Credit score and credit utilization

[El Gringo]

Whenever I check my FICO score through one of my current credit card accounts (i.e. American Express, Barclays, Bank of America, Citi), they always say the same thing:

Factors affecting your FICOŽ Score:
1. Length of time revolving accounts have been established
2.  Proportion of loan balances to loan amounts is too high
Consumers who use a high percentage of their available credit (generally known as utilization) have a higher risk of delinquency (falling behind on payments) and charge-off (loan default) over time. Lower use of available credit allows consumers who have the need to temporarily carry higher loan balances to do so, because they have available credit on their accounts. Consumers with heavier credit usage cannot absorb changes to their financial situation as easily, which can lead to higher risk over time. Keeping credit balances lower in relation to available credit will help reduce the negative impact on a credit score over time.

The first one makes sense - I've opened a number of credit cards over the past 4 years for rewards purposes, so my average age is low. What doesn't make sense is the second one. I pay off all of my credit card balances every month and I have one student loan left that's around $1500. My credit limit is ~$59,000 and when I check Credit Karma and Credit Sesame, my utilization rate is normally around 2-3% at any given time.

Why would the credit card tools be saying that my credit utilization is too high?


On another note, why does my score get pinged when when I have to undergo a credit check when applying for a rental lease or opening a new bank account? These both show up as hard checks. Neither of these are signs of credit risk, so why do I get pinged for them?

[Catbert]

What gets reported to credit bureaus IME is the balance on your bill.  If your cc balance when you're billed is $1000 with a credit limit of $2000 then your utilization is 50%.  The fact that you pay it all off as soon as you receive the bill is irrelevant to FICO.  If this is really a concern to you, you could try paying off most of the balance before  the bill is prepared.

Remember, they will always give you a reason for why your FICO isn't 850.  Mine is 830 and the reason mine isn't "perfect" to too many recent inquiries (i.e., credit card churning) and a balance on too many cards (even tho I pay in full each month). 

[dogboyslim]

++to what Catbert said.  My mom's reason code says insufficient length of credit history.  Her earliest account was opened in 1971 and the average age of her accounts is like 29 years.  She was miffed, but her score was like 825.  I told her that she should not concern herself because anything >800 is going to get the best rates.  Then she said: so how long do I have to have accounts open to not get this?  I said I don't know, but probably 40-50 years for average account age and probably like 90 years for length of credit history, so she should be expecting to see it on every report until she dies.

[robartsd]

Yep, credit scores are designed to prevent "perfect" scores, so there's always something that could change to make it better. I don't think they do much thinking about how these things read for those with great credit. They might be useful for people with poor or moderate credit ratings.

For a long time I was given the reason that I didn't have enough types of accounts in my history (especially before student loan repayment started - but even after that I went quite a while before getting my auto loan - I don't remember if this was still a reason before I got my first mortgage).  I think now it is inquires (getting the mortgage about 2 years ago) and the perpetual age of credit reason that everyone with a good score seems to have.