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 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 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

1 Contribution
0 People Helped

My credit score on 8/29/09 was 785. My "Total Accounts" Grade was "D". What do I do to move this grade higher?

That is a very strong score. With it, you should get the best rates available. Over time, your total accounts should increase with more credit experience.

Review by
CK Moderator

1 Contribution
0 People Helped

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.

Review by
CK Moderator

1 Contribution
0 People Helped

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?

Top Contributor

Reply by
chief0

14 Contributions
5 People Helped
Helpful to 1 out of 2 people

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.

2 Contributions
12 People Helped

Is it suggested that I have credit utilization when I own two homes with mortgages and a student loan? I have six credit cards with 0 balance.

1 Contribution
0 People Helped

My credit score absolutely stinks!! I have a 545.. UKkkk!!!!! I have a repo of a vehicle on my credit I've tried to apply for credit cards and seem to have no luck. The vehicle that got repo'd had a 28% interest rate tied to it in early 2006 I paid for it until late 2008 and I lost my job resulting in the unfortunate turn of events.

1 Contribution
0 People Helped

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.

Review by
CK Moderator

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