Is 30% credit card utilization the magic number?

As a credit card rewards enthusiast, you already know that keeping your credit score in great shape is important. Good credit is essential if you want to keep yourself in a position to qualify for the best credit card offers when they become available.

Keeping a close eye on your credit card utilization ratio is one strategy you can use to maintain a good credit score. Credit utilization — or the relationship between your credit card balances and limits — is an important factor in your score. In fact, 30% of your FICO Score is largely based (though not entirely) on your credit card balance-to-limit details.

In general, a lower percentage is better in this area. But there is some debate about what the perfect credit utilization ratio looks like.

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Many financial experts recommend keeping your utilization rate below 30% if you want to earn optimal credit scores. Yet as it turns out, there’s more to the story than you might have previously believed.

What is credit utilization?

Before we dig into the optimal credit utilization ratio for revolving credit cards, it’s important to understand how the process works. Here’s a brief overview of how credit utilization can impact your credit score.

Credit utilization describes the percentage of your credit card limits that are in use. Let’s say you have a single credit card with a $10,000 credit limit. If the balance on your account is $5,000, your utilization rate is 50%. In other words, you are using (or utilizing) 50% of your credit limit.

Credit scoring models, like FICO and VantageScore, look at credit utilization in two ways when calculating your credit score.

• Individual credit card utilization measures how much of your credit limit you’re using on each of your credit cards.
• Aggregate credit card utilization measures the overall credit limit percentage you’re using on all of your credit cards combined together.

With both of the measurements above, it’s not the real-time balance on your credit cards that matters. Rather, credit scoring models base your credit utilization rates on the balance and limit details that appear on your credit report. Card issuers usually update that information just once a month — around the time they issue your monthly statement.

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Is 30% credit utilization an important number?

Now that you’ve had a crash course (or a refresher) on how credit card utilization works, let’s go deeper. If you perform a quick Google search about “credit utilization” or “revolving utilization” online, you’ll come across dozens of articles suggesting that you should keep your credit utilization ratio at or under 30% to optimize your credit scores.

It's true that lower credit utilization rates are generally better for your credit score. However, if you’re aiming for an excellent credit score, staying under the 30% utilization threshold might not be enough.

What FICO has to say about credit card utilization

Can Arkali, senior director of scores and predictive analytics with FICO, confirms that using a low percentage of your available credit can have a positive impact on your FICO Score. Yet Arkali adds, “there is nothing ‘optimal or significant’ about 30% credit card utilization.”

FICO scoring models do consider a 30% credit card utilizaton rate to be less risky than a 50% utilization percentage (for example). As a result, you’d likely see a 30% utilization rate lead to a better score than what you'd see at a higher threshold. But 30% utilization would be viewed less favorably than a 10% utilization (or some other figure lower than 30%).

What VantageScore has to say about credit card utilization

VantageScore, meanwhile, does recommend keeping your utilization level at or below 30%. But the company doesn’t go as far as stating that 30% is the perfect utilization percentage.

Jeff Richardson, senior vice president of marketing and communications for VantageScore Solutions, says the impact of any single credit score factor (like utilization) depends on the overall make-up of that person’s credit profile.

"A person with many delinquencies might not be impacted by going over 30% [credit utilization] as much as someone with a pristine credit record," according to Richardson. "That said, models differ, and in general it is best to keep your utilization rate below 30% and to maintain that positive behavior over time.”

VantageScore also notes another important detail on its website where utilization is concerned. Consumers with the highest credit scores typically have single-digit utilization rates.

Is 0% credit utilization best?

Not using your credit cards, and therefore having a 0% credit utilization ratio, isn’t the best approach either. Arkkali says, “In some cases, a low credit card utilization will have a more positive impact on your FICO Score than not using any of your available credit at all. Having a low utilization indicates you are actively using credit in a responsible manner.”

If you don’t use a credit card on a regular basis, you could encounter other problems too. For example, your card issuer might lower your credit limit, and in some cases, your credit card company might opt to close your account altogether due to inactivity.

The credit utilization habits of high credit score achievers

As you can see, there’s no perfect credit utilization ratio. A 1% credit utilization might be the best percentage to aim for, since it’s a cross between showing activity on your account and keeping your utilization rate as low as possible. However, maintaining 1% utilization on your credit report likely isn’t a realistic goal.

Remember, it isn’t the real-time balance on your account that matters where credit scoring is concerned. It’s the balance and the limit that shows up on your credit report.

Yes, you could have a 1% utilization rate on your credit card when your billing cycle ends. By doing so, you might even end up with 1% utilization on your credit report for the upcoming month. However, the timing is sensitive and there’s a lot of room for error with this strategy.

Arkali says, “There are no hard and fast rules for an ideal credit card utilization.” But he does mention that recent FICO research shows that consumers with the highest credit scores (the top 25% with FICO Scores above 795) use 7% of their credit card limits on average.

Next steps

When it comes to credit cards, it’s best to pay your full statement balance every month. This good habit can save you money on interest fees and protect your credit at the same time. In fact, paying your balance in full is TPG’s number one credit card commandment.

If you want to keep your credit utilization rate low to try to maximize your credit scores, there are a few strategies you can try. First, consider paying your credit card bill multiple times per month. This habit helps you maintain a lower account balance and lower utilization rate too.

You can also call your credit card issuers (or login to your account online) to determine the statement closing date on each of your cards. If you pay your balance down before this date (and leave it there until afterwards), you should end up with low utilization on the account the next time your card issuer sends an update to the credit bureaus.

But be sure to pay attention to your credit card bill when it arrives. You may still need to make another payment by the due date on your account to avoid interest charges.

Finally, you may want to consider asking for an increase to your existing credit limits. As long as you don't spend any additional money on the card, higher limits can lower your utilization, since your outstanding balance is spread out over a larger line of credit. However, be sure to verify that requesting an increase won't lead to a hard inquiry on your credit report.