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I read Little Advisor's article How does that thing with the credit cards work, again?

According to the article, you should always keep your balance below 30% of your credit limit. However, I just recently got a secured credit card from Capital One, with a "credit" limit of $200.

Does the 30% guideline apply to secured cards as well?

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  • Yes! Keep it at zero. Best way to do this is cut it up.
    – Pete B.
    Commented May 30, 2014 at 15:22
  • @PeteBelford - sorry I can't DV a comment. Cut it up? Really? You one of those 'credit use is evil' people?
    – JTP - Apologise to Monica ♦
    Commented May 30, 2014 at 17:07
  • @JoeTaxpayer: Yes if it robs one of wealth. This seems like a case of just that. Many people see credit as inevitable. I see it as a last resort with only a strong business case. Do I use a CC to travel and for reoccurring payments? Yes, paid in full each month. Do I use a CC at a restaurant or for shopping? Never. Research, and my experience, has shown that people spend more when doing so. In other words that is a negative business case.
    – Pete B.
    Commented May 30, 2014 at 18:30
  • Ok, not sure what happened to that answer, but it's gone now... ???
    – Soviero
    Commented May 30, 2014 at 20:12
  • @quantycuenta Sorry, done.
    – Soviero
    Commented May 30, 2014 at 21:15

1 Answer 1

Reset to default
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This thinking has shifted and shifted again over the years. It used to be recommended that one should maintain an approximate 30% balance to achieve the highest score.

Credit Karma has an excellent random sample of 70,000 credit scores:

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To achieve the highest score by this reliable sample, one should maintain a 1-10% balance.

Why the large drop at 0%? Creditors must be assured that a borrower can manage credit, namely regular interest payments.

Credit scoring is fairly accurate at determining default risk as shown by VantageScore's calculation based upon TransUnion data:

enter image description here

For creditors to be able to produce credit, the cost of default risk must be compensated, and this is done via the price of credit, the interest rate:

Auto loans

enter image description here

Credit cards

enter image description here

Mortgages

enter image description here

In short, one should keep a 1-10% balance of all available credit card credit, including secured credit cards.

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    So, I should only spend $2 - $20? I was planning to use this card to pay my $80/month phone bill.
    – Soviero
    Commented May 30, 2014 at 17:33
  • @Soviero I would go ahead and use it on the phone bill. You take a credit hit for high utilization but it's temporary, it goes away as soon as you get the utilization back down.
    – Loren Pechtel
    Commented May 30, 2014 at 17:56
  • @LorenPechtel How temporary? How long does it take for my score to recover once I get my utilization down (or my credit limit up)?
    – Soviero
    Commented May 30, 2014 at 18:06

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