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I've read that in order to build credit more effectively, it's often useful to have a non-zero balance on your monthly statement. I've also read that this should be around 10% of one's credit limit.

My question is, in order to maximize my credit score growth

should this be around 10% of my credit limit on each individual card

or

should my total usage be around 10% of my total credit limit?

For instance, say I have a $2000 limit on one card, and a $4000 limit on another. Should I have around $200 dollars on my statement for the first card, and $400 on my statement for the other card, or would $600 across both cards be the same?

Thanks!

[EDIT]: There was apparently some confusion regarding my question; I was talking about the potential benefits of having a non-zero balance on my statement, which would be immediately paid off in full after the statement is delivered (thus, not carrying any balance over, and not paying any interest). This is as opposed to paying off the card (or the majority of it) prior to the statement, keeping my statement balances near zero.

  • Your credit report shows a balance, not usage. – D Stanley Mar 9 '18 at 20:34
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    Do you really want to pay interest every month on your credit cards, just so you can increase some arbitrary credit score number that most lenders don't care about. Pay the cards off every month, pay no interest, and you will have more money and less need for credit in the first place. – Simon B Mar 9 '18 at 21:52
  • @SimonB, I'm not saying I would every want to carry a balance across statements (and thus pay interest), just that I thought having a non-zero balance on a statement (which I immediately pay off after the statement is given, so there is no interest) was beneficial. But according to the answer below, it is not... – sacuL Mar 9 '18 at 21:55
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    @sacul Just to be clear, the actual amount on the statement doesn't matter: it's the payment history that matters. – Joe Mar 9 '18 at 22:22
  • Thanks @Joe, I got it; just wanted to clarify that originally, I didn't mean carrying balances over, I just wanted to check about the balance amount, but your answer addressed that. Thanks! – sacuL Mar 9 '18 at 22:24
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For the most part, the advice to carry a balance is garbage: it doesn't really do much of anything for you. What you need to do is have something you have to pay each month. See this article for example, or many others.

So, use some amount of credit each month - doesn't really matter much - and pay it off in full. That gets a payment history established, which is what you need.

As far as 10%: when factoring credit score, both the total utilization ($ owed / $ able to borrow) and the card-level utilization (each card, same) matter. Both are negatives, for the most part; so have a low card-by-card utilization if you can.

Ultimately, what you should be doing is just charging something to each card each month (or at least a few - it's not critical to have a dozen cards or anything) and paying that balance in full. Don't go crazy here, and don't set up something so complicated that you'll miss a payment - that's far worse. If you can, set up the cards to auto-pay the minimum balance, or even the full balance, each month with direct withdrawals; that's saved me more than once.

But don't carry a balance on any card, for any reason - that's throwing money away.

  • hey Joe - I can't resist asking this, sorry. Say person X has a typical card with a 20k limit. Let's take it for granted that you would never, ever carry a balance - it will always be paid off. With the abstract goal of "improving your credit" ... are you saying it would be BETTER to spend (say) $19,000 every month (and - of course - totally pay it off), rather than just "never use it". Is that about right ? – Fattie Mar 9 '18 at 21:46
  • of wait .. in para. two you say "doesn't matter how much". In the example given, would it be exactly the same affect to just spend, say, $500 a month on the card in question? (Again, of course, paying it off in full.) – Fattie Mar 9 '18 at 21:48
  • As far as I understand, yes - any amount is identical, at least as far as credit score is concerned. Now, specific lenders can use different scoring models, and it's possible some take into account how much you're using your credit, but I don't know of one where that would clearly make a difference (as opposed to just having several open and using several in small amounts). – Joe Mar 9 '18 at 22:21
  • totally understood; fascinating, thanks ! I should post an official question about it... – Fattie Mar 9 '18 at 23:19
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tl;dr I think it's important to distinguish between optimizing your credit score at any point in time now vs the goal of increasing your credit score in the future. These goals require different actions.

Let's take an example with completely made up numbers: Suppose you just got your first credit card with a limit of $1000 a couple of months ago, and you haven't used it yet. Your credit report currently shows you have 2 months of history of zero balance, and perhaps your score is 690.

Consider that from now on and every month for the next 6 years, you do one of the following (and obtain nothing else on your credit report):

  1. Never use the card.
  2. Charge $10 to the card every month and pay it off in full after it reports.
  3. Charge $950 to the card every month and pay it off in full after it reports.

I contend that perhaps the following could happen for each above scenario respectively:

From approximately 1-12 months:

  1. Your credit score might be 700.
  2. Your credit score might be 700.
  3. Your credit score might be 620. (Because of 95% utilization.)

From about 2-4 years:

  1. Your credit score might be 740. (No late payments with 2 years of history and low utilization.)
  2. Your credit score might be 760. (No late payments with 2 years of history and low utilization, and responsible payment history.)
  3. Your credit score might be 740. (No late payments with 2 years of history, and responsible payment history. Bank sees you nearly max out your card every month and pay it off, so they increased your credit limit to $2500. You currently have 38% utilization.)

After 6 years:

  1. Your credit card is automatically closed due to lack of use. Your score drops back down to 700 as you have no open lines of credit. Perhaps it will continue to slowly drop further until you open a new line.
  2. Your credit score might be 770. (No late payments with 6 years of history and low utilization, and responsible payment history.)
  3. Your credit score might be 820. (No late payments with 6 years of history, and responsible payment history. Bank has increased your credit limit to $10,000. You currently have 9.5% utilization.)

Again, these are completely made up numbers just to illustrate a point. You may need to take different actions if your goal is increase your credit score today vs if your goal is to increase it for the future.

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