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Question By
FrustratedConsumer

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Credit card utilization seems to be a penalty for using your card.
I have one CC. I have certain bills/purchases charged to it every month (i.e. gym membership, cell, tolls, gas). I carry a balance sometimes, I always pay more than the minimum or pay it off each month. Never been late. Never. What peeves me is when I use more than 30% of the limit, my score goes down, sometimes 4 or as much as 8 **** points. Why in the hell am I getting penalized for using my card? The point of having it was to improve my credit score, but I haven't seen much improvement from using it. I'm told conflicting information, carry a balance, don't carry a balance, pay it off, don't pay it off, pay the minimum, pay more than the minimum. There is absolutely no consistency and the scoring models appear to penalize the user for spending more than 30% of the limit instead of scoring based on consistent and timely payments. I'am about ready to pay it off this month, cancel/close it and be done with it. But, I need credit to buy a **** house. But, I can't build and improve my credit if I'm getting penalize for using my card too much by these so called models.

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A single credit card is not going to be the key to improving your credit.  The more credit you have available, the better.  I went from a pretty much cash-only pattern to getting more credit cards.  Right now my total credit is over $20,000 but I'm using not more than 10% of the credit available, and am working to pay the remaining balance off.  The ideal usage is 10% or lower and having paid in full accounts is good.  Closing accounts causes hurt. A 4-8 point drop is not a big thing unless that happens every month.

One really good way to use credit cards is for consistent monthly bills like cell phone, TV, health insurance, etc. that you are currently writing checks for.  If you can get them charged to a card each, then pay the card every month, you keep the credit cards active and your score growing. That would require that you apply for another credit card, then another, and build a portfolio of a few (4-6) cards.  Occasional consumer loans also help with the credit score..  You might consider re-reading the articles on this site so you can better understand hoiw credit works.  Having a good credit track record might help you to get that house you want, but a single card or account isn't going to do it for you. 

Reply by
keekeebirds

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I have 4 credit cards and 1 auto loan. I have had these cards for many years and I have never missed a payment or ever been late. I use my cc's to pay my bills (ie. cell phone, health insurance, house and auto insurance, cable, internet, etc.) online each month for convenience but my credit score has dropped to the 600's because of my credit card utilization.

One of my cc's has a 0 balance because it has a 22% interest rate and I refuse to pay that. I got that card years ago when they were offering a 0% interest rate for 18 months for transferring another card's balance. I paid it off before the 18 months were up and it jumped to the 22% interest rate it is now. I called recently and asked the cc company if they would lower the rate and they said "no, they don't have any offers going on right now for lower rates". I wanted to cancel that card and apply for one with a lower rate but then my credit score would go down for canceling.

I'm confused about the whole credit scoring process. It's truly a messed up system. I don't know whether to use my credit cards or not and I don't know why I have to keep a cc with a high interest rate and not go for one with a lower rate just to keep my credit score from going down. It's ridiculous!

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Cool down and think about this. Credit utilization is a factor in scoring, BUT it is not a permanent adjustment to your credit scores. Your scores will change every month due to a different utilization percentage. Example: if your scores are dinged one month for having a high utilization, pay it off before it reports the following month and your scores will change for the better. You should have three credit cards and one installment loan that are all reported to all three credit bureaus for building credit. Those are the basic tools. Also when you add another card or two, that will give you more available credit which will help utilization rates. Whatever you do, DO NOT close your card, that would be very foolish and damaging. Don't get worked up over small score fluctuations, they are normal and everyone experiences them. I do understand your frustration, but it is what it is, even though it is an unfair system, at least we have a credit system.

Reply by
micirwin

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I am finally at 703 Ex, 705 TU and 715 Eq after years in the 5 and 600's. I have exactly what you say now, 3 CC's and one car loan. I have two more CO's that need to go away. I am going to look to get two more CC's in March. I have got my utialzation down to 5% on all 3 cards. I am looking for a rewards card, like the Wells Fargo Propel 365 or Barclays Arrival. Can I get approval for those? I hve a current WF CC and checking/savings also, with direct deposit. Any recommendations?

Reply by
navysealdoc

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Sounds great BUT in your letter you write as if we all live in a PERFECT WORLD. Unfortunately, we all do not live in that saame world so all of us can not haave the 3 cards, installment loan and keep out balances at 10%. I have 4 cards and my balances flop around no maatter how hard I try to stay under 30% which is the dessired amount the two major bureaus look at, but as almost always, one of the kids needs something or either a dog or horse needs the attention of the Vet or my wife needs some dental work and there goes my 30%. But that is my world, the world of living and I get angered by the credit authorities who make the rules that are clearly made to keep the middle class under the thumb of our upper crust people. I still get all of my payments made and a month ahead on all of my cards. I haave no installment loan as I paid my 2012 Chrysler off for my wife and my 60 Corvette has no balance aand NO IT IS NOT FOR SALE! I also pay more by sometimes 3 times the amount due and yet I always seem to find that eveery third month or so I am shot down by 4 to 8 points for not being under the 30%. I nalso got hit when I filed for some extra life insurance. I ssuddenly was being called by every one like MET LIFE, NY LIFE, GLOBE. I had no idea they did a credit check on you!! Geez Louise, I am going to bo going into the earth, not on vacation. Why do they neeed a credit report? That cost me points. It also angered me to the point that I bought my insurance from the one company that did not do a credit check. Actually got the recommendation from AARP.

Good Luck to us all.

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In the same boat

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I too, although I have 4 credit cards, but do as you do. I use the cards and I ALWAYS pay before they are due by an entire month, pay more than the actual payment due, and I always make sure I keep my balance as low as possible but hell, if you use it, it does not take much for 30% to pop up and then you get nabbed for points. Yet you just paid your pament a month ahead of schedule, paid $100. when the minimum payment was only $20. and yet your score went down 6 points. What the heck! I think the credit bureaus are a scam in themselves and they enjoy messing with ways to make it nearly impossible for the every day working guy to get just stay even, let alone get ahead!!

So I certainly feel for you as I know the frustration you are speaking of and I am sure there are plenty more. I get a real kick out of the fact that I have one rating with one bureau and another rating entirely with the other. They can'y even agree and they both do the same work! A real joke! Almost as good as the government!

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You will always find conflicting information on the internet so you cannot simply take what you read at face value.  You must be able to consider your sources, validate, corroborate, etc.  You have to carefully educate yourself about credit and there are plenty of resources out there.

You never need to carry a balance for scoring purposes.  You'll want at least 2-3 cards for scoring purposes.

You also need to realize that credit isn't so simple and straightfoward.  High utilization is a risk factor so, yes, people do get penalized for having high utilization.  That's why the general advice of not exceeding 30% exists and why Credit Karma indicates which of your revolving accounts are reporting at 30% or more.

Payment History does matter and it has an even bigger impact than revolving utilization.  if you don't believe this you can confirm yourself be allowing a payment to go late for 30+ days.  Not only will you see a big hit but that hit won't go away until it falls off your reports.  Revolving utilization, however, is determined based on your current balances and limits as indicated on your reports.  if you're high this month you can lower it next month and see the change reflected in your scores.

It's up to you to educate yourself and filter through the data but there are plenty who are willing to help if you need the help.  Try myFICO forums.

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Helpful to 1 out of 2 people

Additionally, if you're going to obsess over the numbers you need to set a larger threshold.  Your scores will go up and down a bit and 4 and 8 points isn't a signficiant difference.  Set a threshold of at least 20 points.

Not seeing consistency and consistency not exsiting are two entirely different things. You're not seeing it because you don't understand it sufficiently.

Top Contributor
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credit cards

Credit cards are just that a tool to build credit. Not something for debt, but yet the companies want you to be in debt. Why, this way they can make money in interest charges.

I got a credit card to do the same thing to build my credit up some more. I wasn't planning on charging much on it and whatever I charge will be paid off each month. If I do not see improvements I will close the card out myself as well.

I hope you got a good cards because I didn't as it has an annual fee plus charges interest on the purchase amount. After I have had for a year I will try getting another to transfer the balances.

Now the other thing that will help you build your credit is always making on time payments and never being late. Try to build credit with your bank as well. Because you want to build a credit history with someone you can depend on.

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