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I have heard that it is best for your credit to use under 30% of the credit available to you. Does this mean per month or at a time?

The difference:

  • A. Per month = For a $2,500 credit limit in total over the month use under $750.
  • B. At a time = Use $300, then pay it off. Then use another $400, and pay it off. Then use another $300 and pay it off. And then another $100 and pay it off. Then use $250 and pay it off - all within a month.

Note: I am referring to the total limit after combining the limits on all credit cards. The numbers in this question were just chosen arbitrarily.

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  • Are you referring to the limit on a credit card?
    – RonJohn
    Commented Jun 2, 2021 at 21:36
  • I am referring to the total limit after combining the limits on all credit cards. The numbers in this question were just chosen arbitrarily. Is there a way I should rephrase my question? @RonJohn
    – Burt
    Commented Jun 2, 2021 at 21:45
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    You never used the word "card", nor the credit-card tag, so we're left guessing what you really mean, and guessing leads to misunderstanding.
    – RonJohn
    Commented Jun 2, 2021 at 22:02

4 Answers 4

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Treating 30% of utilization as a rule to be followed is dumb. It is a natural consequence of using a credit card correctly, not something to do for its own sake.

The right way to use a credit card is to buy the things you were going to buy anyway (assuming there isn't an extra charge for using a credit card), then pay the statement balance in full on or before the statement due date. Preferrably by autopay to avoid forgetting. Having interest-charging credit card debt is essentially never worthwhile, and paying the full balance on/before the due date will prevent you from paying interest. Splitting this into multiple payments, or paying for a recent charge before the current statement period ends, is ok but not necessary.

Someone who does this will naturally seek a credit limit that is a few times as much as their monthly expenses. To avoid running into the limit or having to make manual payments, the limit needs to cover the previous month's expenses, plus most/all of the current month's (the due date for the previous month's statement is a few weeks into the current month), plus some cushion. The person will try to increase their limit until it meets those needs, then might not bother increasing it further.

Credit score is a statistical measure, not a prescriptive one. That is, a company will see that the group of people with low utilization is less likely to default (because it includes people who do things correctly), and the group with high utilization is more likely to default (because it includes people who do stupid things like paying interest on a maxed out card). It does not mean that an individual person in either group is doing something good or bad, nor does it does not mean that having a low utilization is something you should do for its own sake. For example, if your card has a few hundred dollar limit, it's perfectly reasonable to use all of it at once, if you then pay it in full. If you use 30 percent of a $20k credit limit, and treat it as debt that you're making the minimum payment + interest on, then it's terrible regardless of the low utilization.

Credit utilization is also a very minor, very temporary aspect of the credit score. If you're applying for a loan soon (a few months or less) and really want your score 10 or 20 points higher to get a better interest rate, then you can play games with artificially lowering your utilization. Otherwise it's not something you should even need to think about, other than eg the convenience aspect mentioned above. Making payments on time and not taking on pointless debt is all you need for both a good credit score and good credit "health".

The above was in response to "I heard it's best to have low utilization," which is a horrible misunderstanding. To answer the direct question: After a given month ("statement period") is over, a statement is created with that month's charges, plus any debt left over from earlier, plus (only if there is debt left over from earlier) interest. Payments for that statement are due usually a few weeks later. Utilization is reported according to that statement balance, which doesn't include charges or payments made later. Eg, it doesn't include whether you pay it in full or not. Payments are applied to the previous month's statement before the current (not yet over) one. So if you pay for everything from the previous month, then (before the current month is over) make extra payments for things bought this month, then those charges won't show up as utilization.

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    You say: "Credit utilization is also a very minor, very temporal aspect of the credit score." Experian says that credit utilization: "can impact up to 30% of a credit score (which makes them among the more influential factors), depending on the scoring model being used." Temporal yes, minor, no. Otherwise solid answer.
    – Hart CO
    Commented Jun 3, 2021 at 2:07
  • @HartCO Maybe I should have added "if you're using it right" to the end of that sentence. If your utilization is an amount that you would pay off every month, then it's effect on your score is minor. Anecdotally, having a $500 limit credit card go from 100%-0% and having a $10k limit card go from $1k-0 both increased my credit score by less than 20 points. If it's not, then you have way bigger problems then your credit score. Lowering utilization while paying interest on debt might improve your score, but that's not why you should lower it. Commented Jun 3, 2021 at 2:49
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Scoring companies don't care what you do inside the reporting period (not all banks report at the card's closing date; you'll have to ask), but only what your balance is on the date the bank reports your balance and credit limit to them.

Thus, you can spend up to the credit limit a dozen or more times, and the scoring companies won't know.

That does not directly answer your question, but hopefully is what you really want to know.

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  • In other words, it does not matter if spend very much in excess of credit limits over a given period of time if it was done in small chunks and paid back like that.
    – Burt
    Commented Jun 2, 2021 at 21:46
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    @Burt that's right; they only see monthly snapshots, not continuous reporting.
    – RonJohn
    Commented Jun 2, 2021 at 22:00
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    "if spend very much in excess of credit limits" Of course you can't spend much over the Limit at any one time, since the issuing bank won't let you.
    – RonJohn
    Commented Jun 2, 2021 at 22:04
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    @RonJohn, the problem is, many banks report updates of utilization information multiple times per month - there is no hard and fast rule about there being any correlation between the end of a billing cycle and an update to the bureaus on a customer's utilization. My Wells Fargo and Capital One cards each update utilization data at least twice a month separate from the end-of-cycle reporting they do. Bureaus see whatever the crditors report to them. I am a data reporter to 2 bureaus (TU and Equifax), and I can send updates as oftenas I choose, with no relation to billing cycles.
    – RiverNet
    Commented Jun 3, 2021 at 1:25
  • +1 - No idea why you got a DV. This is exactly what I was about to post. Only to add that I saw a blip on my report when my card went from a statement reporting (cut on 15th of month) to month end reporting. To remain a bit compulsive about this (and yes, it's a game), I pay the full balance twice a month. Commented Jun 3, 2021 at 9:43
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Utilization for the most popular credit scoring models is a point in time metric, meaning you only have to worry about it when you are trying to make use of your credit score. For monthly updates it is based on whatever your utilization is at the time they report, which may or may not coincide with your statement dates.

When you are applying for loans you should target <30% utilization on your revolving credit, I've read ~10-15% is ideal but can't find definitive sources for those numbers. This is the only time it makes sense to make extra mid-period credit card payments and you'd want to try to time a target utilization with a credit inquiry. If you're making extra mid-period payments due to low available credit then that is fine but it would be better to get a higher limit in that case (not always an option but asking frequently with a history of payments will get it done eventually).

Just to emphasize, target utilization considerations have nothing to do with carrying a balance and incurring interest charges, you should always pay your statement balance in full. This is just about how much of your available credit is used at a point in time.

Utilization affects your credit score, but also the reported outstanding balance will factor into your debt to income ratio when applying for a mortgage.

Even though the impact of utilization on your score is ephemeral and shouldn't be worried about in general unless you're applying for loans I think a target of < 30% is good in general as it means you've got a healthy pile of available credit should you need it.

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  • A target of $0 is good, because then you have no high-rate debt...
    – RonJohn
    Commented Jun 2, 2021 at 22:20
  • @RonJohn Utilization is not carried balance between statements incurring interest, but the balance when credit is checked/reported.
    – Hart CO
    Commented Jun 2, 2021 at 22:22
  • That's missing my point.
    – RonJohn
    Commented Jun 2, 2021 at 22:23
  • @RonJohn How so? You can have no high-rate debt and have utilization anywhere from 0-100%.
    – Hart CO
    Commented Jun 2, 2021 at 22:24
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    @RonJohn You consider any credit card balance to be high-rate debt? I pay mine monthly and could use cash instead, so don't view it as high-rate debt because there is no interest charged.
    – Hart CO
    Commented Jun 2, 2021 at 22:29
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I think you've gotten some good advice overall here on the issues about not really needing to worry about the impact of credit utilization on your score unless you are planning to apply for new credit,a mortgage, or a car loan, in which case the effect of utilization on your score could result in denial of credit or a higher interest rate than you might be charged if your score was better.

That being said, if your utilization is high, you can pay it down and see an improvement in your score fairly quickly, depending on how frequently the bank reports to the bureaus.

Contrary to what people believe, there is not necessarily any correlation to a creditor's billing cycle and when they report to the credit bureaus. Some creditors choose to report more than once a month, and there are a few cases of banks that report weekly.

My company is a data reporter to two agencies, and I can report as often as I like. The bureaus like this because it gives them more current and complete information. I report twice monthly to ensure reasonably "fresh" data on my customrs.

You shouldn't view utilization as some kind of "rule". If you're regularly using your cards to the point where your utilization stays at or above 30% then you need to consider a couple options:

  1. Look at your spending habits and see what you can eliminate or reduce, because it sounds like you may be using credit cards to pay for what your income doesn't cover. If that's the case then your debt-to-income ratio is probably high, and that's a red flag to creditors more important than credit utilization by itslf.
  2. Request increases in the the credit limits on your existing cards to improve your utiliztion (this also assumes you don't use any of additional room on your cards, hich would defeat the purpose!).

I hope this is helpful. Good luck!

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