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Keep Your Credit Utilization Under 30% For the Best Credit Score

This excerpt helps to explain why it’s best to keep your credit card balances low, even if you have to spread them over a larger pool of cards.

The lesson to be learned from the credit scoring and credit bureaus themselves, keep your balances lower than 30%

“You don’t need a lot of credit cards to have a good utilization rate,” said Barry Paperno, consumer operations manager for myfico.com, the consumer arm of credit-scorer FICO. “And obtaining 25 credit cards for your score is overkill. Utilization looks at percentages more than dollars.”

Consider it this way: If you have $300,000 in available credit and carried a $30,000 balance, your utilization rate is 10%; if the available credit stands at $3,000 and you charged $300, your utilization rate is the same.

What you must have are credit limits that meet your charging needs, said Steven Katz, senior director of operations for TransUnion, the credit- and information-management company. “You may need a smaller number of cards with higher limits or more cards with smaller limits to stay under that 30% utilization rate.”

Don’t max out one card over another either in order to keep the utilization rates under 30%, he added. If you take out a store credit card with a $5,000 limit and you charge $4,750 for a home-theater system, your utilization rate on that card will set off alarms.

“It’s a good idea to try to keep the balance on each card under 30% of the limit,” Katz said. “It will help guide your efforts to keep your overall credit use low.”

A perfect score is near impossible to get and having credit but not using it won’t get you there. That’s doesn’t mean that you have to carry a balance that you must then pay interest fees on each month. You just need to use the card and pay it off to maximize your credit score.

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“The ideal place to be is under a 10% utilization rate but over 0%,” FICO’s Paperno said. “There needs to be some kind of recent activity” to activate a score. – Source


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Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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