Credit Myth #92 - The utilization myth no longer applies because trended data is now used.
The utilization myth states that one should always "keep utilization low" or below a certain percentage, with the most common one mentioned being 30%. We've debunked this myth for years, found way back at Credit Myth #14 referenced below.
https://old.reddit.com/r/CRedit/comments/1d27d4h/credit_myth_14_you_shouldnt_use_more_than_30_of/
The utilization myth is still arguably the biggest myth in credit today. The novice rebuttal you see from most people is that "it's not a myth, because it impacts your score!" Many have come to correctly understand that the myth has nothing at all to do with scoring at all, just that "keeping utilization low" doesn't build credit and that it can be detrimental in multiple ways.
One of the more recent rebuttals we're seeing that appears to be coming up with increased frequency involves newer scoring models/versions that use "Trended Data" (TD) along with standard utilization metrics. The argument sounds something like, "Utilization isn't a myth any longer because some models look at it beyond just a single moment in time." While that statement is correct, those making it typically don't understand how TD is actually used alongside utilization.
It's first worth pointing out that the models using TD (notably FICO 10T and VantageScore 4.0) are rarely used in lending decisions today. While they may gain further traction over time, we haven't seen much yet. FICO 10T has been out for > 5 years at this point and VS4 is nearing 10 years since its release. So, unless we know of a lender that specifically uses either of these models/versions (ex: USAA, Synchrony) it's typically not worth bringing up in the first place.
But, far more important is understanding what Trended Data actually is. They key word here is trend. The FICO 10T algorithm looks at your utilization/balances over the course of 24 months and identifies what the trend looks like. It's aim is to see if your utilization rate has been increasing or decreasing (or staying the same) over time. If the trend is upward, it bodes problematic for the model which sees that as a sign of increased risk. If it stays the same or trends down, F10T doesn't take issue beyond the way standard utilization metrics are considered by earlier versions.
Someone that allows their statement balances to generate organically every cycle and pays their statement balances in full monthly will not have an upward trajectory with utilization over time. Over a period of 24 months, utilization would remain generally flat. Since we know that the act of paying statement balances in full monthly equates to the strongest responsible revolving credit use, those that exhibit that behavior are more likely to see lucrative CLI results. Those greater limits will then result in lower utilization over time on the same reported balances, which can mean a downward trajectory for utilization. Either way, utilization isn't increasing over time if one is paying their statement balances in full monthly, so FICO 10T would not penalize someone with any greater harshness than previous versions. The idea of "keeping utilization low" being better for TD models is grounded in misunderstanding of how TD is considered.
A profile with sufficiently strong credit limits can have total reported revolving balances organically fluctuate between 4-figures and 5-figures at different points throughout the year and not see any penalties at all associated with TD on FICO 10T. A trio of perfect 850s on F10T is possible with 5-figures of reported revolving debt.
In conclusion, it's still just as much a myth today that you should "keep utilization low." The fact that Trended Data is now incorporated into several scoring models doesn't at all change that fact.
