As a credit card holder, you are borrowing money and then paying it back at a later date. The more debt that you accumulate on a credit card, the more interest it will rack up.
To reduce the interest that you have to pay, keeping your credit card utilization percentage as low as possible will help. Credit card companies favor that you keep your overall credit utilization under 30%. If utilization is under 10%, your credit score will get more of a bump. Holding no balances on your cards can bump up your credit score even higher.
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Why Keep Credit Card Utilization Under 30%?
Credit card companies recognize a credit utilization rating of 30% or lower as you being a responsible borrower and using your credit without having a high reliance on it. They like that you have some balance on your cards because it is showing that you are exercising your borrowing power and ability accordingly.
Maxing out your credit cards means that you either do not have enough money to cover your general bills every month or that you are overspending on leisurely buys. Keeping a budget journal or spreadsheet on your laptop can help you to lower spending and focus only on your cash on hand.
Utilization Under 10%
Your credit score will rise higher if you consistently keep your credit card utilization at 10% or lower. Having this percentage regularly displays to credit card and loan issuers that you pay back your debt almost as immediately as you borrow it. Of course, you may still separate your payments into a few month intervals where some interest accumulates, but not as much as having a 30% credit utilization.
No Balances on Your Cards
As long as you place at least one purchase on each of your credit cards every month and pay it off completely by the due date, your credit will skyrocket more so than keeping credit utilization between 10% to 30%.
Of course, you do not want to go months without using a credit card at all. If a credit card goes at least six months with a 0% credit utilization noted for it on your credit report, the issuer may automatically shut down your account. Shutting down a credit card account lowers your overall credit line total availability which can increase your overall utilization rating depending on the debt you have on other credit cards.
Hence, be sure to place at least one recurring bill on your credit card every month, pay it off on the due date, and repeat the cycle to maintain the best possible FICO credit score.
How Do You Check Your Credit Utilization Percentage?
Sign up to receive your credit report free of charge on websites such as Credit Sesame or Credit Karma. On your profile, it will show you your current credit card utilization percentage along with credit age, current debt owed, and so on.
To sign up for a credit report accounting, provide your name, date of birth, social security number, and other requested personal information. Upon doing so, the report will automatically generate information from all your loan, credit, mortgage, and other financial accounts.