The Relationship Between Your Credit Score and Credit Card Utilization Rate

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The Relationship Between Your Credit Score and Credit Card Utilization Rate

Credit card utilization is one of the most important factors credit scoring models use to calculate your credit score. You can figure out your utilization rate by dividing your total credit card balances by your total credit card limits.

To illustrate how important this factor is, Credit Karma sampled approximately 15 million Credit Karma members who visited the site in 2014 and compared their credit scores and corresponding credit card utilization rates.

Credit Score Chart

Findings

The graph above suggests that there is a strong correlation between credit card utilization rates and credit scores. Generally, those who had a lower utilization rate had a higher score and vice versa - with an exception for those with 0 percent utilization. The average credit score of those who had a utilization rate of 0 percent was actually lower than the average score of those who had a utilization rate of 1-20%.

What Does This Mean?

Lenders don't like high utilization rates because it tends to indicate there's a higher chance of you not being able to repay your debts. Keeping your credit card utilization low, preferably under 30%, is a good goal to aim for. Our data suggests an even better goal is to use your credit some, but keep the utilization rate under 20%. Creditors want to see proof that you can manage credit wisely--something you can't do without using the credit you're granted.

If you're uncomfortable with the idea of using your card for large purchases, you can still show an active credit profile by paying for small items with your card. It's important that you practice good habits when managing your credit cards. Charge what you can pay back and make sure your payments are on time. In order to keep your utilization rate greater than 0%, you'll need to let your charges show up on your billing statement, and then you can pay it off in full. This does not mean you need to carry a balance from one month to the next--doing so may just cost you money in the form of interest.

One of Many Potential Factors

Your credit card utilization rate is an important part of your credit profile and will likely have a significant effect on your credit score, but it's not the only factor lenders care about. The data and graph above represent the average, meaning it is possible for a person with high credit card utilization to still have a good credit score if other factors are positive-- it's just not as likely to happen. You can monitor your credit card utilization rate (and more!) for free at Credit Karma.

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All Comments

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1 Contribution
1 Person Helped

Helpful to 1 out of 1 people

Why the heck did my credit score drop 30 points in one month when I paid down $1,083 in overall debt and have no late, past due or any other items negative on my report ? It dropped from 666 to 636 in a span of thirty days. What the heck happened ?

1 Contribution
122 People Helped

Helpful to 122 out of 139 people

At a credit repair clinic I attended the leader said to get a credit card and use it all the time and pay on it weekly. He said you buy gas, pay your electric bill, buy groceries, right? He said to raise your credit score...... You have $100.00 to use for groceries. You go to the grocery, charge $100.00 on your credit card then take that $100.00 put it in the bank, write a check or use your debit card and pay $100 on your credit card. YOu do that with all of your bills you are paying for anyway. Charge it and then make the payment. So in a months time even though you may have a $500.00 balance if you charged your groceries, gas, electric bill, phone bill, water bill and pay it back with the money you were going to use to pay it you may have charged twice the $500.00 limit on the card. YOU CANNOT HOWEVER CHARGE IT AND THEN SPEND THE CASH AND MAKE MINIMUM PAYMENTS. YOU HAVE TO CHARGE IT AND PAY IT CHARGE IT AND PAY IT..............

Reply by
bolobolo56

1 Contribution
27 People Helped
Helpful to 27 out of 31 people

i do like what you said , it is the only one i understood, charge and pay.

1 Contribution
1 Person Helped

Helpful to 1 out of 1 people

I use my cash rewards card that provides cash back on all purchases.  I use it often especialy for bigger purchases.  I never have a carry over and always pay the full amount.  I noticed my credit score went down slightly although I have no outstanding credit debit.  The difference in score must be due to the frequency of use on the cash rewards card.  Seems to me the credit score companies should factor that in to their calculation too.

2 Contributions
3 People Helped

Helpful to 1 out of 1 people

why do i keep dropping down??????????

1 Contribution
1 Person Helped

Helpful to 1 out of 1 people

I refinanced my mortgage and paid off 2 credit cards but my credit number went down because it was reported that I have a new mortgage and they did not remove the paid off mortgage and they only posted one credit card was paid off. What the heck is wrong with this picture?

1 Contribution
65 People Helped

Helpful to 65 out of 89 people

I was at first upset that my utilization grade was a "C" even though I don't use any of my cards and they are all 0 balances.  My only actual debt is my house.  I realized that Credit Card companies don't like people like me because they don't make money.  You won't get a good credit utilization score unless you are GIVING AWAY YOUR MONEY to the credit card company.  I also realized that my overall score is just fine without having a good score on the utilization.  Why should we give our money away just so they will give us a good score?  We've been brainwashed into thinking that our credit score is directly related to our worth as people.  Unfortunately we do need a credit score to buy a house (unless you save for a long time).  But really, is the extra little bump from the credit utilization going to make the difference of being able to qualify for a really good rate on a house?  I think not.

Just my $.02

Reply by
newmood

2 Contributions
17 People Helped
Helpful to 17 out of 41 people

I agree with you. I think that credit card companies ramrodded this ruling to make more money off you. I think that I may have to ask my credit card company to lower my credit limit so I can look better on paper.

Reply by
albertoleecho

6 Contributions
91 People Helped
Helpful to 74 out of 80 people

Not quite. You don't have to pay any interest to have a good utilization ratio. The utilization is based on your last statement balance, but if you pay off the entire statement balance before the due date, you won't be charged any interest.

For example, say my card has a $1000 limit and my statement balance at the end of January is $200. My utilization is 20%. As long as I pay $200 before the due date (say February 25th), I won't be charged any interest. Now let's say I charge another $300 on the card to get my balance to $500, but then I pay $200 on Feb. 20th. I won't be charged any interest because I paid my balance of $200 in full, and my next statement balance will be $300, and my utilization would be 30%. Now if I couldn't pay off the full $200 by Feb. 25th, then I would have to pay interest on whatever my balance was.

Also, the credit card companies aren't the ones that determine what goes into a credit score

1 Contribution
1 Person Helped

Helpful to 1 out of 1 people

So basically if you use your credit to make a somewhat large purchase (2,330.00 dollars)  your credit turns to crap.  My score went down 27 points because of this.  Sorry, it doesn't make sense.  I understand the factors but it still means you must use your credit extremely carefully.  So to make a purchase for my home, i got nailed!   

Top Contributor

Reply by
love14mr38

134 Contributions
170 People Helped
Helpful to 0 out of 1 people

The main point I am beinning to understand these Credit Scoring is basd upon how much debt and creit cards usages. Though we make payments on time and try keeping the charges at miniumn. The lies are being told on our redit reports. Now someone explain this and let me know what is the end results: "What if a person who do not have creit and trying to build a credit file?" What do they have to apply and get credit started??? Especially when the "spouse male/female" is deceasd???? Someone explain.

Reply by
lazykayaker

2 Contributions
0 People Helped

I agree that this doesn't make sense.  We use our card to get purchase points and to protect ourselves from identity theft and the purchase protections credit cards provide.   We pay the entire amount every month and haven't paid any interest at any time.  Why isn't that part of the formula.  We carry a zero balance at the beginning of every month.  Total ripoff.

1 Contribution
1 Person Helped

Helpful to 1 out of 1 people

1986 was the last year I had carried over a balance, but yet I Iincrease my balance for 3 weeks and my score goes down.  Credit Karma doesn't take into the fact the balance is paid off each month.And I have $500K Plus in the bank

1 Contribution
1 Person Helped

Helpful to 1 out of 1 people

Why does hard inquiries lower your credit score? And for how long? Try renting and looking at several places ...each application is then credit checked by property owners. Same goes house shopping and realtors! Even mobile phone companies! Everyone wants to  know your credit ability and every HARD inquiry lowers your credit score why?

Reply by
sc01x

2 Contributions
5 People Helped
Helpful to 1 out of 1 people

mine say they come off in two years.

2 Contributions
3 People Helped

Helpful to 1 out of 1 people

I have 6 credit inquiries, when it will remove from my history? ALmost 2 months now, still appearing on my score. 

Thank you.

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