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Some people advocate paying off all your credit cards but one before statement generation date, and maintain a utilization of no more than 9% on that card

Here is my understanding and information I got so far:

  1. Lenders officially recommend you not to carry more than 30% on your card
  2. However, emperical data published on CreditKarma blog shows that people with 1 - 20% utilization tend to have the highest credit scores
  3. This implies that people following the 9% strategy are effectively utilizing less than 9% (depends on how many lines they have open)
  4. I noticed a 'Max balance' cell on my credit report that indeed reports the maximum amount that ever appeared on that card statement ever.

My questions are:

  1. Isn't this 'Max balance' cell on my credit report a long term information all my lenders have access to?

    Although this might not be too bad as the context for lenders is missing: I might have run a $1k Max balance on a $1.5k card (60%) that got upgraded to a $5k card (20%) later, but I never let the balance go over $1k again

  2. How different is this strategy of paying off all your credit cards but one before statement generation date from another strategy of charging your cards in such a manner that the net utilization is 9% or less (No paying off any of your credit cards before statement generation. What I charge, gets reported in my monthly statement, and no card reports as 0 debit)?

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The main question is: how useful is having the Max balance reported low? –  f1StudentInUS Oct 20 '11 at 22:42
    
Also, what if I followed an alternate strategy of charging my cards in such a manner that the net utilization is 9% or less (but not paying off any of the credit cards before statement generation. What I charge, gets reported in my monthly statement, and no card reports as 0 debit)? –  f1StudentInUS Oct 20 '11 at 23:05
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1 Answer 1

up vote 3 down vote accepted

The credit utilization will impact your score each month. In an article I wrote titled "too little debt?" I described how by paying in full before the statement was cut, I took a hit for zero utilization. The next month it was back to normal. Paying in full each month. The "max utilized" is there, I agree, but doesn't impact the score from what I can tell. As you've noted, just keep below 20% (and not zero) and this portion of your score will be optimized.

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The Max balance reported has a permanent memory as far as mu credit is concerned. How much of a memory does the utilization have? Does it effectively "reset" every month? –  f1StudentInUS Oct 20 '11 at 22:41
    
Also, what if I followed an alternate strategy of charging my cards in such a manner that the net utilization is 9% or less (but not paying off any of the credit cards before statement generation. What I charge, gets reported in my monthly statement, and no card reports as 0 debit)? –  f1StudentInUS Oct 20 '11 at 23:05
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Yes. I got a 'C' for utilization for my zero month (according to Credit Karma) and right back to "A" the next month. Right to your second part. What appears as a statement balance is what counts. If one has need to charge more than 20% utilization, they should make partial payment before the bill is cut. –  JoeTaxpayer Oct 20 '11 at 23:23
    
Is it safe to have all but one card report as 0 debt? What if the lender that issued the cards on which you have 0 debt cuts your credit for non-use? Can they do that? –  f1StudentInUS Oct 20 '11 at 23:29
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It's safe as far as credit scoring. If I want to be sure a card isn't canceled, I use it a few times a year. –  JoeTaxpayer Oct 21 '11 at 0:13
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