fourth deck said:
FrioAg 00 said:
My understanding is that potential creditors (the audience for credit scores) want a probabilistic prediction of you paying in accordance with the terms. Indicators that you are most likely to pay include (1) use of credit (2) history of paying
Intuitively we think that not using much or any credit would be a good sign, but statistically those who don't use it are less likely to be "good credits" when they do use it.
No one projects better than someone who uses a moderate amount of credit and a perfect record of paying.
I thought that above 1/3 credit utilization ratio your score would begin to drop, whether cumulative or per line of credit. From my own experience, my credit score took a decent hit when I used up >50% of a credit line on a 0% APR credit card to finance a backyard project. My score began to climb slowly as I paid it off.
My understanding is also that many of the scores promoted by individual credit bureaus and credit monitoring services are not the same as FICO.
I talked with a lending adviser a year or so ago about how to build up your credit score. We had cash on hand to pay off our car loan, however, we had just sold our house and were moving to an apartment while our new home was under construction. If we paid the car off we wouldn't have any other debt since we payed our credit cards off monthly.
He said to take your card with the lowest limit and keep the balance on it around 30% and just pay the notes for a while. Having that small balance and paying it monthly would at least keep our score flat or even improve it over a 9 month period. Ultimately, we decided against that option and just delayed paying the car off for 9 months. Our score improved by about 40 points in that nine month period of not having a mortgage and just paying a low interest car loan. Not sure if the other option would have had the same results, but that was our experience.