A few more questions about credit cards and FICO scores.

Factual Questions
1

  1. I understand how the 2-cycle average daily balance system works, but I’m unclear on what happens if you never carry a balance – will you end up paying interest on last months purchases even if you paid them in full before the grace period expired?

  2. I recently got a card offer whos fine print explained that your interest rates went sky-high not just if you paid them late – but if you paid any of your creditors late. Do they have any source of info beyond the standard credit report which only lists payments more than 30 days past due?

  3. I understand your FICO score is affected by how close to your credit limit you are. Is this calculated on a per-card basis, or on average? Ie am I worse off in FICO terms if my low-rate card is maxed out and my haigh-rate card is unused than I would be if they each had the same balance, assuming they have the same limit.

2

Emilio,

On question 1, I got no clue.

One question 2, no, they don’t have access to any information aside from the standard credit reports. Basically, if it is reported that you go X days late, where X is the lateness required to be in “universal default”, they can slap you with the penalty rate. They aren’t looking for you to be 4 days late paying their competitor’s bill. They’re trying to penalize you for being substantially late. As to why they care and whether or not that makes them Satan, that’s a whole separate can of worms more suited to GD or The Pit.

On question 3, the FICO scoring engine takes into account your overall % of credit used AND the % of credit used PER CARD. For best score, use less than 30% of total revolving credit and no more than 30% of any individual card. Whatever you do, max NOTHING out. Remember that FICO’s engine is complicated enough as to be nearly inscrutable: there are patterns, but the system can only be predicted with broad strokes.

3

Interesting. As a matter of principle I won’t go over 90% so as to not risk overlimit penalties, but since having a good FICO score is an abstract goal, while lowering the amount of interest I pay has very real-world effects, I’m going to keep as much of my outstanding balance as possible on the low-rate card.

4

That is a good point. Many people obsess over the details of their credit scores when this usually isn’t necessary unless you are about to apply for some important credit and your score is right on the margin. Past (some good score), it doesn’t matter much if you go higher. There aren’t really any special benefits for people with a credit score over say, 800. It isn’t a worthy goal to simply get it as high as possible. You can also restructure credit card debt if you do need to boost your score. That part is simply a snapshot you can change when you choose.

5

Shag,

Your [insert good score here] line should probably be filled in by 720 or 750.
750 is the highest score I’ve EVER seen specified as a minimum score for anything, and that was for the 0% promo rate on a Toyota/Lexus new vehicle loan.
For all it matters in the real world, someone with a 680 can get any type of credit product they want, it’s just that the rates they’ll be paying go down slowly as they ease up to 720-750, at which point more FICO points appear to be less useful than Brownie Points.