Major impact of CC balance on small CL?

[Suffering from a Tax Lien]

Hello Friends,

I have had a lot of credit / financial problems over the past years. I'm now rebuilding.

I signed up for the Equifax monitoring service and it has an Interactive Score Estimator plan, which lets you adjust various parameters in your file and estimate how they could change your score. I have no idea if this is an accurate predictor or not, but let's assume for a moment it is...

I have only one CC, and it has a CL of $350. I have bad credit so that's all I have.

I don't really carry a balance with it or use it that much. This month I spent $90 on it. That resulted in a credit utilization of 26%.

I never thought much about this. How much impact could such a small balance have on anything? It's $90, the price of dinner and drinks!

I used the estimator to move this up and down to see the effect. Shifting it down to 4% utilization gave me a credit boost of about 30 points! Now that's only a difference of a few dollars.

Is this realistic?

I think it may be, so I've decided that the only purpose of that CC is to increase my credit. I will keep the balance at exactly $14 (4%), by making one $14 purchase per month, and leave it in my desk the rest of the time, and will (of course) pay that $14 off immediately when it's due.

(Conversely, letting the balance go up to $200 had a major negative on my score. I also tried it at zero balance and that also had a negative impact. These are differences that amount to spare change really. $14 vs. $0 vs. $90.)

It seems like such a trivial thing, if it can give me such a big boost, WOW! Again, is this realistic, or is their estimator wrong? If it's right, those few $$ could make the difference between getting a bank mortgage vs. a hard money loan!

[Lian]

You have hit the nail on the head with regard to small CL cards!

Since FICO does not score CL, but only % util of that CL, even small balances on a low CL card are looked at the same as proportionally higher balances on higher CL cards.

A $100 balance on a $400 CL is the same as a $1000 balance on a $4000 CL card, as far as FICO scoring is concerned.

Low CL cards thus require a lot more monitoring than higher CL cards, for the same balance causes a much higher increase in % util. However, on the flip side, it is much easier to reduce the % util on a low CL card than on a higher CL card.

FICO does a lot of "the balance does not matter" things. For example, a $10 collection account hurts the same as a $35,000 collection account. It does not always make sense, but those are the rules of the FICO game.

[Suffering from a Tax Lien]

Originally Posted by Lian

You have hit the nail on the head with regard to small CL cards!

Wow, I no idea! I'm glad I tried that.

Originally Posted by Lian

FICO does a lot of "the balance does not matter" things. For example, a $10 collection account hurts the same as a $35,000 collection account. It does not always make sense, but those are the rules of the FICO game.

That's amazing, and to me, amazingly stupid, but whatever, everything to do with credit in the US is quite distorted and irrational, which may be why this country has had a major financial crisis.

I never paid much attention to that card because I thought the CL was so low, what's it matter if I have $200 or $100 or $0 on it.

Now I know. I will keep it pegged at $14, and the only purpose of that card will be to keep my credit utilization at the exact perfect level. It will stay locked in a drawer except for one precisely-planned monthly purchase.

It's amazing that some spare change can make such a huge difference in my score. The price of dinner makes the difference between me having bad credit and being able to get a mortgage...

I must say, since I've started learning about this subject (thanks to this forum and plenty of web browsing) I'm making a huge difference in my credit. I fully expect a 100 point gain within 6 weeks with all the stuff I'm doing, and it's costing me very little.

I sent in Form 12277s to the IRS to get my liens deleted. I found liens incorrect reported also on TU and those are now deleted. I'll keep my credit utilization at the magic number. I disputed an old paid-off collection and got it deleted (even though it's valid). I'll keep on (every 30+ days) disputing my paid-off state tax lien.

This makes a huge difference in my ability to do business and get credit.

When I started this whole thing two weeks ago my scores were low 600s, and now they are 20 points higher, and I expect about 30 points from paying $76 on my credit card, and another big boost from deleting those liens and collections.

Amazing!!!! I'm the same person, my financial situation is not any different, my history is what it is, but the score can change drastically with a few simple and cheap maneuvers.