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?