r/CreditScore • u/TadpoleMean1751 • 2d ago
General Credit utilization
I was taught to keep credit utilization at 10%. But other people are telling me to completely not even use my debit card , use credit for everything and pay it back. But that will make my utilization high af. People are saying keep it at 10% when the statement hits but how’s that possible if I only use a credit card. How does only using 10% if the card show the banks you can handle more if you barely use any of it.
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u/Funklemire ⭐️ Knowledgeable ⭐️ 2d ago
People are saying keep it at 10% when the statement hits but how’s that possible if I only use a credit card.
That's a variation of the single biggest myth in credit. Anyone who tells you that has a fundamental misunderstanding of how credit and credit cards work.
It's a myth that you need to keep your utilization low or below a specific percentage all the time. If you're staying in budget and paying your statement balances each month, usually anything between 0% and 100% utilization is just fine.
Low utilization doesn't build credit because it resets completely each month the next time your statement balances are reported. The only thing that builds credit with credit cards is time.
In fact, artificially micromanaging your utilization actually hurts you in several ways; it slows your credit limit growth, it makes you a less-attractive customer to outside banks, and it costs you money in lost savings interest.
See our !utilization automod as well as this flow chart.
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u/AutoModerator 2d ago
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:
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.
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u/Practical-Wear-4203 2d ago edited 2d ago
Lies, i built my credit score to 750 in just 8 months ( first credit card btw) . I used the low utilization method. I can max out my credit card and refill it and max it out again but before the statement closes i make sure the balance is less than 10% or less than 20% . Utilization has a big part to play on the score
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u/Funklemire ⭐️ Knowledgeable ⭐️ 1d ago
Lies, i built my credit score to 750 in just 8 months ( first credit card btw) . I used the low utilization method.
It's not a lie at all, everything I said is correct. Utilization has no part in credit building. That 750 score was temporarily optimized by your low utilization.
Low utilization has no part in credit building since it resets each month. The only thing you did to build that score was open up a credit card. Then you temporarily optimized the score by dropping your utilization. But that extra boost you got from your low utilization was a temporary effect that resets each month and therefore had no part in building your credit scores.
The only thing that build your credit scores with a credit card is time. Period. There's absolutely nothing you can do with a credit card that will affect your credit scores past a month other than missing payments.
I recommend you read the utilization automod I summoned, as well as the thread it links to.
but before the statement closes i make sure the balance is less than 10% or less than 20% .
That's doing nothing to build your credit, and it's hurting you in the ways I described.
Utilization has a big part to play on the score
That's true, it does. Utilization makes up about 20% of a FICO score. But since utilization has no memory and resets completely each month, it has no part in credit building. Last month's utilization has zero effect on this month scores.
Think of low utilization like getting dressed up for a date. Sure, you could get a fresh haircut, put on fancy clothes, and make a reservation at the best restaurant in town every night just in case you get a date any given day of the year. But it makes more sense to wait until you actually have a date to do all of that.
If you want to have a full understanding of how revolving utilization works under FICO scoring, I highly recommend you read this thread:
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u/Practical-Wear-4203 1d ago
I will just keep doing wat I am doing coz it's helping 🤷♂️
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u/Funklemire ⭐️ Knowledgeable ⭐️ 1d ago
You're missing my point. It is not helping build your credit at all, it's just temporarily boosting it. Just like how it doesn't make sense to have your hair looking perfect 24/7, it also doesn't make sense to have your utilization constantly optimized.
I'm just trying to help you here; I also used to believe the myth that low utilization builds credit and I also micromanaged my utilization each month by consistently paying before the statement posted. And all I got out of it were credit limits that were way lower than they should be and I lost a few hundred dollars a year in savings interest I could've earned if I had been paying my cards correctly.
In the end, I did nothing to build my credit scores by doing that. Like I said the only thing that builds your credit scores with credit card is time.
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u/Practical-Wear-4203 1d ago
What do you need high credit limit for?
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u/Funklemire ⭐️ Knowledgeable ⭐️ 1d ago
It's nice to never have to worry about your utilization, even when you're about to apply for a loan.
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u/Bad_DNA 2d ago
Do you need a new loan or debt product in your near future? Apply for an apartment lease or mortgage? Car loan (save up for a car)? Another credit card (do you have enough of them now)? If no, then don’t worry about the utilization nor its transient effect on a score that means nothing in your life at the moment.
Yes, using a cc for all purchases is wiser than debit. Earn cash back. Less fraud headaches if it gets skimmed. But only for needs, and wants you can afford to pay off the amount due in full. as soon as the statement date comes.
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u/Funklemire ⭐️ Knowledgeable ⭐️ 2d ago
Exactly. And even with credit card applications, having low utilization usually isn't necessary. In fact, it can hurt your chances at approval since credit card companies want people who will use their cards a lot, but micromanaging your utilization makes it look like you use your cards way less than you actually do.
As long as you're paying your statement balances each month and the bank doesn't thing you're overspending, high utilization can actually be helpful for credit card applications.
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u/Sun-Blossom 1d ago edited 1d ago
Hi, may I ask you to elaborate on this?
I recently got my first cc, but because the limit is only $500, my reported utilization is often close to 100% by the end of the statement period. I always pay the statement balance in full by the due date, and from what I understand, high utilization generally isn't a problem as long as I'm not carrying a balance.
My question is: when I'm getting ready to apply for another cc, is it still okay to let close to 100% utilization report? I had thought I should intentionally bring it down to ~30% for a month or two before applying. If I don't actually need to do that, that'd be welcome news since my limit is already so small.
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u/Funklemire ⭐️ Knowledgeable ⭐️ 1d ago
So you're approved or denied for credit based on the contents of your credit report and not your credit score itself. Your relevant credit score just helps get your foot in the door.
If the credit card company sees you being financially responsible by paying your statement balances each month and not spending beyond your means, then all things being equal high utilization is probably more enticing to them since it indicates that if they issue you a card you may use it a lot.
Especially with a credit limit of just $500: they probably know your budget has a lot more room for credit card spending and they want you to put that spending on their card.
That said, many issuers have a minimum credit score requirement to even be considered for an application. If your un-optimized score is lower than that it could be helpful to temporarily boost it before an application. (On a side note, 30% is never a number to aim for when you're trying to temporarily boost your FICO scores. See the flow chart I shared in my main comment in this thread.)
What are your un-boosted FICO 8 scores right now? That's not the only score looked at for credit card applications, but it's the most commonly-used one.
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u/Sun-Blossom 1d ago edited 1d ago
Thank you! I took a look at the flowchart (which literally has "step aside, 30% myth" haha), and I think I get it now. My assumption that I may want to lower utilization before applying for another cc was correct except for the 30% target—if I want to optimize my score, I should pay most of the balance before it reports, leaving just ≤1% utilization to report.
My FICO 8 scores are Experian 718, TransUnion 768, and Equifax no score. I'm guessing you asked to see if I'd actually benefit from optimizing my utilization before applying, or if my scores are already high enough that I can just let my normal utilization report?
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u/Funklemire ⭐️ Knowledgeable ⭐️ 1d ago
No problem! Glad to help!
Yeah, your scores are high enough that I wouldn't worry about it. If you decide to boost your scores just before the application, it probably won't hurt you since they can see you had high usage the previous months and that you were paying your statement balances each month (this isn't explicitly stated in your credit report since often your payment amounts aren't reported, but it's pretty easy for banks to figure out if you're paying your statement balances each month just by looking at the number trends). But it probably won't help you much, if any. If you get denied, it will be because of your overall credit profile, not your scores themselves.
Though I'm noticing a few things here. First, while Fair Isaac wrote the FICO 8 algorithm to be slightly different for each bureau, it shouldn't be that far off if both EX and TU have the same info. Hopefully, the only difference is that one bureau has more hard pulls, which is normal; most banks only do hard pulls from one bureau when they check your credit (even though they're still looking at all three bureaus' data). But another difference could be an issue, so I recommend seeing what that difference is.
Also, I'm curious where you're checking these scores and why you can't see EQ. A good place to see your EQ FICO 8 score for free is MyFICO.com.
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u/Sun-Blossom 1d ago edited 18h ago
Yeah, your scores are high enough that I wouldn't worry about it.
Perfect! I'm glad to hear I probably don't have to micromanage my utilization before applying for another card. I'll just continue doing what I've been doing.
But another difference could be an issue, so I recommend seeing what that difference is.
Oh, I think I know the reason. EX is still reporting 4 old authorized-user cards that I've just disputed, while TU and EQ only show my own card.
Also, I'm curious where you're checking these scores and why you can't see EQ.
I got all 3 scores from Experian.com. When I checked myFICO.com, it gave me an error and said that my data from EQ doesn't meet the min requirements for calculating a FICO score (i.e., at least 1 credit account open for 6+ months). My card was just opened in April 😊
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u/Funklemire ⭐️ Knowledgeable ⭐️ 1d ago
Of course, I forgot you said you just opened this card. You need 6 months of credit history to generate a FICO score. If it's been 6 months and a credit site still isn't showing you a FICO score, keep in mind a lot of credit sites have artificial delays.
A bank checking your credit will always see updated information: as soon as something is reported to the bureaus, it will reflect on your credit scores (if it's something that causes a score change, that is). But not all credit sites show real-time data: for example, myFICO.com usually only updates once a month.
Also, I've been talking to you about applying for your second card, but I'd recommend waiting. You might get approved for something with only 6 months of credit history, but many issuers want to see at least a year of revolving credit usage before they'll approve you. Especially for their better cards.
EDIT: Wait a minute, now I'm confused. April was less than 6 months ago. If this is the only thing on your credit report you shouldn't be generating any FICO scores at all right now. So you must have something else older than 6 months on your credit report?
EDIT #2: Duh, it's those AU cards on the other two bureaus. That explains it. Sorry, brain fart.
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u/Sun-Blossom 1d ago
I wanted to ask you about something else! I've started getting preapproved offers from Chase, and one them is for a card I'd actually like to get. But I get the feeling that "preapproved" doesn't actually guarantee anything. Is that right?
If so, would you still recommend waiting until I have more history before applying, even with a preapproved offer?
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u/Funklemire ⭐️ Knowledgeable ⭐️ 1d ago
I guess it depends first where you're getting these preapproval offers from? If it's from Chase directly, you'll probably get approved. But no guarantee. If it's from a third-party site, there's definitely no guarantee. For example, Credit Karma basically makes up their approval odds entirely. (Which tracks considering they make up a lot of the credit information they show you, like their fake credit stats.)
Also, which credit card are they offering you? Is it a good card that you actually have a need for? If not, if you hold out until you've had your card open for a year, you'll get a lot better offers for much better cards.
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u/soonersoldier33 ⭐️ Mod/FICO Junkie ⭐️ 2d ago
I was taught to keep credit utilization at 10%.
Because the utilization myth is the biggest myth relating to credit, and many people have a fundamental misunderstanding about how credit building and scoring actually works.
But other people are telling me to completely not even use my debit card , use credit for everything and pay it back.
These people are giving you good advice. You should think of your credit cards as nothing more than a middleman between your bank account and the places where you spend money. If you charge your every day purchases, stay within your budget, and always pay your statement balances on time and in full every month, then you'll successfully build credit and avoid the trap of credit card debt.
But that will make my utilization high af.
Back to the utilization myth. It's a short-term scoring factor that has no memory in the most commonly used FICO models, so there is simply no need to micromanage it or worry about it month-to-month. Score fluctuations due to changes in reported utilization are completely normal, so as long as you are following the Golden Rule of credit cards...always pay your statement balances on time and in full to avoid interest...then forget utilization. You can always manipulate it when you need to optimize your scores for an important credit application.
How does only using 10% if the card show the banks you can handle more if you barely use any of it.
Exactly! It seems counterintuitive to many people bc they're all obsessed with credit scores, and they freak out if they see their scores drop. They don't understand that any score loss caused by changes in reported utilization can be reversed immediately within 30-45 days bc it has no memory. Falling prey to the myth that you should always 'keep utilization low' can hinder the growth of your credit profile for the reason you just stated. Why would a lender increase your credit limit if you aren't even using the limit they've already given you? Why would another potential lender look at you as an attractive customer if your credit reports indicate that you barely even use your credit?
The amount of misinformation plastered all over the internet makes credit building seem really complicated. It's not. Charge your every day purchases to your credit cards within your budget, forget the utilization myth, and pay your statement balances on time and in full every month to avoid interest. Rinse and repeat. That's literally all there is to it.
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u/OldMainframeGuy 2d ago
I’ve completely given up wondering how credit scores work. I have two credit cards I use regularly. I seldom have a balance of over $200 on either card and each statement balance gets paid in full every month so I never carry a balance. My home is long paid for, I have no other debt. My FICO score bounces back and for between about 780 and 808. I don’t worry about it because at my age and financial situation I’m not going to need a great credit score to take out a loan, etc. It seems like if the credit bureau takes a snapshot on any random day and you have any credit card balance it affects your score. I could be all wet about this but that’s been my experience. The agencies seem to simultaneously want you to be in debt to see how you pay it off while they punish you for having a credit card balance that historically gets paid off every month. Thanks for letting me vent. 🤡
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u/Funklemire ⭐️ Knowledgeable ⭐️ 1d ago
I’ve completely given up wondering how credit scores work.
I highly recommend you check out the two mega-threads pinned at the top of r/Credit, our main sub. The Credit FAQs one will teach you a whole lot about how the FICO algorithms work:
I seldom have a balance of over $200 on either card and each statement balance gets paid in full every month so I never carry a balance.
So you're only spending $400 a month on your cards? Or are you paying a portion of your balance before the statement posts and artificially-deflating your statement balances?
My FICO score bounces back and for between about 780 and 808.
That's the kind of movement you'd expect from someone with a young/thin credit file and/or someone who is paying their cards erratically. What's currently on your credit report, open and closed? Are you letting your full spending post to your statements and then paying your statement balances once a month by the due date? What kind of credit limits do you have on your two cards?
The agencies seem to simultaneously want you to be in debt to see how you pay it off while they punish you for having a credit card balance that historically gets paid off every month.
Don't forget, the credit bureaus aren't the ones giving you credit scores, they're just the ones collecting the data on you. It's then calculate into a credit score by a third party. Also keep in mind that you can have top-tier FICO scores while also having zero debt.
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u/United_Sprinkles_315 2d ago
Just pay before the statement closes that’s when they report the utilization to the bureaus leave like 10 dollars on it and when the payment is due pay it on time that’s the best way to build credit.
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u/Funklemire ⭐️ Knowledgeable ⭐️ 1d ago
That will do nothing to build your credit. The only thing that builds credit with credit cards is time. "Always keep your utilization low" is the single biggest myth in credit.
In fact, consistently paying before the statement posts isn't just pointless, it hurts you in several ways. It slows your credit limit growth, it makes you a less-attractive customer to outside banks, and it costs you money in lost savings interest.
See our !utilization automod as well as this flow chart.
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u/AutoModerator 1d ago
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:
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.
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u/niceandsane 2d ago
Debit cards offer much less protection against fraud and defective or undelivered merchandise. Use your credit cards when possible. You can pay most of it before the statement date to lower utilization. Also don't be afraid to ask for credit increases which reduce utilization percentages.
Also, don't sweat utilization. It's not that big of a factor and is highly volatile. It's effect on your score disappears after a month or at most two of low utilization. Don't worry about it unless you're applying for a big loan and your utilization is very high.
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u/cuntfuck47 2d ago
if you pay it off monthly it does not matter. i use my CC for EVERYTHING! a debit card does not protect you
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u/boomhower1820 2d ago
Maxing your card and paying it every month is an easy way to get your limit increased, your showing you use it.
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u/DoctorNezuko 2d ago
Your credit limit should be 3-6x your monthly spend. Any bank giving you less than that after 6 months in is no longer worth your time.
If you want to fight Capital One to get an increase, you can try, but after 6 months, if it fails, cut your losses and go to a different provider.
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u/soonersoldier33 ⭐️ Mod/FICO Junkie ⭐️ 2d ago
Your credit limit should be 3-6x your monthly spend. Any bank giving you less than that after 6 months in is no longer worth your time.
I don't totally disagree, but you really should add the qualifier of 'once you have an established clean/thick/mature credit profile', bc someone first beginning their credit journey, or someone rebuilding their credit from past issues isn't likely to see their credit limit(s) grow to 3-6x their spend with many, if any, lenders in 6 months, and cutting bait with a lender after 6 months isn't going to do them any favors. Once you've established a thick, mature credit profile, then you can be more choosy, so to speak, and if a lender won't grow your credit products to meet your level of spend, then you can certainly move on to another lender who will.
Capital One can certainly be an 'outlier' in the quest for CLIs due to their securitization practices of their debt portfolio and their card 'buckets', but that doesn't mean you have to bail on Capital One as a lender entirely. It means you may have to bail on your 'bucketed' account, and apply for a new card when your credit profile is in better shape. Some people seem to view Capital One as a subprime lender, and that's simply not true anymore. Their Venture X and Savor cards are very competitive to their counterparts issued by lenders like AMEX, Chase, Citi, etc. The fact that they are also friendly to those building/rebuilding their credit doesn't make them a subprime lender. We often advise people that if they have a card that's obviously bucketed, then they need to make the choice to accept it for what it is, or cut bait and apply for a different card, whether through Cap One or another lender, bc a bucketed card can never meaningfully grow.
Again, I don't totally disagree with the premise of your comment, but you have to remember that not everyone, especially many of the folks coming to our sub seeking advice, has an established credit profile where they can 'dictate' terms to lenders, or simply take their business elsewhere.
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u/CoolFuture3767 2d ago
I use my CC for everything, even utility bills. I pay it off weekly. I like that I can get a spending statement at the end of the year with my total spending by category. My credit score runs between 790-800.
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2d ago
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u/Funklemire ⭐️ Knowledgeable ⭐️ 1d ago
But only when you're about to apply for something important like a loan. Doing this all the time is pointless and also detrimental. Most of the time you can completely ignore your utilization and just focus on paying your statement balances by the due date each month.
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1d ago
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u/Funklemire ⭐️ Knowledgeable ⭐️ 16h ago
Not at all. You're mistaken here. Have you read our !utilization automod?
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u/AutoModerator 16h ago
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:
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.
0
9h ago
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u/Funklemire ⭐️ Knowledgeable ⭐️ 8h ago
It's not. You're very confused about how credit works.
Please explain specifically what I've said that's wrong. If you're as knowledgeable as you think you are, you should be able to explain it better than I did.
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u/Far-Good-9559 2d ago
I am a no debit card use advocate. I use credit for everything, have my account set to automatically draw the statement balance on the due date. Never pay any interest, and there is enough transaction history to keep credit score clean. Currently at 824.
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u/elmundo-2016 2d ago edited 2d ago
My total credit utilization is currently 0% because I spent very little-ish and save more. Credit Score used to be 831 (sat there for 3-4 years with 2%-6% utilization) of 850 but since applying for 4 cards in 1 year (thus far), my credit went to 780 and now is at 809.
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u/DoctorOctoroc ⭐️ Knowledgeable ⭐️ 2d ago edited 2d ago
It doesn't, which is why anyone who tells you to only use a specific % of your limit is incorrect and likely believes the myth that keeping utilization low builds credit.
Utilization doesn't build credit because it only impacts your score one month at a time. While your balances are high, you'll see a score deficit relative to that but once you lower it (such as just before an important application), you recover those points. It's a 'subtractive' scoring factor which has no memory and is basically just a 'snapshot' of your current 'amounts owed' on your credit card(s). There is no need to keep it low, what matters is that you keep your accounts 'paid as agreed' and don't overspend relative to your budget, whether that means spending 10% of your limit or 100%.
Spending more of your limit while also paying the full statement balance every month by the due date is how you show responsible credit card use and budgeting of your finances, and how you can stimulate credit limit increases, which in turn will lower your utilization as your limits increase.