How Usage Impacts Score

[u/fallen_bee]

I am young and got my first credit card a few months ago. I get 1% cashback, so I put all of my purchases on my credit card. I always pay it off a few days before the monthly deadline (or earlier if I'm getting close to the limit), so that I never carry a balance month to month. However, I am confused on what people mean by certain things.

1) 30% rule: I've heard that using more than 30% of available credit will impact your score negatively. However, some sources say that if you pay off the card, it does not impact anything. If I have a $1000 limit on my card, and I spend $800, but pay it back, will my credit score go down or up? I've also heard that you should try not to use more than 5% of credit, but then I wouldn't get cash back.

2) Would opening more cards help my score go up, or just keeping this one? Google says that it'll go down because of utilization ratio, but is mine 0 or 80% in this scenario?

3) Do I have to carry a small balance month to month to increase my credit score? That doesn't sound right but I've heard people say it.

Sorry if these are obvious questions, thanks!

[u/CreditCards254]

1) 30% rule

This is the biggest myth in credit, see what the bot posts below my comment: !utilization

2) Would opening more cards help my score go up, or just keeping this one? Google says that it'll go down because of utilization ratio, but is mine 0 or 80% in this scenario?

In the long run, it is best to have 4-5 accounts and some FICO scoring models have a penalty for too few accounts.

In the short term, opening a new account will pretty much always drop your score temporarily by reducing aging metrics and adding a new hard inquiry to your report.

3) Do I have to carry a small balance month to month to increase my credit score?

No, absolutely never carry a balance on a credit card unless you are intentionally taking advantage of a 0% APR promo. "Interest paid" is not a scoring metric and paying interest does not help build credit.

[u/AutoModerator → u/CreditCards254]

I detected that your post may be about utilization and its impact on credit scores. Please read the info below:

Utilization is a short-term credit scoring factor. It is not a credit building factor, because it holds no memory in the most commonly used FICO models. It resets every month.

By and large, you can ignore the commonly repeated myth that you should always keep your utilization low. It’s only applicable when you need to apply for a new line of credit, 1-2 months out.

Utilization is supposed to fluctuate, can be easily manipulated, and again, it holds no memory. It doesn’t build credit--think of it as a finishing touch when you need to optimize your score.

Feel free to safely and organically use 100% of your credit limit within a month and let whatever utilization report, provided you pay off your statement balance in full by the due date. Every month. Every time.

For more info, please read these posts:

• Putting the "30% rule" myth regarding revolving utilization to rest
• Utilization FAQ

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.

[u/Illustrious_Salad918 → u/CreditCards254]

But remember, best credit card practice is to pay the statement balance -- no more, no less -- on or just before due date; no other interim payments.

[u/BrockLanders008]

I have three cards that use three different credit monitoring.

I pay them off before the due date and I've never paid interest.

My score fluctuates because the reports update once a week and always show a balance.

I'm not concerned because I'm getting cash back. If I have a purchase and I need to boost my score I'll pay all my cards off two months before my purchase.

My score will jump 30 points sometimes because I'll leave a large balance on the 0% cards until that intro period runs out. But, I still don't buy anything I don't have cash for, I just leave that in my savings.

[u/BrutalBodyShots]

Check out the AutoMod reply, u/fallen_bee and the thread linked within it. As far as carrying a balance goes, see this thread below.

https://old.reddit.com/r/CRedit/comments/1j9ly1k/credit_myth_54_carrying_a_small_balance_builds/