1

I use a credit card for all purchases and pay it off in full every month. However Credit Karma shows my score taking a hit for high utilization. I use about a quarter to a third of my available credit on the card each month. I also noticed that my FICO score from my credit card is over a 100 points higher than my scores in Credit Karma. I didn't find any errors in either site but that's a huge difference, is that normal? Is it worth a hard credit check to raise my credit limit on that card to lower my percentage of utilized credit? Why does it matter what percentage of my card I use as long as I pay it off each month?

Update:

Would it be better to open a second credit card or raise the limit on my current card?

  • What is your credit score currently? – Ben Miller - Reinstate Monica Sep 14 '16 at 17:20
  • @BenMiller It's in the high 600s, does that matter? – ErinGoBragh Sep 14 '16 at 17:31
  • I made the experience that the score, especially in corner cases, differs a lot between FICO <> CK. In my case it was 40 points. – Freddy Sep 14 '16 at 18:45
  • @ErinGoBragh Yes, it could matter. As your score gets higher, there are diminishing returns in trying to increase it. – Ben Miller - Reinstate Monica Sep 15 '16 at 2:28
  • Thanks, that's good to know. I think I will try and get another card or a higher limit since I bought a laptop, paid off the card completely and still saw a 15 point drop in my score. – ErinGoBragh Sep 15 '16 at 12:16
3

If all of the following conditions are satisfied:

  • Your utilization is consistently high due to a very low limit relative to your monthly expenditures
  • You pay your balance every month
  • Your income and score is high enough to warrant a credit limit increase
  • There are no errors in your credit files

Then applying for a credit limit increase will most likely result in an increase in your score, because the high utilization will have a greater impact than a single hard inquiry that the limit increase request will generate.

But if your current score and reported income is not high enough to warrant an increase, the hard inquiry will lower your score slightly. The issue here is whether the creditor thinks you could handle a higher limit, and this is significantly related to what annual income you have reported to them, as well as any other debts that they might see in your credit files. A good history of timely payment on their own account is also a factor, but not the only one.

With respect to discrepancies in the scores, note that CreditKarma reports TransUnion and Equifax credit files and scores, which are based on the VantageScore 3.0 model; Experian uses FICO. These different scoring models should be in the same ballpark but it is not unusual for there to be variations. Also, different agencies may report different information--for example, hard inquiries are generated on different files because a given creditor may request your file from one agency and not the others.


On a personal note, I myself was once in a similar situation. I distrusted credit offers (after having been burned by predatory lenders years ago), and the only card I had was issued by my bank, with a very low limit. I used it constantly, but always paid it off. Eventually I realized that I was not doing myself any favors:

  • My utilization was all over the map because it depended on whether I had just paid off the balance before the creditor reported it to the agencies
  • I was not taking advantage of card offers with rewards, which I rightfully earned by not carrying a balance
  • Limiting myself to a single card was risky since it is a single point of failure; if it were lost or stolen, the inconvenience would be substantial.

So, I applied for a few lines of credit, and increased my total limit by a factor of about 30, dropping my utilization from nearly 100% each month to less than 3%.

  • I think I have a good chance of getting a higher limit, I got the card while I was a grad student and I've since graduated and got a job. I thought I didn't need a higher limit since I never used all of the credit. You're right, my utilization is all over the map because the limit is low (I bought a laptop and took a 15 point hit on both Equifax and Transunion). Do you think it is better to open a new card or raise the limit on my current card? – ErinGoBragh Sep 14 '16 at 15:12
  • @ErinGoBragh If you have only one card, it might be a good idea to shop around for a second card, rather than increase the limit on the existing one. In terms of impact to your score, it is the same either way--both a new application and a request for a limit increase are hard inquiries, and utilization is calculated across all open accounts. It's (slightly) more effort to manage multiple cards, but it also opens the possibility of maximizing rewards if you are conscientious about it. – heropup Sep 14 '16 at 15:55
  • @heropup This might not necessarily be true. My bank allowed me to raise my limit recently without a hard pull. It was online and it was clearly stated that they do not request a credit bureau report. I would call the hotline first and ask, what they do in this situation. If they don't do a hard inquiry, you could ask them to raise it, no matter if you get another card or not. – Freddy Sep 15 '16 at 0:00

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.