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Too Little Debt?

Last year, I wrote Your Credit Score, in which I discussed the factors that go into the Fico Score. One item, representing 30% of your score was credit utilization.  In other words, using $1000 of a  $2000 total credit line was far wore than using $2000 of a $10000 line. Since the amount reported is what’s shown on the bill, regardless of how much you pay or even if you pay in full each month, the bill amount still ripples to your score. So as part of some experimenting, I paid my cards in the last cycle before the bill was cut. Yes, just before.

(Note – you can click to enlarge the image) You see, this was just brilliant. By owing less than 1/2% of my available credit, I managed to go from a potential A to a C for this criteria. Owing zero is exactly as bad as owing 41-60% of your available credit, which in my case would mean $30K+. An A ranges from 1% to 20%, so unless the Janes and I plan to do some real damage, I think I’ll quit this experiment and let the bill come in before I pay it. Lesson learned.


  • JAL May 6, 2011, 9:09 am


    I’ve also noticed this same phenomenon over the past couple of years while regularly reviewing my credit score on creditkarma.com I generally dislike carrying a balance on my credit accounts, so I prefer to make payments two or three times per month. It’s easy to do with electronic payments. A side benefit of this practice is that I never have to worry about missing a due date.

    It’s a bit irritating to be so “responsible” with managing debt and then get penalized for it on my credit score. It seems counterintuitive.

  • JOE May 6, 2011, 10:04 am

    JAL – our “natural state” is to just use one or two cards (our Amex pays back 3% on gas and 5% at certain hotels and office supply, M/C straight 2%). And it would be pretty rare to bump the M/C limit.
    For me, this was an experiment. I always pay in full and was finding it curious that the amount of the bill got reported. Not average balance, just the bill amount. It would be normal to see a few thousand dollars each month, and that’s an A. Counter intuitive is right.
    I might just kill a couple old cards we don’t use just to see the effect of lowering my average time the accounts are open. We’ll see.
    (BTW – you are now “auto-post”, no moderation needed on comments)

  • Eric May 14, 2011, 7:00 am

    Yeap – ain’t this a kick in the pants?? I am on the other side, where I am trying to get my debt down, but as soon as I pay off a large part of a credit card – they cut my credit limit – basically keeping me in the 80%-90% credit utilization, even though I have paid down over $25K in the last 12 months.

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