Dissecting Credit Scores Part II – Credit Utilization

Education & Training with Realities and Dreams

Here we are again with another part to our series "Dissecting Credit Scores."

Before we get into the main topic, let's recap a little bit.

It is crucial to know your credit score and to understand what factors determine your credit score.  Last time, we talked about late payments and payment history in general.

I suggest you go read that but in the meantime, remember that payment history makes up 35 percent of your credit score.

Now, let's get into why we are here!

Credit Utilization

Credit utilization makes up 30 percent of your credit score.  Now if you add payment history of 35 percent and credit utilization of 30 percent, you see that these two factors alone account for 65 percent of our credit score.

What do we mean when we talk about credit utilization?

It is merely the amount of credit we use out of what is available!  For example, if you owe 1,500 dollars on your credit card that has a 3,000 dollar limit, you are at 50 percent utilization. 

The reason this is important is that a person is considered to be irresponsible with debt if they habitually max out their credit cards or get close to their limits.

Best Practice for Credit Utilization

An oft-cited rule of thumb is to not go over a total of 30 percent credit utilization.  However, there is no hard rule for this. 

My advice is to keep your credit utilization as low as you possibly can but do NOT exceed 30 percent.

Another critical aspect to all of this is how much credit you have.  If your maximum available credit is low, a 50 percent credit utilization may not make as significant an impact compared to a high available credit with a 50 percent utilization.

Things You Can do to Help Your Score

Make multiple payments per month on your credit cards.  Your bank or financial institution reports to the credit bureaus every 30 days.  The balance at the time of that report is what matters.  Making a payment before that can raise your score.

Another thing is to use multiple credit cards if you're going to use them at all.  Let me say before I go further as not to confuse anyone; we should NOT use credit cards at all!  However, if we are in a position that we must, keep the balances low on each card.  In other words, don't just use one and max it out.

You can also apply for new cards to raise your available credit which in turn lowers your credit utilization.

Let Me Say Again…

Please do NOT misunderstand.  I am NOT suggesting or advising that you use credit cards.  I strongly advise AGAINST using them. 

Also, I only suggest these tricks of raising your credit score if you need a high score for something right now, such as for buying a home.  If you don't plan on applying for any credit soon, don't worry about raising it quickly!

In this case, raising your available credit to lower your credit utilization is NOT the best solution.  If you don’t need a high score right now, your best solution is to pay down your balances to lower your credit utilization.

If you need extra cash to pay more towards credit cards, you should go read 15 Best Work from Home Jobs that Pay Well.

Also, read How to Pay Off Credit Card Debt FAST: 4 Easy Steps.

My Number One Tip

Please, if you gain nothing else from this, please, start saving up some money for an emergency fund if you don’t already have one.

An emergency fund is the most significant change you can make in your finances to get ahead of credit card debt and get rid of it!!

For more information, read Emergency Fund: First Step to Debt Free.

Posted by

Carey Zielke




Comments (2)

Mirela Monte
Buyers' Choice Realty - North Myrtle Beach, SC
Myrtle Beach Real Estate

I found this out the hard way several years ago.   I had a credit card with only about $1,500 limit that I used for internet purchases and I also gave it to my assistants to purchase items for the office with.  My other credit cards had much higher limits.   


I always paid this card in full every month, but the mere fact that sometimes the charges were close to the card limit, actually lowered my credit scores.  

Sep 29, 2019 01:19 AM
Mirela Monte
Buyers' Choice Realty - North Myrtle Beach, SC
Myrtle Beach Real Estate

Thanks for writing this!   

Sep 29, 2019 01:19 AM