The best credit utilization ratio is 1%-10% of your available credit. But really anything below 30% will be good for your score. Any higher than that and you risk some credit damage, although exactly how much of an impact it will have depends on how responsible you are in all other areas of your finances.
There are actually two types of credit utilization – for each individual credit card account you have open and for all of them combined. Each contributes to your credit score, but the latter is more important. You’ll want to keep your total utilization below 30%.
Here are the best credit utilization ratios:
1% - 9%: This is the ideal utilization. Using this amount of your credit will help your score improve fastest, assuming that you make all your payments on time and are otherwise responsible.
0%: Believe it or not, 0% isn’t the best possible utilization. Creditors like to see that you can handle making charges and paying them off without overspending. That said, 0% utilization is a lot better than high utilization, so it’s the way to go if you don’t trust yourself to spend within your means.
10% - 29%: This is B-level credit utilization, if you’re using letter grades. The low end – 10% – is a B+, bordering on A-. The high end – 29% - is closer to a C. In short, your spending isn’t overly concerning at this level, but it’s not low, either.
30% - 49%: Credit utilization in this range will get you a grade of “C” from WalletHub’s Credit Analysis tool. It’s not exactly praise-worthy, but it won’t hold you back too much, either. Still, the more accounts you have with credit utilization at 30% or above, the worse it is for your credit score.
Here are the worst credit utilization ratios:
100%+: Maxing out your credit is a big red flag and paints you as irresponsible. You can definitely expect some credit score damage. Some issuers may even give you a penalty APR on future purchases if you use 100% of your credit.
If you go over your limit, your card may simply be declined. If the transaction goes through, you may have over-limit fees to contend with in addition to credit score damage. But you only have to worry about such fees if you’ve opted-in to be allowed to spend over your limit.
90% - 99%: 90% credit utilization is a bad milestone for your credit score, as it means you’ve nearly maxed out at least one credit card account. And the more accounts in this boat, the further your credit score will sink.
50% - 89%: 50% is an important threshold for credit utilization. Data show the more accounts you have with 50%+ utilization, and the higher their utilization rates are, the more likely you are to be experiencing financial difficulties. And that makes you a risky borrower in lenders’ eyes.
So you definitely want your credit utilization to be less than 50%. You should always try to keep it below 30%. And below 10% is ideal.
On that note, it’s important to point out that utilization is generally calculated using a credit card’s monthly statement balance. That means you can reduce your utilization just by making sure that statement balance is lower than usual. For example, if you need to make a big purchase that will take up a large portion of your available credit, you can pay at least some of it off before your statement closes.
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