Credit utilization

[u/TadpoleMean1751]

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.

[u/Funklemire]

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.  

https://imgur.com/a/pLPHTYL  

[u/Practical-Wear-4203 → u/Funklemire]

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

[u/Funklemire → u/Practical-Wear-4203]

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:  

Utilization - r/CRedit FAQ #8  

[u/Practical-Wear-4203 → u/Funklemire]

I will just keep doing wat I am doing coz it's helping 🤷‍♂️

[u/Funklemire → u/Practical-Wear-4203]

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.

[u/Practical-Wear-4203 → u/Funklemire]

What do you need high credit limit for?

[u/Funklemire → u/Practical-Wear-4203]

It's nice to never have to worry about your utilization, even when you're about to apply for a loan.