“Hey Hey! It’s Q & A Friday!!!”
Today’s Q & A is:
Q: Good morning, Netiva! I have a personal loan that I still owe quite a bit on. I was looking at my credit report summary and it has my total utilization at 83%. My credit cards stay below 10% as you advise, the only thing I can think of is that my personal loan and student loans are messing up my utilization. Will this negatively affect me? I am looking to move out of state at the end of the year and I want my credit scores to be good when I do. Thanks
A: Good morning Great job at reviewing the Summary section! Most people will overlook that part.
Credit-to-debt utilization is apart of the Amount Owed section of our FICO scores and utilization makes up a huge chunk of that 30%. Credit cards will factor into the utilization section more than personal loans and student loans.
Remember, this section looks at the ‘Amount Owed’. So FICO looks at how much you owe on the account in comparison to how much the loan was when you initially took it out. So, utilization isn’t really a factor as much as how much you owe on the acct. If you think about it the installment loan is fixed, right? You took out X number of dollars and will repay X number of dollars, inclusive of interest. How you make the payments, how much you still owe, and showing a history of paying on time improves your scores over time.
As far as the utilization in the summary section it can be a bit misleading. Just keep in mind that utilization on credit cards is what impacts this area the most. If you want a clear picture of debt-to-credit utilization on the FICO scoring model, consider investing in a report with myfico.com.
Hope this helps!
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