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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0 People Helped

I have several credit cards that I am not longer using. I have a credit score of 783 and a 4% utilization rate. I am wondering if it would hurt my credit rating if I cancelled these cards that I am not longer using or if it is best just to leave them in my desk drawer unused.

If you don't have an annual fee, it is generally better to leave them open and unused.

Review by
CK Moderator

2 Contributions
0 People Helped

I just joined Credit Karma (great site, thank you!). It shows my credit utilization as 100%+, with balance of $8,300 and a credit limit of $6,700. This is not true, my credit limit on my open lines is $9,100. I got a score of an F (obviously)...is there any way to correct my credit limit amount? I imagine this dramatically affects my score. Also, I just paid $6,500 off this past week...how long does this debt pay-off normally take to affect my credit score?

It is up to your lenders to report the amounts correctly. Nothing you can personally do about it as some lenders simply don't report limits.

Review by
CK Moderator

Reply by
momsmillie

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0 People Helped

Is there anything I can do to request that my lender report the credit limit? I am afraid that without a limit reported, this will work against improving my credit score?

Usually no. The next best solution is finding cards that do report to all three bureaus.

Reply by
CK Moderator

2 Contributions
0 People Helped

When I open up a new credit card or loan, is the CC Utilization percentage that is seen based solely on the current utilization (or whatever amount has been recently posted according to my lenders) or do they see the utilization over a period of time or possibly an average amount?

1 Contribution
0 People Helped

As far as credit score goes... do without the cards that don't report.

Then again, if you have good enough credit to keep a card with no spending limit and aren't being denied for other loans you really must have, why even bother worrying about your score!

Top Contributor
12 Contributions
3 People Helped

From my reading and experience the best way to raise your score is good ole fashioned patience and responsibility. Focus on eliminating the debts that cost you the most interest first so you end up paying less in the long run. A consolidation loan can be the answer but be wary of fees and high interest rates.

1 Contribution
0 People Helped

I have had three credit cards reduce my credit limit (which they had increased in the past) down to what I owe. Now these cards are maxed out instead of being in the 39% - 50% range. I know this will greatly affect my credit score in the near future. I pay on time but unable to pay these cards off quickly. What should I do to protect and improve my credit situation as I move forward?

1 Contribution
0 People Helped

I have some cards that do not have pre-set spending limits. But I do carry a balance on these cards. Your model, however, suggests that my credit utilization is 157% of my spending limit. Accordingly, my "grade" for credit utilization is an "F." While I acknowledge that my credit is not perfect, your grade of "F" does not comport with my credit score of 722.

We are looking at updating this feature to address your concern.

Review by
CK Moderator

1 Contribution
0 People Helped

We do have to chuckle every time we get our credit scores, an artificial construct at best. We carry no debt of any kind, no loans, no mortgage, never missed a payment, and have just two credit cards we pay off in full every month. But we don't have a credit score in the 800's because, according to the rating agencies, we don't need or have any loans.

Top Contributor

Reply by
taylor1354

12 Contributions
3 People Helped

i must say, if your credit score is over 700 i doubt you have anything to worry about anyway so screw em haha.

1 Contribution
0 People Helped

i have no open credit cards, i have some medical bills. What is hurting my credit.

See your credit report card. It will have the major contributors.

Review by
CK Moderator

1 Contribution
0 People Helped

What can you do when a credit card issuer has decreased your credit limit but reports a higher usage from when your credit limit was higher that your usage. example--5500 credit limit; 4500 high credit. now 3500 credit limit--still reporting high credit of 4500?

Credit scores use the current balance not the high balance so it shouldn't be an issue.

Review by
CK Moderator

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