Why does credit score go down when utilising your limit?

bobblebob

My credit score has always been excellent. Checked it today and its dropped to good. Looking at the reasons why it was because i used 50% of my limit last month.

I did as i was travelling so used my credit card alot. I paid this off the same day as my bill arrived. So whats the reason for being penalised for using half the credit they gave you? Especially when i pay it off immediately. Isnt that showing good financial sense?

la531983

Ignore it, its a made up score nobody except you sees.

grumpy_codger

bobblebob said:

My credit score has always been excellent. Checked it today and its dropped to good. Looking at the reasons why it was because i used 50% of my limit last month.

I did as i was travelling so used my credit card alot. I paid this off the same day as my bill arrived. So whats the reason for being penalised for using half the credit they gave you? Especially when i pay it off immediately. Isnt that showing good financial sense?

https://www.experian.com/blogs/ask-experian/credit-education/score-basics/credit-utilization-rate/  (/ratio)

It's a different story how/when the ratio is calculated and how it affects the scoring.

I did as i was travelling so used my credit card alot. I paid this off the same day as my bill arrived. So whats the reason for being penalised for using half the credit they gave you? Especially when i pay it off immediately. Isnt that showing good financial sense?

Assuming there were no any other factors involved, this is a good example of a stupid way of  calculating this ratio and using it for developing their useless 'credit score'. Lenders calculate their own scores based on your credit history and, hopefully, do this more reasonably.

Mark_d

la531983 said:

Ignore it, its a made up score nobody except you sees.

Whilst nobody else sees the same number - Your credit score is still a good measure of your credit record.  Your credit report looks best if you're using between 1 and 25% of your credit card limit.

I expect your credit score will likely return to Excellent next month of soon after.

Whilst I've never had a credit card balance above 6k, I try to maintain a credit limit of at least 15k.This keep my credit report looking good and in the unlikely event I need to spend a lot, then I can.  It is possible that an unforeseen incident means I need to spend a lot of money before recovering the money from insurance or a third party.

MattMattMattUK

Mark_d said:

la531983 said:

Ignore it, its a made up score nobody except you sees.

Whilst nobody else sees the same number - Your credit score is still a good measure of your credit record. 

No it really is not, they are marketing gimmicks, hence why the different CRAs can give wildly different ratings based on the same data.

Mark_d said:

Your credit report looks best if you're using between 1 and 25% of your credit card limit.

Again, nope. Your credit report will look best to future lenders if you regularly use credit cards, but repay in full every month, the amount of the limit used is irrelevant.

Mark_d said:

I expect your credit score will likely return to Excellent next month of soon after.

It might, it might go down again, it might go up a bit, it might stay the same. Made up numbers do irrational things.

MEM62

Mark_d said:

la531983 said:

Ignore it, its a made up score nobody except you sees.

Whilst nobody else sees the same number - Your credit score is still a good measure of your credit record.  

Hardly, considering that recent bankrupts can get a near perfect 'score'.  

Nasqueron

Mark_d said:

la531983 said:

Ignore it, its a made up score nobody except you sees.

Whilst nobody else sees the same number - Your credit score is still a good measure of your credit record.  Your credit report looks best if you're using between 1 and 25% of your credit card limit.

I expect your credit score will likely return to Excellent next month of soon after.

Whilst I've never had a credit card balance above 6k, I try to maintain a credit limit of at least 15k.This keep my credit report looking good and in the unlikely event I need to spend a lot, then I can.  It is possible that an unforeseen incident means I need to spend a lot of money before recovering the money from insurance or a third party.

The gimmick credit score looks best with the 1-25% limit, the actual credit report doesn't matter, I have several cards with well over 25% - Barclays about 45%, HSBC about 55% and a new Santander card around 95% after BTs, I got the latter card while running the Barclays about 69% and HSBC about 80%. Scores and the effect of utilisation on the score, is meaningless

eschaton

Credit scores are aimed at the gullible. 

If you believe they mean anything then that’s your first mistake. 

Olinda99

I asked AI "is your credit score meaningless" ..

While a credit score doesn't define you as a person, it's not meaningless. It's a numerical representation of your creditworthiness, which lenders use to assess the risk of lending you money. A higher score means you're considered less risky, potentially leading to better interest rates and loan terms. 

Here's a more detailed look:

• What it is:

  A credit score is a number that summarizes your credit history, including payment history, the amount of credit you have, and the length of your credit history, according to Lloyds Bank. 

Why it matters:

Lenders use it to decide whether to grant you credit and on what terms. A higher score can mean better interest rates, higher loan amounts, and more favorable terms. 

How it's used:

It's not just about credit cards and loans. It can also affect your ability to rent an apartment, get certain insurance policies, or even get a job. 

Is it perfect?

No, credit scores are not a perfect measure of your financial health. They can be influenced by factors beyond your control, and they may not always accurately reflect your ability to repay a loan. 

Is it always important?

While it's generally important for borrowing money, there are situations where a credit score might be less relevant, such as when you're using debt to finance assets that are likely to appreciate in value. 

How to improve it:

You can improve your credit score by making regular payments, keeping your credit utilization low, and maintaining a good credit history. 

born_again

Olinda99 said:

I asked AI "is your credit score meaningless" ..

While a credit score doesn't define you as a person, it's not meaningless. It's a numerical representation of your creditworthiness, which lenders use to assess the risk of lending you money. A higher score means you're considered less risky, potentially leading to better interest rates and loan terms. 

Here's a more detailed look:

• What it is:

  A credit score is a number that summarizes your credit history, including payment history, the amount of credit you have, and the length of your credit history, according to Lloyds Bank. 
• Why it matters:

  Lenders use it to decide whether to grant you credit and on what terms. A higher score can mean better interest rates, higher loan amounts, and more favorable terms. 
• How it's used:

  It's not just about credit cards and loans. It can also affect your ability to rent an apartment, get certain insurance policies, or even get a job. 
• Is it perfect?

  No, credit scores are not a perfect measure of your financial health. They can be influenced by factors beyond your control, and they may not always accurately reflect your ability to repay a loan. 
• Is it always important?

  While it's generally important for borrowing money, there are situations where a credit score might be less relevant, such as when you're using debt to finance assets that are likely to appreciate in value. 
• How to improve it:

  You can improve your credit score by making regular payments, keeping your credit utilization low, and maintaining a good credit history. 

& that just shows how poor & wrong AI can be. Bet it is scraping that info from the CRA's who want you to believe the 3 figures they publish...

Lenders do not see any score, having seen how credit teams work. They look at credit history & how your affordability is on what you are asking for. Add in the lenders risk appetite at the time of the application.

Notice that the Lloyds link makes no mention of Score

• When you apply for credit, lenders and service providers check your credit record as part of their decision-making process.

Olinda99

Yes it is interesting how AI works!

I think we all agree that for any given credit agency the credit score they produce is done on your credit file using their own internal algorithm and as such is just a number

I think we also all agree that lenders don't see that number they just see your credit file and can do the own analysis on it according to their own requirements

I think where I differ slightly is the notion that the credit score is meaningless. It depends on your definition of meaningless of course but it definitely means something!