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I'm learning more about credit before I get a credit card, and I read that it's advised to never use more than 30% of your credit card's limit.

Let's say someone has a $2000 credit line and he spends $1000 so he used 50% of his credit line because he wanted to purchase something expensive to grab some points. He pay off this before the statement which after 2 days is when the credit card company files my credit report to a bureau.

Is it bad to have used 50% of his credit line even though he payed it off before it got reported to the bureau (shortly after the statement) and the due date.

Should I avoid using more than 30% at all times or just as long as my balance is below 30% when my credit card issuer reports to the bureau?

Is it best to leave some small balance less than 10% on the statement to show activity and then pay it off before the due date? Or just pay everything off and have a $0 statement? I'm trying to understand when credit utilization is important and how much having a balance in a statement (that gets sent to the bureau in the credit report) will positively influence my credit score that I'm trying to build.

  • I charged over 9k of my 12k limit to pay for a college semester since it would earn me points. My score tanked by over 70 points a few weeks later. I paid the balance in full and my score recovered over 70 points. In day-to-day life this does not matter but if you are trying to get approved for a car loan, mortgage, or even just another CC then avoid doing what I did until after the loan has been secured. – MonkeyZeus Aug 14 at 19:49
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Utilization is a snapshot and has no memory. It does impact your credit score but your score only matters if you are shopping to get a loan or another credit card or line of credit, etc.

If your credit limit is $2,000 and you spend $2,000 and it is reported that your credit is at 100%, that will have some impact on your score. If you then pay it off and don't spent anything that month and now a $0 balance is reported, it will have some impact on your score. Neither situation matters at all unless you are doing something where your score will matter.

Don't over think this. Get your credit card. Spend what it makes sense to spend. Pay off the card before your payment due date; don't pay interest.

To me it makes sense to have 3x your average spending in credit limit because there is a ~30 day window after your statement period before your payment is due. That means you spend in month 1, you receive a statement saying you owe $X in 30 days. Now you're spending in month 2 before you paid month 1. Having headroom on your limit is really just because bumping in to the limit is annoying. Your first card will have whatever limit it has, just work inside that limit, don't be concerned with the nuances of credit scores.

Most importantly, pay your balance in full before the due date. A long, on time, payment history is far and away the most important factor in your credit report.

  • "To me it makes sense to have 3x your average spending ..." we got so deep into debt that way. :( Now I pay off the card every Sunday night. – RonJohn Aug 13 at 21:21
  • At this point my aggregate credit limit is about 45x my monthly spend, the card I carry for spending has a limit 10x my spending. These things are tools and a tool with an arbitrary restriction is a nuisance, imo. But the most important factor by a wide margin is a long history of paying on time. – quid Aug 13 at 21:29

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