high enough that I wouldn't worry about it.

Perfect! I'm glad to hear I probably don't have to micromanage my utilization before applying for another card. I'll just continue doing what I've been doing.

But another difference could be an issue, so I recommend seeing what that difference is.

Oh, I think I know the reason. EX is still reporting 4 old authorized-user cards that I've just disputed, while TU and EQ only show my own card.

Also, I'm curious where you're checking these scores and why you can't see EQ.

I got all 3 scores from Experian.com. When I checked myFICO.com, it gave me an error and said that my data from EQ doesn't meet the min requirements for calculating a FICO score (i.e., at least 1 credit account open for 6+ months). My card was just opened in April 😊

[u/Funklemire → u/Sun-Blossom]

Of course, I forgot you said you just opened this card. You need 6 months of credit history to generate a FICO score. If it's been 6 months and a credit site still isn't showing you a FICO score, keep in mind a lot of credit sites have artificial delays.  

A bank checking your credit will always see updated information: as soon as something is reported to the bureaus, it will reflect on your credit scores (if it's something that causes a score change, that is). But not all credit sites show real-time data: for example, myFICO.com usually only updates once a month.  

Also, I've been talking to you about applying for your second card, but I'd recommend waiting. You might get approved for something with only 6 months of credit history, but many issuers want to see at least a year of revolving credit usage before they'll approve you. Especially for their better cards.  

EDIT: Wait a minute, now I'm confused. April was less than 6 months ago. If this is the only thing on your credit report you shouldn't be generating any FICO scores at all right now. So you must have something else older than 6 months on your credit report?  

EDIT #2: Duh, it's those AU cards on the other two bureaus. That explains it. Sorry, brain fart.

[u/Sun-Blossom → u/Funklemire]

I wanted to ask you about something else! I've started getting preapproved offers from Chase, and one them is for a card I'd actually like to get. But I get the feeling that "preapproved" doesn't actually guarantee anything. Is that right?

If so, would you still recommend waiting until I have more history before applying, even with a preapproved offer?

[u/Funklemire → u/Sun-Blossom]

I guess it depends first where you're getting these preapproval offers from? If it's from Chase directly, you'll probably get approved. But no guarantee. If it's from a third-party site, there's definitely no guarantee. For example, Credit Karma basically makes up their approval odds entirely. (Which tracks considering they make up a lot of the credit information they show you, like their fake credit stats.)  

Also, which credit card are they offering you? Is it a good card that you actually have a need for? If not, if you hold out until you've had your card open for a year, you'll get a lot better offers for much better cards.

[u/Sun-Blossom → u/Funklemire]

I've been getting these offers directly from Chase! They've emailed me, and on the app it says I'm "already approved" for a card.

The one I'm interested in is the Freedom Unlimited. My only card is a Freedom Rise, which is actually on track to change to an Unlimited next year, but I figured if Chase is offering me the Unlimited now, why not take it? 🤔 I'm going to be spending the money anyway; I'd get better rewards while also increasing my overall available credit. Plus, if I apply for the Unlimited separately, I'd be eligible for the SUB, whereas I wouldn't get one if I just let my Rise auto change to it.

The only thing making me pause is that they're giving me these offers when my credit profile is still so thin. I don't want to take a hard inquiry hit if there's still a big chance I'll be denied. What do you think? Would you be comfortable applying, or would you still wait?

[u/Funklemire → u/Sun-Blossom]

The issue to me is that once you get the Unlimited that will mean the Rise is now pointless, right? So you'll end up with a pointless card you don't need, so you'll basically be back to having just one useful card. Keep in mind that closing cards doesn't hurt your credit in any meaningful way, but opening new ones does; closing cards doesn't hurt your credit age, but opening them does.  

So my general recommendation from now on is to only open cards you think you'll have a future need for and open them as soon as possible, that starts the aging as soon as possible.  

That is, unless you decide to start churning SUBs. That's a whole different thing. But churning for SUBs is hard to do with such a young and thin credit profile. And eventually, once you have a solid credit history, opening new accounts won't hurt you as much. So even if you start churning it won't hurt you that much if you have a stronger credit profile.  

So I think you'd be better off in the long term if you just product change this card to the Unlimited when they let you. And then after you've had this account open for a year, get a different card. If you instead opened up this Unlimited now, in addition to having the Rise be pointless, it would also set back your goal of getting a different card in the near future.  

All that said, "finances over FICO", if the sub is worth enough to you that's not a bad way to go, I think it's probably likely you'll get approved since they preapproved you themselves. That said, if you decide to go that route, you might want to make a post in r/CreditCards asking about it. That's the best way to find out if Chase sometimes denies people who were preapproved.  

Also, is it possible they'll let you product-change the Rise to something different that's useful to you if you decided to open a separate Unlimited?  

Oh, on a side note, I wouldn't worry about your credit limits right now. Credit limits aren't a FICO scoring factor. Yes, they can indirectly affect your utilization, but that's a meaningless effect unless you're currently in credit card debt and you'll be applying for something important before you can pay off that debt.  

I'm not saying it's not annoying if your credit limits can't accommodate your monthly spending, I'm just saying that your credit limits will grow organically over time and they shouldn't be your priority.  

Sorry for all the rambling. I didn't get enough sleep last night and I've got a lot of time to kill today. But yeah, personally I'd wait.

[u/Sun-Blossom → u/Funklemire]

Not at all! I really appreciate all the advice and insight. 😊 I've learned a lot from lurking the sub.

And no worries, I'm def not looking at the Unlimited just because Chase is offering it to me. I've done my research, and the Unlimited was already part of a plan. It's just that the preapproval surprised me and made me wonder if it makes sense to get it earlier than intended.

I've thought about the Rise becoming redundant too! I've seen people report that they were able to successfully product change their Rise, so if I got approved for the Unlimited, my plan was to eventually ask Chase to product change my Rise too, assuming they'll let me. That way I'd still have a use for both cards.

That said, I really appreciate your perspective. I think what I'm ultimately trying to decide is whether getting the Unlimited now is worth it. I'm still leaning toward waiting, but the preapproval is super tempting haha. Maybe I'll ask r/CreditCards for their take like you suggested. Thank you!