Credit utilization

by Karl
Updated: July 30, 2018

Per card utilization affects your credit score more than overall credit utilization

While overall credit utilization affects your credit score, your per card utilization can have a greater (negative) effect whereby moving multiple balances onto a single card will bring your score down because, even though your total utilization is unchanged, the utilization of one card is significantly increased.

It is, I think, common knowledge that your credit utilization - the percentage of your available credit in use - affects your score. The guidelines go something like this:

75%+Very bad
50-74%Bad
30-49%Not bad
1-29%OK
ZeroBad*

Overall credit utilization

Your overall credit utilization is your total balances divided by your total credit limits for all your reported revolving accounts expressed as percentage.

Example: Two cards. Card 1 balance = $500, limit = $2000. Card 2 balance = $1600, limit = $8000. Total balances ÷ total limits = (500 + 1600)/(2000 + 8000) = 21%.

* Regarding the Zero, provided your overall credit utilization is not zero, having a zero balance on some accounts will not adversely affect your credit score. Zero overall is considered bad because it might indicate you have no clue how to use your credit.

Per card credit utilization

I normally charge a lot each month for work but I have a lot of credit available to me. It takes about a month for my expenses to come through so I’m normally showing a balance of 25-30% overall, spread fairly evenly across several cards.

Example, same as above: Card 1 utilization = 500/2000 = 25%. Card 2 utilization = 1600/8000 = 20%. All the individual percentages are below 30, everything’s cool.

April 2018: I took advantage of a fantastic balance transfer offer and moved most of the balances onto one card bumping it to 90%.

Example, continuing above: Balance transfer $1200 from Card 2 to Card 1. Card 1 balance = $1700, utilization = 1700/2000 = 85%. Card 2 balance = $400, utilization = 400/8000 = 5%. Overall utilization is still 21% but now one card is well above 75%.

May 2018: My overall utilization was essentially unchanged from the previous month but my scores had dropped by 20-30 points!

Having one or more cards with high utilization has a significant negative effect on credit score regardless of overall utilization or how many other accounts have very low utilization.

More info

“How Is My Credit Utilization Ratio Calculated?” at nerdwallet.com.

“Forget the 30 percent credit utilization rule - it’s a myth” at creditcards.com.

“... unless you max out one card. that can also hurt your score. Max out is considered anything over 90% utilization.” at creditkarma.com.

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