What Percentage Of Your Credit Limit Should You Use To Optimize Your Credit Score?
Conventional wisdom, often promoted by credit bureaus, credit report blogs, and even many banking institutions alike, suggests keeping your credit utilization rate (the amount of your credit limit you're using) at or below 30% is a good rule of thumb.
However, the author, a credit repair professional at Speedy Credit Repair with over 35 years of experience, believes there might be more to the story. Here's a breakdown of their approach, which challenges the widely accepted 30% recommendation:
The author argues that a lower utilization rate, specifically around 19%, can lead to a more significant credit score increase compared to staying at 30%. This could be particularly advantageous when applying for loans where interest rates are determined by your credit score. The lower your score, the higher the interest rate you might be offered.
They propose two credit limit usage methods that go beyond the standard advice:
- Practical Daily Usage (Easy to Follow) - This method prioritizes ease of management. The goal is to maintain a reported credit balance (the amount the credit bureaus see, not necessarily your actual balance) at or below 19% of your credit limit. By consistently keeping your utilization rate this low, you can potentially achieve a more substantial score boost compared to the often- recommended 30%.
- Optimal Usage (Strategic Effort) - This method requires more planning and might be useful in specific situations. Here, the aim is to keep your reported balance incredibly low, ideally below 1% of your credit limit, but not zero. While this strategy offers a smaller score increase than the practical method, it can be a helpful tool when needing a few extra points to qualify for a loan with a better interest rate on a significant purchase like a car or house.
Why might credit bureaus not widely promote this approach?
The author theorizes that credit bureaus might prioritize credit grantors (like banks) as their main clients. These lenders might see more profit from offering loans to borrowers with slightly lower scores (and potentially higher interest rates). In this scenario, there would be less incentive for credit bureaus to widely recommend strategies that could lead to everyone having higher scores.
Important points to consider:
- According to this approach, having a zero balance might not be ideal for your score. While it might seem logical to pay your credit card in full each month, some credit scoring models might view a borrower with no credit utilization as someone who lacks experience managing credit.
- The information presented here is based on the author's experience. and might differ from official credit score advice. It's always a good idea to monitor your credit report regularly (you can get a free copy with scores from Speedy Credit Report) and track your credit score.
Looking to learn more?
Think about consulting Speedy Credit Repair for personalized credit score improvement strategies. They can help you understand your specific credit situation and recommend the best course of action to reach your financial goals. By understanding how credit utilization impacts your score and implementing strategies to optimize it, you can potentially qualify for better loan rates and save money in the long run.
