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Most people are aware that the debt to credit limit ratio is a vital part of the FICO score. The FICO score is updated every time new information is received by the credit bureaus. However, is it solely the CURRENT ratio that determines the score, or is the HISTORY of this ratio also a factor?

For example, Person A uses 90% of her credit and pays it off over a period of 12 months to 10% utilization. Person B maintains a 10% utilization for 12 months. At the end of 12 months, credit scores are pulled for both individuals. All other factors being the same, does Person B have a higher score? Are the scores the same?

I asked a few lenders and the general answer was something like, "The credit formula is unknown but I believe the score will be the same." I couldn't find a solid source, though. Does anyone know if simplicity wins in this situation?

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Credit utilization, which is the amount of actual debt compared to the amount of your credit limits, is an instantaneous number. Your credit report does not show history on this, so the score is based solely on your current utilization. So in your example, if Person A and Person B have the same utilization in the current month, the utilization portion of the score will be the same, regardless of what the utilization was in previous months.

Some of the score is definitely based on history. Your history of late payments, the length of your credit history, number of inquiries all have a history to them, and all age-out of your report (and score) after a certain length of time. Credit utilization, however, has no memory.

Having said all of that, the exact FICO score formula is a proprietary secret, presumably to prevent people from gaming the system too much. Some aspects to the score have been revealed; however, no definitive answer as to the algorithm behind the score can ever be had. But because the credit report does not show a history for credit utilization, the score cannot take this history into account.

  • Thanks for the lucid answer! This would explain why credit scores will bounce back and forth like clock-work when the main factor that changes is credit utilization. If credit utilization history was a factor, then scores would probably be a lot less volatile and seem to converge to a certain value. – Brian Dec 2 '15 at 19:01
  • @Brian Thanks, and welcome to Stack Exchange. If you consider this question answered, you can hit the check mark button next to this answer to mark it as accepted. I hope to see more questions and answers from you on this site. – Ben Miller Dec 2 '15 at 19:18
  • The raw credit file does not contain the credit utilization history directly; since FICO and others are calculated against recorded(reported) credit data, the score cannot include data it does not have; it cannot weave the data out of whole cloth. – ChuckCottrill Dec 2 '15 at 23:26
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Yes, your history of credit utilization can affect your current score.

Credit utilization = amount borrowed divided by credit limit. You can lower your credit utilization ratio by reducing your amount borrowed, and/or by increasing your credit limit.

For example, many lines of credit do not report a "credit limit" per se to customers, let alone to credit bureaus. But they do report the maximum credit ever extended to credit bureaus. In these cases, the credit bureaus use the "maximum credit ever extended" as a proxy for the "credit limit".

American Express has traditionally been a lender with such a policy. They advertise that many of their cards have "no preset spending limit". Thus, temporarily borrowing a personal-record amount on such an American Express card can permanently improve your credit rating.

  • The credit limit is the divisor in the utilization percentage, thus important to the credit score. This is an important point to hightlight. – ChuckCottrill Dec 2 '15 at 23:30
  • While this is good information, it does not answer the question. The OP understands that credit utilization has an impact, but wants to know whether maintaining low utilization over time is more beneficial than simply having low utilization at the exact moment when your score is calculated (ie, when you want your score to be good before applying for new credit.) – Eric Seastrand Apr 5 '16 at 13:23
  • The utilization part of the score has no memory. Ben's answer is correct. – JoeTaxpayer Mar 15 '17 at 14:35
  • @JoeTaxpayer -- Please re-read the answer. I pointed out one way in which it does have a memory. – Jasper Mar 15 '17 at 15:14

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