Much of the information I stumbled accross (including a short article written by an esteemed member of this site) around the internet indicates that having a credit card utilization of 0% is a significant negative impact on one's FICO score. While having a small utilization number (>0%) is viewed positively (or possibly 'less negatively') relative to 0% utilization. I seek to understand why.

My question is, do the FICO algorithms believe that people with 0% credit card utilization represent an increased risk based on something specific about people in this category? Or, did they simply take a statisticaly large sample of people with a credit rating, put them into bins based on credit card utilization (one of which is 0%), and look at the relative risk of default with each bin?

I can wrap my head around how someone with high utilization is a credit risk relative to someone with less than high utilization, but, I cannot wrap my head around how having 0% utilization signifies the rating algorithms that someone is a significant risk relative to 1% utilization. The only thing I can think of is that people with 0% utilization fall into the category of never use the card and never will and do not use the card now, but will max it out soon thus attaching a large standard deviation to the 0% bin, and, thus, statistically, someone in that bin is a risk.

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    when reading answers please bear in mind that FICO algorithms are a closely guarded trade secret of the rating agencies. Anyone who actually knows the exact formula is under strict NDA. So most answers are speculation and based on if anything observed effect. Nobody who is talking knows for sure, and those who do know for sure are not talking. Commented Aug 16, 2011 at 20:23
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    At the risk of embarrassing myself, I linked to my article that discussed this, as I believe it was referenced in the first line of the post here. If I am the esteemed member, I am honored and humbled. If not, well..... Commented Aug 16, 2011 at 21:48
  • Yes Joe, it was aimed at you. I didn't know SE policy on calling out members' articles, I figured you'd read it and edit on your own volition. :) Commented Aug 17, 2011 at 2:07
  • GP - much appreciated. In general, I'd link when an article is substantial enough to be a valid source deserving citation. Glad you enjoyed the one I wrote, I learned about the zero utilization issue and though it worth some discussion. Commented Aug 20, 2011 at 2:42
  • 30% is the threshold at which an account is 'high utilization' and the score is penalized. The thing you want to avoid is 0% utilization because it means there is no activity on the account. The way to avoid is to pay the statement balance in full after the statement is issued. If you regularly run the card over 30%, consider requesting a higher limit or getting another card. But even if you don't, the high utilization penalty is not cumulative, when you no longer have > 30% for the account (or total), the credit score will no longer reflect the penalty.
    – Xalorous
    Commented Nov 29, 2017 at 18:50

8 Answers 8


Having no utilization makes you an outlier, it's an unusual circumstance for most people, and the scoring model cannot make any predictions based on it. If you think of it from the underwriter's perspective, zero utilization could mean all sorts of things... are you dead? indigent? unable to work?

When you buying a product (like money or insurance) whose pricing is based on risk, being "weird" will usually make you a higher risk.

That said, it isn't the end of the world. If you are in this situation, I wouldn't lose sleep over it.

  • So, with all the data available today, why not take further steps to discern between responsible 0% utilization folks, and irresponsible 0% utilization folks? Though... I can probably answer this, someone with 0% utilization makes the issuer $0, therefore, they don't care. Commented Aug 17, 2011 at 2:12
  • I don't buy that argument -- somebody crunched the numbers on this. From an issuer's perspective someone with no debt is an opportunity. The number of people who have NO active credit in use are both exceedingly rare and probably skew towards being elderly and poor. Commented Aug 19, 2011 at 3:54

The whole point of a credit report and, by extension, a credit score, is to demonstrate (and judge) your ability to repay borrowed funds. Everything stems from that goal; available credit, payment history, collections, etc all serve to demonstrate whether or not you personally are a good investment for lenders to pursue.

Revolving credit balances are tricky because they are more complicated than fixed loans (for the rest of this answer, I'll just talk about credit cards, though it also applies to lines of credit such as overdraft protection for checking accounts, HELOCs, and other such products).

Having a large available balance relative to your income means that at any time you could suddenly drown yourself in debt. Having no credit cards means you don't have experience managing them (and personal finances are governed largely by behavior, meaning experience is invaluable). Having credit cards but carrying a high balance means you know how to borrow money, but not pay it back. Having credit cards but carrying no balance means you don't know how to borrow money (or you don't trust yourself to pay it back).

Ideally, lenders will see a pattern of you borrowing a portion of the available credit, and then paying it down. Generally that means utilizing up to 30% of your available credit. Even if you maintain the balance in that range without paying it off completely, it at least shows that you have restraint, and are able to stop spending at a limit you personally set, rather than the limit the bank sets for you.

So, to answer your question, 0% balance on your credit cards is bad because you might as well not have them. Use it, pay it off, rinse and repeat, and it will demonstrate your ability to exercise self control as well as your ability to repay your debts.

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    Besides, when it's the downside of using credit cards? There is none. It's all upside.
    – user606723
    Commented Aug 16, 2011 at 19:14
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    So essentially, someone with 0% utilization could fit into many categories of "borrower" ranging from responsible and not using the card to completely irresponsible but not using the card. So... as a category, it represents a higher relative risk than those who roll in the 1-20% range (to borrow from Joe's article). Commented Aug 17, 2011 at 2:11
  • So I like this answer... I think it gives detailed descriptions of how credit utilization impacts ones credit, but, I think Duff's answer gets to the actual heart, of why 0% is considered more risky to the creditor than 0.01%. Commented Aug 28, 2011 at 18:33

One rule of thumb is that having regular activity on at least three different revolving accounts will improve your score:

I agree that it may not be a great idea to have too many open credit accounts (Trade Lines) reporting on your credit report but if you don’t have enough active accounts, it will prevent you from being approved for a home mortgage.

Both Conventional (Fannie Mae and Freddie Mac) mortgage loans and Government loans (such as FHA and VA) require that you have a minimum number of reporting trade lines that are active or have been active within the most recent 24 month period of time.

An example of meeting the mortgage loan requirement is having a revolving account (credit card) that has been reporting activity for the past 24 months plus 2 other trade lines that have had activity reported for 12 months each, both within the past 24 months.

  • Care to explain the downvote? Commented Aug 18, 2011 at 13:02
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    [I didn't downvote but] I think the downvtoer is looking for a reference to said "rule of thumb": where did you hear it? Who said it? Who else says it?
    – warren
    Commented Aug 18, 2011 at 17:44
  • I don't have a reference, that's why I called it a "rule of thumb" -- I was hoping someone else might have more info to back it up Commented Aug 18, 2011 at 17:48
  • Have a look here: thecreditmaven.com/?p=84 Commented Aug 18, 2011 at 17:50
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    I updated your answer with relevant info :)
    – warren
    Commented Aug 18, 2011 at 18:03

This question has been absolutely perplexing to me. It has spawned a few heated debates amongst fellow colleagues and friends. My laymen understanding has provided me with what I believe to be a simple answer to the originator's question. I'm trying to use common sense here; so be gentle.

FICO scores, while very complex and mysterious, are speculatively calculated from data derived from things like length of credit history, utilization, types of credit, payment history, etc. Only a select few know the actual algorithms (closely guarded secrets?). Are these really secrets? I don't know but it's the word on the street so I'm going with it!

Creditors report data to these agencies on certain dates- weekly, monthly or annually. These dates may be ascertained by simply calling the respective creditor and asking. Making sure that revolving credit accounts are paid in full during the creditors "data dump" may or may not have a positive impact on ones FICO score. A zero balance reported every time on a certain account may appear to be inactive depending on how the algorithm has been written and vice versa; utilization and payment history may outweigh the negativity that a constantly zero balance could imply.

Oh Lord, did that last sentence just come out of my head? I reread it four times just make sure it makes sense.

My personal experience with revolving credit and FICO

I was professionally advised to:

  1. Utilize <50% of my available credit (VISA card) monthly
  2. Some time around the middle of the month pay the balance to around 5-10%
  3. Do this every month for 6 to 8 months

Without any other life changing credit instances- just using the credit card in this fashion- my FICO score increased by 44 points. I did end up paying a little in interest but it was well worth it. Top tier feels great!

In conclusion I would say that the answer to this question is not cut and dry as so many would imply. HMMMMM


Credit Scores / Rates are based on sometimes simple and sometimes quite complex Statistical Models (Generalised Linear Models, Neural Networks, Regression and Classification Trees, Mixture Models, etc).This depends on whether it is something more general like FICO or what large banks develop in-house. In any case, there are many legislation-dependent factors (Qualitative such as education, occupation security, sex, etc, payment history; or Quantitative such as age, liquidity and leverage ratios, etc).

Now, most model that are used today are propriety and closely held trade secrets. The most important reason for this is actually because of the databases that feed the models. More better quality data is what makes the real difference ... although at the cutting-edge, the mathematicians/statisticians/computer scientists that design the algorithms will make a huge difference.

Now, back to the main thing:
The Credit Score/Rate is meant to be used only as an indicator for representing the Probability of Default ("How likely you are to default on your obligation towards me?" is what it means and that is largely based upon "Has company/he/she honoured his financial obligations?") of a certain consumer. In more sophisticated models, they may also use your industry sector or occupational and financial security to predict the future behaviour. However, this "Credit Score" has meaning only in relation to a "Credit Limit" ("Can you pay back my $X?"). The credit limit on the other hand is defined by your income level, debt/asset, etc).

As a credit risk analyst, whether we are dealing with large corporate loans, mortgages, personal loans, etc), the principles are the same:

  • How has the counter-party treated his financial obligation in the past? What are our predictions of factors affecting the debtor's future behaviour? This culminates in a credit score.
  • We have gone through the counter-party's file and have decided to do business and extend credit in some form. Based on net cash flow predictions, assets, debt, etc, the counter-party is assigned a certain Credit Limit.
  • The combination of your credit score and credit limit poses a certain level of risk to our financial institution. Each financial institution has various risk appetites (both at macro and micro levels) and that determines whether there are even going to do business to begin with. If they accept that level of risk, to cover it, they usually use interest rates.

One thing to consider is that factors considered in determining a credit score usually do not have a simple linear relationship.

Consumer Profile types such as utilisation rate are a lot more about EFFECT than CAUSE:

  1. People that have below-0% balance are either not using them or are new to credit cards or get credit cards based on balance they keep. They commonly have little or no history to base predictions upon and obviously cannot have the best scores.
  2. People that use less than 20%, usually have very high credit limits so 20% is enough to cover costs without the frequent hassle of offsetting balance, are wealthier, more educated, have more stable jobs, are more careful with their finances, etc. Hence, you see higher scores there.
  3. People that max out their cards are generally a lot more prone to default, financial turmoil and to some up, headaches for firm, lost profit, etc. That is why we see bad scores there.

The most important thing is to honour your obligations, whether you pay before or after you spend makes little difference, so long as you pay in full and prior to maturity, your rate/score will improve with time. Financial Institutions have many ways to make money of everyone. Some, such as interest rates and fees are directly charged to you and some are charged to your goods-and-services providers. That has no bearing on your score. Sometimes it even makes sense to take on customers with rock-bottom ratings, lend them lots of money, and charge them to dirt. As you may well know, the recent financial crisis - with ongoing after-shocks and tremors - was the result of such practices.


I too was very confused when I tried to be tricky and paid down my balance BEFORE the bill date. I thought this would be a great thing because it would show my utilization near zero percent. The opposite happen, it dropped my credit score from 762 to 708.

Here is the best example I can come up with when it comes to utilization. Lets pretend you are an insurance company and you trying to figure out who are the best risk drivers. The people that drive 10% of the day are a better risk than the people that drive 50% of the day. The people that drive 50% of the day are a better risk than the people that drive 90% of the day. Here is the rub when people drive 0%.

When you look at the people at 0% they appear to be walking, busing or flying. What they are NOT doing is driving. Since they are not driving (using Credit) they are viewed as POOR drivers since they are not keeping up on their driving skills. (Paying bills, watching how they spend, and managing their debt).

So, now before the billing date I pay down my balance to something between 5 to 10% of my utilization. After the bill is issued, I pay it off in FULL. ( I am not going to PAY these crazy interest rates). What shows up on my credit report is a person that is driving his credit between 5 and 10% utilization. It shows I know I how to manage my revolving accounts.

I know it's dumb, you would think they reward people that have zero debt, I don't hate banks I hate the game. ( I do love me some reward points =))

  • Hey man. I got the prime mortgage rate during the housing bust after only ever paying both my cards in full every month. The bank is wiser than the score generators.
    – Joshua
    Commented Dec 20, 2018 at 23:43

Going off hearsay here.

I believe your question is. "Does not having a credit card lower your credit score"

If that is the question then in the UK at least the answer appears to be yes. Having a credit card makes you less of a risk because you have proven that you can handle a little bit of debt and pay it back.

I have a really tiny credit history. Never had a credit card and the only people who will lend to me are my own bank because they can actually see my income / expenditure. When I have queried my bank and at stores offering credit they have said that no credit history isn't far off a bad credit record.

Simply having a credit card and doing the odd transactions show's lenders you are at least semi-responsible and is seen as a positive.

Not having a credit card and not having much else for that matter makes you an unknown and an unknown is a risk in the eyes of lenders.

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    I don't believe that was the question. I believe the question was having a credit card but owing nothing on the card. Still, your answer to a slightly different question is interesting. Commented Aug 16, 2011 at 13:48
  • not just owing nothing, but not even transacting with the card if I read the question right. which is far different than using it and paying it off fully every month. Commented Aug 16, 2011 at 20:25
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    Hi! Not quite my question, while this was initiated due to my yearly check of my credit report and score, I am more just curious as to why 0% utilization is viewed as SIGNIFICANTLY higher than 1% utilization when it comes to risk! But you do echo the advice I've heard everywhere, if you have it (credit), use it! Commented Aug 17, 2011 at 2:06

you can relate everything on a credit report, and how things are calculated, to life scenarios. thats a 100% fact, and thats what people need to go by when designing their credit dicipline/diet.

utilization: any kind of resource in life. water, food, energy, and etc. who would you want to live with more, the guy that just eats way too much, uses way too much energy than they need, and wastes way more water than they need? assuming there was no water cycle.

payment history: speaks for itself

derogatory remarks: s*** happens. thats what makes life life, but when given chances to fix your mistakes and own up to them, like i and every other responsible adult have done, and you dont, thats living up to the exact definition of derogatory. disrespecting and not caring. who wants to lend to someone who doesnt care? so if youre not gonna care, we will just put this special little remark in the derogatory section and show that you dont care about when you make mistakes. f*** it right? lol. well, thats what that section is for. showing you wont try to fix things when they go sour. if i had a guy who was fixing my roof, and did a bad job, but did everything he could to fix it, i wouldnt give him a bad rep at all. if a guy messed up my roof, and just said cya thanks for your money, hes getting a derogatory remark.

credit age: just like life. showing the ability to maintain EVERY other aspect of a report for X amount of time. its like getting old as a person. after X amount of years, a lot of people will be able to say more about you as a person. whether youre a real male reproductive organ or an amazing guy.

total accounts: is like taking on jobs as a self employed person or any business. if you have a lot of jobs, people must want you to do their work. it shows how people "like you."

hard inquiries: this is the one category of them all i dont fully agree on, can go either way, and i hate it. i really cant think of a life scenario to relate it to, so i kind of think its a prevention mechanism/keep a person in check kind of thing. like to save them from themself and save the lenders. for example, if a guy has great utilization, and just goes insane applying for credit cards, hell get everyone of them because hes showing almost no utilization. then said guy goes and looses his job, but since he racked up 50 cards at 1k each, now he can destroy 50k in credit.

thats just my take, but thats EXACTLY how i look at it from TU/EX/EQs point of view.

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