What is the optimal proportion of balances to total credit limits in order to maximize one's FICO score?

Question

I'm having a debate with a friend of mine - he argues that to maximize one's FICO score, you should keep a balance of 50% of your total credit limit (e.g., if you have a credit card with a $1000 limit, keep a revolving $500 balance and pay the monthly minimum). Aside from the fact that this plan results in paying way too much interest, what percentage is optimal for FICO purposes?

Answer 1

While I agree with you on the interest being high, I've heard the same thing. To use 50% and pay off in small payments...but not the montly min. Pay off more towards the principle, but not the full balance so you have revolving credit...

Answer 2

Your friend is right - to a degree! The thing about FICO scores is that it's shrouded in mystery as to what appeases them. However, from all the research I've seen, the best way to optimize your FICO score looking at your B/L ratio (balance/limit) and paying attention to your utilization. Utilization is the percentage of your total balance reflected of your total available credit. For instance if your have credit lines totalling $2000 and your total balance (on all your credit) is $500, your utilization is 25%. My research has shown (and proved) that your should have about 30%-40% utilization to best optimize your FICO score. FICO scores are heavily weighted in revolving credit. While you should only have 2-3 revolving credit lines , remember closing credit accounts only decrease your total available credit, in turn increasing your utilization. I've been trying to put my credit back in order. I jumped from a 589 to 678 in a matter of months.

Answer 3

I have heard a lot of people with good intentions give advice to use 50% of available credit and pay the minimum payment, but this is BAD advice... there's no magic percentage that FICO suggests, but the lower the better.

Even if you pay off your credit cards on time and in full every month (like I do), there will still be a balance listed on the report. If you pay off in-full and on time, you avoid paying interest and can enjoy the benefit of a grace period.

Answer 4

I think your friend has bad information. For one thing, some credit card companies don't report your total credit limit, they will report your highest balance as your credit limit. So in that situation if you have a credit limit of $1,000 and your highest balance on that card is $500 and you continue to keep that balance, the credit card company will report you as using 100% of your credit limit NOT 50%. Secondly, a debt to income ratio of 50% IS NOT GOOD! I would say that keeping a revolving balance of 0% is one way of keeping your FICO score higher.

Answer 5

rather, the FICO score seems at the two the excellent ratio as nicely as each and every man or woman ratio. Your maximum suitable maximum suitable is to pay down that 5th card in the experience that your popular subject is credit. besides the fact that if, given your greater expenses on the different enjoying cards, paying those off first will make the main economic sense.

Answer 6

The only thing you need to do is make monthly payments. I would suggest paying more than what you owe, to keep down the interest, but monthly payments raises your score.

I would look into some of the things that Suze Orman has out.

She has a show, and is a wizard with credit, and finances.

Answer 7

You want to keep your fico score high but keeping a line of credit open is good to. Just make sure you keep your payments up.

Answer 8

The maximum ratio is zero, as in zero balance but huge credit limit. Unused credit is a determinant so I don't know how reducing the amount of credit that's unused would increase your score.