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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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

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.

Review by
CK Moderator

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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

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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

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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

Our current amount owed by HSBC is $4,000. If we send them in $2,000 will that raise our credit score quickly? They have also lied and said we were 60 days past due when we never were and it dropped our credit score by 30 points!!!!!!!!!!! We definitely do not recommend them.

It really depends on how much of your credit you are currently using. Try the Credit Simulator to get a sense of the change.

Review by
CK Moderator

2 Contributions
0 People Helped

I think I understand the concept but flag me if I missed it? I have a 734 that doesn't seem to go up. I also don't have any credit cards, other types of credit, yes, but no plastic. So to move my score up I should apply for a card, use less than a third of it and keep it paid off? I want to buy a car in 4-6 months and get an amazing rate so I am wondering if the time frame would help or hurt my score if I applied for plastic now.

Revolving credit i.e. credit cards are a good way to build your credit. Having a few credit card accounts can help your credit score. Just keep in mind that you score may drop with the credit inquiry but will go back up over the next couple of months.

Review by
CK Moderator

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2 People Helped

Is HELOC considered like a credit card for credit score calculation? I have drawn about 50% of the HELOC credit limit and pay the minimum required amount. Recently my HELOC provider dropped "Available amount" to zero, meaning I can no longer draw more from HELOC although the credit limit is twice the outstanding balance. How is this affecting my credit score? I could pay off some debt to bring utilization to 35% of credit limit, but I noticed that the Available amount continues to be zero.

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0 People Helped

I always pay my CC balance(s) in full by the due date, but the accounts are considered to be utilized and it's adversely affecting my score. Also be aware that opening a HELOC or other loan/credit line whether you utilize the HELOC or not will lower your score (30-50 maybe even more points). It was a big suprise to me when I opened my HELOC.

Yes because reported credit card balances are based on the report day and not your billing cycle, you may show utilization even though you don't carry balances. If you are always at high utilization, getting more available credit will help your score.

With regards to a new line of credit, any credit application will affect your credit score. In most cases, these application inquiries will stop affecting your credit score within 60-120 days provided you aren't always applying for credit.

Review by
CK Moderator

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0 People Helped

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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