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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1 Person Helped

Base on Credit Karma my score is 689. What can I do to make my score increase?

Use our credit report card. Simply try to improve your bad grades to good grades. In so doing, you should see your credit score increase.

Review by
CK Moderator

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good article

Reply by
nessy65

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very good

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I don't understand the statement that people with 0% utilization could fall into two categories, the first is one without a credit card. The reports show open credit cards, timely payments etc. Seems that the 'credit worthiness' can be determined. So why does a 0% utilization result in a lower score? Almost seems to suggest credit card holders should have a balance, even encouraged to have a balance so credit card companies can continue to earn a profit on transaction fees?

0% is not about balance, it is about usage. Remember that using your credit is a good way to show credit worthiness. You don't have to pay a single penny of interest to show usage. That is why we recommend buying a tank of gas or grocery once per month to show active credit usage. Hope that helps.

Review by
CK Moderator

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How do I eliminate credit cards that are dormant?

The simple way it to call them and cancel. Just be aware that canceling old card may lower your score. So close them one by one checking your score 30 days after you close one.

Review by
CK Moderator

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Only one of my 2 CC reports the high limit therefore increasing the ratio and decreasing my score. How to get the high limit on the 2nd card reported?

Great article

You can't force a card to report. You can only get a card that does report.

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CK Moderator

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If you have your debt spread evenly over different cards with moderate utilization on all of them, are you in better or worse shape than a person who has high utilization on one card and very low utilization on the rest?

Spreading your debt is generally better for your credit score.

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CK Moderator

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My total credit card debt on CreditKarma is more than I actually owe on my credit cards. I was worried and looked at my credit report but nothing seems to be off. Why does CreditKarma have my credit debt higher than it is? Would my bosses credit card be counted? I'm not responsible for it, just an authorized user.

Generally as an authorized user, debt will also be accounted for under your total credit card debt.

Review by
CK Moderator

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