The Relationship Between Your Credit Score and Credit Card Utilization Rate

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% utilization. The average credit score of those who had a utilization rate of 0% 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.

Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.

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My score is 655 yet I've been denied 2 different card applications for what your compare thing says are for good to average credit scores. My report says my biggest problem is not enough accounts open. I feel I am at an impasse. What would be suggested?

We are seeing credit card companies require higher credit scores across the board. Mid 600s is becoming a marginalize score range. Check out the Orchard Bank card if you are looking for a strong credit builder.

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This is the closest thread I could find relating to my question: My credit score of 746 seems to be mostly affected by the "D" I received in "Total Accounts" in Karma's Credit Report Card. The report card says I have 20 accounts with 11 being open. Is my credit score hurt because I have too many accounts or not enough? (Report card says, "total number of credit accounts affect your credit score." I have a mix of mortgages, 4 major credit cards, overdraft, car loan and one store credit card - all with a 100 percent payment history. Is this mix unfavorable in some way?

That is a good score. Don't worry so much about the lack of total accounts. Users should focus on on-time payments, ccu, and credit inquiries as active credit management. More accounts and longer history will come in time.

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CK Moderator

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If I utilize my credit card every month, but, pay it off every month then my utilization is 0? So, should I let a balance stay on a month before I pay it off to show a utilization rate? Is this a better way to increase your credit score as opposed to paying off your card every month?

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chief0

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Paying off your credit card every month won't produce a 0% utilization since the charges that you continue to make will keep your account from ever being 0.

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The credit utilization is calculated from data reported to the credit bureaus. Which is practically always when you get a new statement, and the amount will be the statement balance.

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@49resons: I don't think utilization means the same as carrying a balance. 0% Utilization means you really did not use your credit card at all. The other way round: If you have a credit card with a $10,000 limit, you use it for payments of $1,000 a month and pay off 100% of your balance at the end of the monthly invoice cycle, your utilization is still at 10%.

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Why is PayPal not included as part of CC Utilization? I'm using it for more purcheses recently. Nothing close to my max credit line.

Credit Karma Team
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There are a few different types of PayPal accounts. Do you have a PayPal credit card? If so, that should be included. Contact PayPal and ask them how they report to the bureau for more information. 

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Why did my score drop over a 100 points ..The only change was Capital one added to my credit limit.You would think that was a good thing.Now my score is very low!!!!!!! Can someone explain?

Credit Karma Team
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Hi there,

Without reviewing your full credit reports, no one can say for sure why your score might have changed. There are hundreds of different factors that affect your scores. 

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When I went to the dentist, they approved a credit card for me for the cost of the dental work.  The card has since been paid off.  I do not see why NOT using this credit card again (I now have insurance) should lower my credit score!  So what if they have lowered my available credit.  This credit bureau stuff is a crock.  We are held hostage by them.

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Though this data suggests a trend, keep in mind that there are many other variables behind the credit scores above. In general, this correlation makes sense, but 0% utilization people could be very active card users that always pay off their balance each month. Also, to fit the correlation above, you have to fit the consensus model from which it was derrived, which I don't. My score is much higher than it should be compared to the graph above. That is because of the many other variables that play on the FICO score. Utilization rate is typically 30% of your overall score, per myfico.com

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I use one of my two credit cards the one that has a 40k limit

for everything that I possible can to rack up air miles. I always

pay my monthly balance in full - how will my credit card usage

effect my 778 FICO score. I noticed a big score drop 810 to 778

after taking out a 13K loan for a used car... how can I increas

my score?

Provided you pay your balances in full each month, there should be no adverse effect. When it comes to the drop, a 778 is still super-prime. There won't be much you can do aside from paying down the debt.

Keep in mind, excellent credit is to be user for your benefit(like getting a great rate on your auto loan). Trying to maintain a 800+ all the time, will mean you won't always be able to use that great credit score which somewhat defeats the point.

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