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For those of you that keep a watchful eye on your credit or in the process of building your credit, you may be wondering how much of your credit cards you should be using month to month.
Since credit card utilization is a ranking factor in your credit scores, this is something that everyone needs to know.
When it comes to credit card utilization, the general rule of thumb is to never go over 30 percent of your credit card limit. In this case, if you have a $10K credit card limit, it means you should never go over $3K, right?
Hold your horses, while this is usually a fair rule to follow, this is not a concrete fact. Rather, one of the most used credit scoring companies (FICO) recommends using far less credit.
In fact, FICO is on the record saying you shouldn’t go over 10% utilization. In this scenario, if you have a $10K limit, that brings it down to only using $1K of your credit limit.
In more recent times, FICO has softened its view on credit card utilization. Today, they publicly recommend 20 percent. According to a FICO survey, their top credit score holders are averaging around 7% total credit card utilization.
The truth of the matter, it can vary from one person to the next. This is exactly why you should have an account with FICO so you can get regular updates on your scores.
For example, if you’re using 20 percent and you see your credit score fall 6 points, that suggest if you go higher, it could continue to fall.
On the other hand, if you get your utilization down to 15 percent and see a 3 point jump, you may want to continue to get it lower to see if it increases your credit score.
Two of the most widely used credit scoring systems is FICO and VantageScore. When it comes to credit card utilization, the two systems judge it differently.
FICO: 30% of your credit score
VantageScore: 23% of your credit score
This is great to know if you know who which scoring system will be used when you apply for credit. Unfortunately, most of the times we won’t know.
Even if you did, 7 percent difference is not much in the grand scheme of things. Again, the exact number you need to be at varies from one person to the next.
How To Increase Your Credit Score
If you want to get your credit score as high as possible, there’s a few other things you can do to make sure it happens.
(1) Timing Is Everything
Your credit card issuers will report your credit on the same day of each month. Once you know what that day is, you can use it to your advantage.
You can carry a $1K balance for a few weeks and a few days prior to their reporting, you can pay the balance down. In this scenario, it can help you boost your credit score by lowering your credit utilization.
Some experts recommend making several payments each month, using your card to make purchases and them pay them off.
(2) Make Payments On Time
At the very least, make sure you’re making all of your payments on time. That goes for your mortgage, car payments and credit cards.
Your payment history plays a role in your credit scoring, the better it is, the higher your credit score will go.
You can also use your payment history as a bargaining chip when you go to the next step, the credit limit request.
(3) Request A Credit Limit Increase
Another way to instantly lower your credit card utilization rate is by requesting a credit limit increase. While some credit card issuers will automatically give you credit line increases every few months, many of them don’t.
Rather, you have to request the credit line increase. If you’ve been using credit card responsibly for 6 months or more, it may be a good time to ask for it.
Just beware, some credit card companies will hit your credit with a new inquiry for the increase request, which could lower your credit.
(4) Apply For New Credit
If you only have a few accounts in your name, you may stand to benefit from adding a new line of credit. A new credit card can help you in a few different ways.
- Lowers Your Overall Credit Utilization - A new credit card will automatically lower your overall credit utilization, which can help you get a higher credit score.
- A Higher Credit Limit - If you can add to your total amount of credit, this can also help you improve your credit score. Even if you only get approved for $500 more, that may have a positive impact on your credit score.
- A New Reporting Account - As long as your new credit card reports to the major credit card bureaus, you stand the opportunity for your credit score to take a positive jump.
Ideally, you want to get a credit card that reports to the major 3 bureaus. Just be careful who you get your credit card from. If you want to improve your credit score, make sure you ask before applying for the card.
As you can see, there’s several different ways to improve your credit score. Remember, you need to sign up for some type of credit monitoring service.
You’ll find our personal recommendations somewhere on this page.
To our point, you can’t accurately monitor how credit card utilization affects your credit score without the monitoring. There’s just no way you can do it.
Until you do, you won’t find out what the ideal utilization amount is for you.
While a good rule of thumb is 10-20 percent, knowing exactly where to be on that scale can add a few credit score points to your profile.
Our best advice, “sign up for some type of credit monitoring service so you can monitor your credit at all times.”