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Question By
ledvedder1972

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80% credit utilization - significant drop in credit score
On July 1st, my score was in the mid 600's. This past month I spent $200 on my $500 limit credit card, which brought the utilization up to 80% ($400 balance / $500 limit). This, and my usual monthly car payment, were the only 2 transactions made, since I only have this 1 credit card. Well, on July 29th, my score dropped to 565! Should the drop be that significant due to that $200 used on the card? Today, I made a $200 payment on the card. Will my score jump back up now? I'm beginning the process of shopping for a first time home.

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First off, you should strive for no more than 20% utilization on a credit card.  The goal is to have a lot of credit AVAILABLE for use not IN USE. Your score may go up soon, but it's still not good.

Second, go to the Home Affordability program on this site and find out how much home you CAN afford.  Remember, it's not just the house payment, it's the inevitable repairs, property taxes, insurance (better have sufficient lliability coverage) and possibly housing association fees.  Lots more than you pay in renting.  Take it from someone who's done both over the years and nearly lost a house due to financial trouble.   

Reply by
ledvedder1972

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Thanks for the response.  Yes, I've paid down the credit card this past weekend.  Now, I wonder how long before it will reflect on my credit score.  I was just surprised that one small $500 credit card could have such a negative effect on my score (80 points?).

I've gone through many of the affordability calculators available on the internet, and they all seem to tell me I can afford a house double the cost of what I'm looking for!  I think I will be ok with the mortgage payment that I can get to.  I need to do this, for mine and my kid's happiness.  

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