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When it comes to how much credit you should be using, it seems like everyone has an opinion. How much of your credit limit should you be using?
If you’ve been doing your research to answer that very question, you’ve likely seen a wide range of answers ranging from 10 percent of your credit limit up to 30 percent.
With so many answers, it can be tough to know the right answer for your specific scenario.
First things first, the overall general rule of thumb is not going over 30 percent of your credit limit. If you have a $10,000 credit limit, in this scenario, you wouldn’t want to go over $3,000 of your available credit.
Also known as the 30 Percent Rule, this would apply to each individual credit card account you have. If you have 10 credit cards, you would want to keep each credit card under the 30 percent threshold.
A term you want to become familiar with is credit card utilization. If I have a $5,000 credit limit on a card and I have a balance of $2,500, my credit card utilization ratio is 50 percent because I’m using 50 percent of my credit limit.
Now, Forget About The 30 Percent Rule
Here’s the thing.
FICO has long stated they recommend using 10 percent or less of your credit limit. As of late, they have pushed this up to 20 percent but not a percent more.
So, for those that have a high FICO score of 750 or higher, their average credit usage is 7 percent. If you’re FICO score is below 750, 700, even lower, you may want to look at your credit utilization ratio.
Everyone’s Scenario Is Different
Up to now, you’ve learned a good credit utilization ratio is 7-30 percent.
Our best advice, you need to watch your credit. You need to monitor your credit and see how different things impact your credit scores.
This is the only way you’re going to be able to find out exactly where you need to be to have the highest credit score possible.
If you’re focusing on your FICO score, you can sign up for a paid account and you’ll have the ability to monitor your credit daily.
Here’s a few things that you should know.
Paying On An Account Can Lower Your Credit Score- Depending on the credit card you use and you’re specific scenario, making a payment on your credit card can lower your credit score versus raising it.
Spending Money On A Card Can Increase Your Credit Scores- While most people think spending on a credit card will be negative on your credit score, it can actually increase it.
- Certain Credit Cards Help Your Credit Scores More- You’ll find out that certain credit cards help your credit scores more versus other cards.
FICO VS VantageScore
Another popular credit scoring model is VantageScore.
For the most part, your FICO scores and VantageScore credit scores are going to be similar.
We’d recommend getting signed up for both of them and you can calculate them all to get an average.
Now, as it pertains to credit utilization specifically, the FICO model differs from the VantageScore model.
With VantageScore, the ratio makes up about 23 percent of the score.
Finding Your Sweet Spot
For FICO, they’ve been very clear on how you can improve your FICO credit scores.
While you may be aiming to get at 3-5 percent credit card utilization, that may not be your ideal range to get the highest credit score you can.
You may find that your ideal range is 8 percent and by doing so, this gets you the highest FICO score you can get.
If you’re not monitoring your credit scores, you’ll never know what that ideal range is.
Maximizing Your Credit Scores
You already know credit card utilization is very important for both scoring models, what else?
- Making Payments On Time
- Credit History
- Credit Diversity
- Making Multiple Payments
- Minimal Inquiries
Remember, the best way to know how much of your credit limit you should be using is by monitoring your accounts to know the optimal level for your unique scenario.
If you want to focus on your VantageScore credit scores, get signed up to Credit Karma.
Watch your accounts on a regular basis and see how certain things apply to your credit scores.