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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4 Contributions
0 People Helped

Am getting an 'F' and credit utilization is near 100% on a balance of $487 with credit line of $500. Where does the $500 come from, as I have to Citibank cards with $20,000 line and a $2,000 line? Something is not right!

Also want to know why my credit score dropped so much to Aug. of last year?

Reply by
amooshka

1 Contribution
0 People Helped

Do you have a CitiPremierPass card? I do, with a crazy high limit. Which they no longer report because they changed the terms of my card. Nice, huh?

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

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 dont understand how Credit Karma calculates this. I have never carried a balance, and have an excellent credit score, yet my utilization on CK is 100%. Would it help to get a credit line increase or open another card? I prefer to spend the majority of my purchases on one card, since I get better rewards on that card. Is this the reason?

Having more than one card generally helps. You can see how we calculate your specific CCU within the credit report card.

Review by
CK Moderator

Top Contributor
12 Contributions
72 People Helped

Supposed I have more than one credit card, would a 0% ultilization rate for any single one of them hurt the score? Or as long as the overall/combined ultilization rate is above 0, I will be fine? And is the ultilization rate based on the amount due on the closing statement, or at other time in between the closing dates of every month? Thank you!

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 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

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

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.

Review by
CK Moderator

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