Late Payments On Credit Cards Highest In Three Years says “the percentage of people delinquent on their credit cards is the highest it’s been in three years,” according to CNN. Over the past year, U.S. consumers have charged “more than $2.2 trillion in purchases and cash advances.” The article gives the usual advice: Stop buying stuff! Pay more than the minimum! Use the debt snowball technique to pay off your cards efficiently! They also speak with a man from who says keep your balances under 10% of your credit limit—in fact, a “utilization rate of no more than 7%” is optimal.

As a rule of thumb, you should try not to use more than 10 percent of your credit limit when making purchases. “The people with the best credit have a utilization rate of no more than 7 percent,” he says.

If your credit utilization is 50 percent or more of your credit limit, you are doing some real damage to your credit score, says Craig Watts of Fair Isaac, one of the companies that provides credit scores. When the new FICO ’08 scoring model is adapted in May, if you have a utilization of over 50 percent, you’ll be penalized even more heavily.

May’s just around the corner! If you’re one of those people who lives and dies by your FICO score, you’ve got a couple more months to knock down that debt.

“When credit cards put you in jeopardy” [CNN]

“Do-It-Yourself Debt Reduction” []
“The Debt Snowball Technique”


Edit Your Comment

  1. elijah_dukes_mayonnaise says:

    So if I have a credit card with a 300 dollar limit, I shouldn’t use anymore than 21 dollars of my credit line?

  2. rmz says:

    Gotta love those misleading graphs. Scale the chart correctly and it doesn’t look quite so scary after all.

  3. redhelix says:

    @elijah_dukes_mayonnaise: Where the F can you get a credit card with a $300 limit?

    For the most part I think the quote is true. The credit line for my primary card is around $5,500. I rarely ever put more than $300 on it in a given month.

    But then again I’m a creditor’s dream. I only have 2.5 years worth of credit and I just financed a brand new car at the mfr’s lowest rate, with no money down and no cosigner. WOO

  4. Erwos says:

    @rmz: It’s still about a 15% rise year over year – that’s not trivial, misleading chart or not. I notice that a lot of the increase can be accounted for in the Nov-Jan range – if that trend continues, it could be worse than the chart currently indicates.

  5. soulman901 says:

    I had a Capital One Card with a $200 Limit. Beat that.

  6. savvy999 says:

    What’s with the ‘50% utilization’ ding? Makes no sense.

    I haven’t carried a balance on a credit card in 8 years, but I probably hit 75% of my limit every month, the majority of that being from automatic bill pays.

    And for that, I should be punished?

    Guess it’s time to either up that limit, or get another card and spread it out.

    This FICO voodoo BS really needs to be more transparent.

  7. castlecraver says:
  8. rmz says:

    @Erwos: Oh, certainly. I didn’t mean to make it sound like I thought everything was all peaches and cream. However, it’s a 15% rise and not a tenfold rise like the chart makes it appear :P

  9. johnva says:

    @savvy999: It’s been fairly well-known for some time that utilization affects your FICO score like that. Yes, even if you pay off your account every month that will hurt your FICO score. The scoring model just looks at the balances reported on your credit report, which is generally your statement balance. It doesn’t know whether you are carrying debt over month-to-month or not. They “punish” this behavior because presumably it has a statistically significant correlation with people who are close to being overextended financially. I guess the assumption is that you’ll get higher credit limits if you can handle them.

  10. ratnerstar says:

    I’ve always wondered – can I utilize my credit cards above the “optimum” level but pay off before my statement date to avoid the FICO issues? I use my Chase Visa for virtually all my purchases, so by the end of a billing period I’m usually up to around 40 or 50 percent of my limit.

    If I pay the current balance, say, a week before it’s due, will that help me?

  11. smitty1123 says:

    @castlecraver: That only works with people who think. Sadly, lots of people still have this mentality even as adults:

    + Watch video

  12. Parting says:

    @redhelix: My first student card, when I turned 18, had 500$ limit :)

  13. sventurata says:

    In summation:

    Don’t use credit = sparse history, you lose

    Use, misuse, abuse = bad history, you lose

    Use frequently, pay in full = scrape utilization threshold, you lose

    Fairly straightforward concept.

  14. KernelM says:

    @ratnerstar: From what I understand, yes.

  15. SchecterShredder says:

    Credit ratings are the biggest scam in the history of scams. Let us all sing it together “Free Credit Report dot SCAM”.

  16. quagmire0 says:

    In the words of Nelson Muntz: “ha ha!”. Not that I dance on the grave of people that are honestly, financially distressed and trying to take care of their family, but most of these people defaulting probably have a better house than I do, a better TV, a PS3, etc. etc. So, no pity folks, no pity.

  17. dkush21 says:

    Maybe if the credit card companies didn’t raise their interest rates to over 30% we wouldn’t have this problem.

  18. vdragonmpc says:

    I dont know… I have a couple of cards of them I use 1 regularly. Our cars are paid for. House payment is always on time and currently 1 month ahead. Student loans are current.. (2 paid off) Bills are all paid but because of ONE $100 medical bill getting reported I seem to have killed my fico!

    Its all smoke and mirrors. How can I have great payment history and savings but cant get a low rate on a car loan? I have to admit though getting that rate saved me a TON of money as I looked at the rate offered and walked out of the dealership. Instead of buying a new truck I bought a used one with cash. Because of Toyotas high rate I saved over 30 grand.

    Same thing happened with a equity loan. The guy told me I couldnt get a lower rate on a home loan so again I paid with cash after saving for a while and saved 4 thousand dollars I would have paid at a ‘lower rate’ getting the siding job done. Its wierd how the credit rate saves you money when you refuse to play the games.

  19. savvy999 says:

    @johnva: Thanks. I understand the ‘what’, just not the ‘why’, when the clearest indicator of being overextended or a financial risk is the simple number of how much one pays in finance charges per month * the number of cards one has. Both of which are easily reportable.

    If a holder pays any charges on 1 card, that means they’re not paying their bills. If they pay charges on lots of cards, they’re very risky.

    I understand that actuaries and all sorts of brainiacs invent these risk models, but at the risk of sounding like a buckwheat, WTF are they making it so complicated?

  20. chilled says:

    I had a 54.00 dish bill that dinged me from 749 down to 625!!Beat that!And I didn’t even owe the bill..payed it anyway and it still took a year for it to go away!Went in to buy a car with 10,000 down and they offered me 10.2% Thats how i found out about the ding.

  21. SacraBos says:

    I thought people with perfect credit (pay full each month, and on time) were classified as “deadbeats” by the banks? It seems that in order to get lots of credit offers, you need to be less-than-perfect on your FICO.

    @savvy999: So they can sell this calculated number to as many people as possible – even your own number to yourself.

  22. elijah_dukes_mayonnaise says:

    @soulman901: Did it have Bret Hart or Konnan on it? Or the Nature Boy? Capital One really should’ve underwritten Ric Flair Finance….

  23. elijah_dukes_mayonnaise says:

    @redhelix: The low-limit cards also come
    with an activation fee and an annual fee, which make their actual
    limits even lower. Even if you abide by the company’s terms, you’re
    still signing up for usury by accepting one of these garbage cards.
    Then you max it out, and they tack on charges, until it’s a 1500
    dollaire judgement in small claims court.

  24. ogremustcrush says:

    I hate utilization. I wanted to increase the limit of one of my cards, in order to buy big purchases with it occasionally. They declined the request, and when I got the letter saying why, one of the reasons was my utilization was too high. Why do you think I wanted a larger limit? Its not like I don’t pay my entire statement balance every month… Eh, I just opened another card that I’m going to leave with 0-3% utilization to offset my primary cards utilization.

  25. johnva says:

    @ratnerstar: Yes, but only temporarily. It will go right back down if you stop doing this. So there isn’t really any point in doing that unless you know you will actually be applying for credit and getting your score checked in the near future. For example, you might want to do that if you’re planning on applying for a mortgage in the coming month.

  26. johnva says:

    @savvy999: Well, it’s also that the FICO score is sold by a third-party company. They don’t have access to all of the data about your account that your own credit card company has. They only know what’s on your credit report, and the credit card companies don’t reveal that info. It might be that they consider the finance charges being paid proprietary information that they don’t want to reveal to competitors. The FICO score people, in turn, keep the formula secret because they want to be able to sell this scoring service to people who check credit. Again, it’s secret partly because they don’t want anyone to be able to clone their business and do as good a job as them at evaluating risk.

  27. UpsetPanda says:

    @ogremustcrush: Exactly. Utilization is horrible…I’m responsible, I pay my credit card IN FULL every month, the day the statement comes out, I never go over…and I’m getting dinged because I use 30% of my credit limit?

    Is there any way around this, aside from only using 10%?

  28. johnva says:

    @UpsetPanda: Get higher credit limits, or pay your account in full before the bill issues.

  29. johnva says:

    @ogremustcrush: Unfortunately using another card like that might not fully help. I think they calculate the utilization as an average AND individually. So while that might bring down your average utilization you might still get dinged for having too high of a utilization on that one card. A better idea, if they won’t give you a credit line increase, would be to spread your monthly spending across the two cards instead of putting it all on one and barely using the other. A great way to do this is to get cards that give higher rewards for different categories and then using the most beneficial card for each individual transaction. That way the individual utilization also stays lower.

    Of course, we don’t know exactly how the formula works. But I’ve played around with different things while monitoring my credit score and this seems to work better.

  30. UpsetPanda says:

    @johnva: So basically, to skirt the system, if I staggered my payments so that I pay the bill in between billing cycles (effectively establishing my own cycle) when the statement comes out and I have $40.00 on my statement I won’t get dinged?

  31. johnva says:

    @UpsetPanda: Yep, for the most part (though I don’t think it’s totally standardized when the different credit issuers report your balance to the FICO people). Like I said above, keep in mind that it really doesn’t matter that much what your FICO score is most of the time. It only matters when someone is checking it for some reason. Now with the heinous practice of “universal default” you could have bad things happen if your score drops, but normally your score only matters when you apply for credit. So there isn’t much point in trying to game the system every month if you aren’t applying for a mortgage, a credit card, a credit limit increase, etc at that time. And you shouldn’t do that very often anyway since having fresh credit inquiries (for actual applications of credit) will hurt your score much more than the utilization thing typically will.

  32. rdm says:

    Snowball bad. Paying off based on who has the highest interest rate = good.

  33. NCN says:

    I was wondering why this post I wrote a few months ago was getting so much traffic…
    Just a few notes – I used the ‘lowest balance’ first method, but the ‘highest rate’ method works just as well (or better)… and I mention this in my article about the debt snowball. I’m not overly enamored with either method – I just like the idea of paying off debt.

    As for credit scares – as with any system, imperfections will exist. As for me, I’ve gone three years w/ out using a credit card and my scores are just fine. I hope to never borrow money again, but so far, my non-use doesn’t seem to be affecting my scores…

  34. @soulman901: I had one with a $200 limit and another Capital One with a $300 limit. Confusing explanation when I asked to close the $200 and just have one for $500. Go figure.

  35. This is funny, because that’s the exact opposite of my personal behavior. A decade ago, I was chronically overdue. Now, it’s rare and usually caused by oversight rather than inability to pay.