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%

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“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.

“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