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Over labor day weekend my wife and I bought a furniture set. We'd been planning on it since we got married and had saved up enough that making the purchase was planned and as painless as dropping several thousand dollars could be.

Thing is, I got greedy. I charged it all to my amazon card for the points and paid it off the next day -- but two weeks later my credit monitoring app let me know my credit dropped about 30 points into the mid 700's due to higher credit utilization (apparently the calculations lag about week or so, but I never expected they would be real time).

My question is this -- during the next review cycle I'm assuming my credit score should go back up -- but I'm curious if the fact that it had such a hard and sudden drop will be considered in the calculation, or if credit scores are recalculated from scratch using only financial parameters.

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    "Thing is, I got greedy." Seeing as how this is exactly how I do it, and you saved up beforehand, I fail to see how this qualifies as greedy. – RonJohn Sep 12 '19 at 15:14
  • Anyway, it's my understanding that CC usage is stateless, though I have no proof. Thus, your score should bounce back in a month or so. – RonJohn Sep 12 '19 at 15:15
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    Stop obsessing and enjoy your new furniture. – Dilip Sarwate Sep 12 '19 at 15:20
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The "statefulness" is different for each factor.

Another way to think about this is the "memory" of a given factor.

Some factors inherently have memory - the factor is based on historically tracking some aspect of your credit report over time. For instance, factors based on delinquency of accounts - if you're delinquent on an account, that will cause your score to drop for several years. Bringing the account to current doesn't immediately result in a reversal of the impact the delinquency had.

However, other factors have no memory. You seem to be concerned about a hit to your credit score because of utilization. Credit utilization has no memory. For the sake of having a scenario, assume your credit score is 700 and you have several credit cards that are all sitting at zero balance. You could charge all your accounts to 100%, let them sit like that for a month, and your score will drop. Let's assume the drop is 100 points, so now your score is 600. If you pay all your accounts and let them sit at zero balance through the next cycle, and nothing else on your credit report has changed, your score will go back up to exactly 700.

Further, the credit utilization factor is based only on the utilization on the day in which a given account is reported to the credit bureaus. Most card issuers report once a month, on a specific date. If you know what day of the month that reporting happens on, you can go ahead and charge your card to 100% and let it sit at 100%, then pay it off in full the day before it is reported, and that 100% utilization will never be reflected in your credit report.

The way utilization works sometimes catches people off guard, because they think to themselves, but I paid the balance in full when I got my statement! without realizing that the statement date and/or the date they paid the card on may not actually line up with the date on which the card issuer reports the account's status to the credit bureaus. In effect, if you use your card throughout the month, and it happens to carry a balance on the day it is reported, that balance is what will impact your utilization even if you pay the balance off in full before it's due date.

To bring this back into focus for your specific Amazon card, it sounds like you got "unlucky" in the sense that the card had balance on it when it was reported. In a sense, that's bad news because it caused your score to drop. However, since you have since paid the card off, the good news is, as of the next reporting cycle, your report will no longer reflect that utilization and your score will go right back up. After that happens, it's as if that balance never existed. No one in the future will know about it (unless they look at your credit score's trend over time, which is not typical).

If your concern is gaming the system to have a high score because it makes you feel good, then try to determine the day on which your card balance is reported, and make sure it's zero on that day. But, realistically speaking, because the utilization factor has no memory, all you really need to do is "maximize" that factor in the month(s) leading up to any situation where you might need credit. So, for instance, if you're going to apply for a car loan or a mortgage in a few months, you should make sure all your balances are reported at a low utilization for the next few months. But if you know you won't be needing to use your credit report in the immediate future, utilization really doesn't matter.

And as a footnote, if you are truly concerned about getting the highest possible credit score, you should carry a (very small) balance on a card on the day it is reported. Zero utilization is actually scored ever so slightly lower than a small utilization in today's most popular models, because carrying zero utilization is seen as slightly riskier behavior than actually using cards (and therefore occasionally having a small balance on the report date).

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    "carrying zero utilization is seen as slightly riskier behavior than actually using cards". Do you have a citation for that? – RonJohn Sep 12 '19 at 16:22
  • Google it, it's publicly available. Zero utilization results in a small negative hit in currently popular models, versus a small utilization. – dwizum Sep 12 '19 at 16:23
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    I've read both "carrying a small balance helps your score", and "rubbish, carrying a small balance doesn't not help your score". – RonJohn Sep 12 '19 at 16:32
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    @RonJohn not carrying a balance is not the same as zero utilization. – quid Sep 13 '19 at 15:16
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    I think the difference comes down to semantics. It's possible to "not carry a balance" by paying your bill in full every month (and on that day your utilization is zero) but to have a non-zero utilization on your credit report for that month (the balance was not zero on the day on which your lender reported your account to a given bureau). – dwizum Sep 13 '19 at 15:37
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Different scores use different calculations, and of course nobody will tell you their exact algorithms. In general I think you'd call them "stateless", but things like "maximum credit usage on card ever" are also tracked and can be used in the calculation, just like "maximum days behind on payments" can be. So in your next review cycle, the current credit utilization should be more back to normal, but it may be affected by the fact that you did in fact use a lot more credit at some point in the card's history. (I'd expect that having used a bunch and having paid it off would actually be helpful, but sometimes the scores aren't as intuitive as one would think.)

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Credit score formulas are proprietary secrets, but the inputs to the formulas are known: Credit scores are based solely on the information on your credit report. (Source: myfico.com, What's not in my FICO Scores)

Your credit score is freshly calculated every time your credit report is updated. And your credit report does not include any previous scores within it. Therefore, it is not stateful.

That having been said, there is some historical data contained within your credit report. Your history of loan accounts and history of payments are certainly a part of your report, as well as a history of credit inquiries and other events, some of which could play a part in your credit score.

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Credit card utilization ratios are definitely stateless in the VantageScore 3.0 offered by TransUnion, and FICO8.

I can say this with strong assurance because in early November I charged $4700 on one card, and paid it off exactly one month later. Because it crossed a statement boundary, my VantageScore 3.0 score dropped from the October value of 816 to 800 in November. However, the December score (posted one week after I paid off the charge) jumped back up to 816.

In tabular form:

October  816
November 800
December 816

Similarly, the FICO8 dropped in November and then rebounded in December.

In tabular form:

October  823
November 811
December 823

The November drop also indicates that usage rate is calculated per card instead of the aggregate of all your cards' credit limits.

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