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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Here are my stats. Age 21, Credit Score = 696, On time payments 100% (48/48), Avg Age 2yrs 3 mo, Total Accounts = 3, Hard Accounts = 3, Total Debt = $53,500 (Student Loans), Credit Card Utilization 100% ($0/$0). I always thought I never wanna get a credit card while in school because I'll be tempted to buy irresponsible things, but it seems like the things that are hurting me is that I do not have any accounts that I am currently paying off. I was thinking about maybe applying for a Best Buy card (maybe for my new laptop or something along those lines) and another just basic credit card (maybe buy some just random things and pay them off asap). I'm a waiter so I have an income and with summer coming around I will be making even more money working two jobs, so I think if anytime now would be the time to do this so I can pay it off quickly...any suggestions?...sorry for the long message, just really confused...

A credit card will be good for your credit score. Try to avoid the retail credit cards since they can't be used anywhere and often encourage you to overspend at the retailer. Orchard Bank and Capital One have two of the better starter cards in the industry.

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CK Moderator

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Nate66873

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Try to get 1 rewards card with no annual fee. I had started with the amazon.com card which paid me $30 off an amazon purchase for getting the card and has a 1-3% cash back bonus based on whatever I buy. Make sure your balance is paid off every month and never buy anything that you don't have money in your bank account to cover. If you set the card to auto pay a utility bill, then set the balance on the card to be auto paid in full monthly then you will have some utilization on the card every month, 100% perfect payment history, be building credit, and get a few cash back bonuses on the side. Feel free to leave the credit card at home to avoid spending more money.

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I don't own any credit cards and yet it shows my utilization is at 100% and an F. Now don't get me wrong, I was expecting low grade on that front for not owning a card, but 100% utilization? I am confused; shouldn't it be 0%?

You are right. This is a bug. It will be fixed shortly. Thanks for reporting.

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CK Moderator

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I have four credit cards with a combined limit of around $50,000. I spend about $1500/month total across these credit cards and pay off my balances in full each month. However according to your website, my credit card utilization is 100+% and my credit card limit is listed as only $100. I received an "F" for credit card utilization. Should I suspect an error? Or am I doing something wrong?

Chances are your credit cards are not reporting the available balance. Technically there is nothing wrong. Your score might be a bit higher if it was reported but given your credit limits, your credit score is probably good to excellent regardless.

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CK Moderator

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We have a score of 764; we use our 2 credit cards to rack up air miles. Credit balance divided by credit limit is @ 12%. So, if we utilize the cards LESS that could increase our score?

At your score level, it would have minimal impact. Plus with that your score, you should qualify for the very best rates.

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CK Moderator

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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.

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Reply by
taylor1354

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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.

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CK says my credit card debt is 1,338. I have never spent more than $600 on the card in any month and I pay it off in full every month. Any clues why that would be?

Check out AnnualCreditReport.com. It is free and will show you the specific accounts.

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CK Moderator

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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.

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CK Moderator

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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.

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CK Moderator

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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.

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CK Moderator

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What credit bearu score am I lookinga t on this site. Is it the middle score that the lenders look at? It seem as though the other score do not matter I am trying to get a home loane my other two score are 590 and middle is 533. Even though the other two scores are higher they go by the middle score is this what I looking at on this site?

TransUnion

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CK Moderator

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