Credit Card Utilization and Average Credit Scores
Credit Card Utilization and Average Credit Scores

Every credit score improvement article suggests that consumers should not have a high credit card utilization rate, defined as your total credit card balances divided by your total credit card limits. Often, the recommendation is to keep your credit card utilization rate as low as possible, preferably never exceeding 30%.

At Credit Karma, we think that it is important to provide both the recommendation and the reasoning behind the recommendation. Therefore, we took a random sample of 70,000 credit scores and their corresponding credit card utilization rates and graphed the results. The findings are very telling and support the claim that on average, the lower your credit card utilization rate, the higher your score--except for 0% utilization.

Credit Score Chart

Findings

The data and graph suggest that there is a strong correlation between one's credit card utilization rate and their credit score. In general, the lower the credit card utilization, the better the credit score.

However, there was one exception: the average credit score of those who had a credit card utilization rate of 0% was actually much lower than those who had a utilization rate of 1-10% (745 vs 678).

This is likely because people with 0% credit card utilization usually fall into two categories:

  • 1) They don't have a credit card because they have poor credit. Having a credit card and different types of credit help demonstrate credit worthiness in the eyes of lenders and credit scoring algorithms
  • 2) They don't use their credit cards at all. This is the reason why credit score tips usually suggest you use your credit cards, if only on small purchases, to show an active credit profile with positive payment history.

(Sidenote: This is why Credit Karma members who keep their balances and credit utilization rate at 0% receive a "C" on their Credit Karma report card for the "Open Credit Card Utilization" section. The grade is determined by the average score of users within each range.

This does not mean that all users with a low grade in one particular metric will have a low credit score, but that *on average* users within that range have a lower score. Please keep in mind that these credit grades will help you evaluate your credit health, but the letter grades will not affect your score.)

With the results of our findings in mind, it would be unproductive to suggest not carrying a balance at all, since this is a primary benefit of credit cards. The reality is that many consumers need the convenience of revolving debt from credit cards. Creditors want to see people who use their credit, but are able to manage it responsibly. Keeping this in mind, we suggest keeping your credit card utilization below 30 percent on each card and collectively. In addition, make sure you pay your balances on time and that the debt is something you can manage.

The Wrong Conclusion

For the casual reader, it is important NOT to infer that the credit card utilization rate is the only driver of credit scores. In reality, there are hundreds of attributes. These numbers represent the average, meaning that a person with high credit card utilization can still have a good credit score if the other variables are positive.

It is also noteworthy that there may be other factors that make high credit card utilization such a telling statistic. For example, an individual with high credit card utilization may only have credit cards as their only credit vehicle, suggestion that they are indeed more risky. Or perhaps the high credit card utilization is a result of a credit card company reducing their limit because the individual is taking on too much debt. In many ways, credit troubles can built on themselves, so it is best to always actively manage your credit and make responsible use of the credit and credit access you have.

You can closely monitor your credit card utilization rate (and more!) for free at Credit Karma.


All Comments
Results 71-80 of 173Results per page: 5 | 10 | 25Page 8 of 18   Previous | Next

 I recieved a letter from my bank recently stating they are going to lower the credit limit on my three cards from approximately a total of $70,000 to $25,000. I have an 800 fico score and have never been late on any credit. My total credit card indebtness is approxiately $3,900. Will the new lower limits hurt my credit score by increasing my credit utilization percentage?

Comment by
behindblueye

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 i have 10 negative accounts and my credit score is a 515.my student loans are in collections,if i bring my student loans current with the 9 month credit rehabilitation program that the goverment offers im bieng told all negative student loan  marks on my credit report  will be removed and it will show my accounts as current.is this true and will it boost my credit score?also will paying off negative accounts boost my score?

Comment by
Taylorkass311

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Can we just get one thing organized here.  I use my credit card to pay all of my bills/expenses for the month because I like the fact that I'm using their money for 30 days.  With that being said, do I :  A) Find out what date my credit card company reports and pay 90% before that date, B) Keep waiting until I get the bill and paying the statement balance in full, or C) Pay 90% before the statement period ends.  Thank you ! 

Comment by
JetsAnthony1223

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On my "Score" page it says "The length of your credit history is 325 months with an average account age of 243 months. Your average account age is lower than 93% of Credit Karma users."

On my "Lineage" page it says "Your average age of credit lines is higher than 97.4% of users"

So which is it, lower or higher?

Clearly (to me at least) it should read "higher", so Credit Karma you need to fix this.

Shouldn't the conclusion read that my average account age is "higher than" 93% of Credit Karma users?

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Comment by
chief0

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2 People Helped

I use my credit card everyday and pay in full before due date, why do I have a 0% utilization here? 

Comment by
xiaohai

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Don't feel back, I have a postive balance on my credit card of around 200, for months and my utilization is 0%, but have a C rating.  I think Karma or the reporting companies have a bug.  I had an A rating when the balance was zero, not a postive number, which has caused my rating to be lowered.  Go figure....

Reply by
brvoltz

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I have the same thing - use my credit cards each day and pay before the due date and it shows a 0% utilization.  (And I use them for everything so it adds up - I just ALWAYS pay it off so I get a "loan" from them and the rewards back).  

Reply by
Centaur

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What is HELOC? 

Comment by
lobotigra2

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A home equity line of credit (often called HELOC and pronounced HEE-lock) is a loan in which the lender agrees to lend a maximum amount within an agreed period (called a term), where the collateral is the borrower's equity in his/her house.

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Reply by
chief0

14 Contributions
2 People Helped

Sorrry,  I'm new here. What is HELOC ?

Comment by
lobotigra2

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Pay attention! I learned a good lesson over the last few months. I was under the impression that the total credit card balances to the total credit card utilization was the important factor. And it is. Mine ws 33%. I had one account with a $2000 limit and a $30 balance. That's about a 1.5% credit uitilization. My other account had a $1000 limit with a balance of $966. That ws a 97% utilization.

I did not realize that nearly maxing out one card even with a total utilizatoin of 33% would have such a negative impact upon my credit scores. It certianly does.

I paid the balance down from $966 to $856 to a total utilizatoin of 86%. And it also brought my total credit card utilization down to 30%. My credit scores quickly improved.

The lesson is to keep your individual credit card per centage of utilization down as well as your total credit card utilization down.

I suppose the ultimate lesson is to pay off all of your total account balances monthly, if possible.

The greatest misconception I had was that I was attempting to demonstrate good payment history by paying off larger balances. That isn't necessary. Paying accounts off monthly or keeping balances below 10% is best.

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Comment by
JohnHoer

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I have a score of 758. My credit card utilization is 0% even though I not only use 1 of my 5 credit cards but it has had a revolving balance on it since November 2010 of about $830 which obviously decreases each month due to my monthly payments, but how is it possible that my utilization is still 0%?

Comment by
Jvas27

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Hello,

My husband and I both have good credit scores (700s) and are very responsible with our credit (no late payments, etc.). We have "A" ratings across the board on our Credit Karma report cards, except that we both have a "D" for Total Accounts. We each have about 4 open accounts and 5 closed accounts, so we each have a total of 9.  These accounts are not joint accounts, so they are not the same. My questions relate to how adding each other as authorized users on each other's credit cards would impact our credit scores (we trust each other completely).

1) If we both have 4 credit cards, and we add each other onto one another's, will we then be counted as having 8 open accounts each and (therefore increasing our credit scores)?

2) My husband has a "C" rating for his average age of accounts. His is 5 years and I have an "A" rating because mine is at 9 years. If I add him onto my long-standing credit cards, will that increase his average age of accounts (and increase his credit score)? Will me being added onto his shorter-term accounts decrease my average age (and decrease my credit score)? (Or perhaps the increase in my credit from increasing my total number of accounts will counteract any decrease in my credit score from lowering the average account age?)

3) We each have low credit utilization (2-4%), but just so we know, if we each have about $25k in credit limits each, would adding each other onto our cards double the total credit limit we each have to $50k? Would that then factor into our credit scores and therefore cut our credit utilization in half, down to 1-2%?

4) Are the answers to these questions different depending on whether we add one another as "authorized users" versus "joint account holders"? We've spoken to a few of our credit card companies and they don't "do" joint accounts - just the authorized user thing.

Thank you very much for your help! We are really trying to increase our credit over the next 6 months to be able to get the best rates when buying a home. 

Comment by
heidij

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