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Ask Creditnet: Is 0% Credit Utilization Better Than 10%?

Dear Creditnet: I know that my credit utilization ratio makes up a large part of my FICO credit score.  I've also read that it's important to keep my ratio under 30%, or preferably at 10% or less. My question is would it be better to keep my credit utilization ratio at 0% or 10%?  If I pay my balance off every week and my credit utilization is reported at 0%, is that hurting my FICO scores?

Answer: A 0% credit utilization ratio certainly isn't hurting your FICO scores. Technically, it's the best credit utilization ratio you can achieve, which means it should also translate to the best possible FICO credit scores. However, even if you never carry balances on your credit cards, a 0% utilization ratio can be difficult to achieve.  

Credit issuers all report balances at different times each month, which means keeping track of when your balances are reported and trying to pay them off in advance can become quite tricky for many cardholders. If you have just one card and wish to pay it off each week in order to keep your available credit as high as possible, keep doing it.  Your FICO scores will thank you.

Targeting a 10% credit utilization ratio isn't bad though.  Your credit scores will not be negatively affected.  In fact, according to FICO, credit card users who have scores above 760 have an average utilization of 7%. Credit utilization is obviously an important factor to keep in mind as you work on improving your credit scores, but I wouldn't get too hung up on the difference between a ratio of 0% and 10%.  Shoot for 10% and your credit scores will be happy. If you can do even better, that's great, but there's no reason to obsess over constantly keeping your credit utilization at 0%.  

Use your credit cards sparingly, aim for a credit utilization ratio of around 10%, pay your bills on time and in full each month, and you can count on your credit scores improving over time.

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Joshua Heckathorn's picture

Joshua Heckathorn was the President and owner of Creditnet.com. He shared his unique insights about credit cards, credit scores, investments, and all aspects of personal finance on Creditnet's blog, Credit¢ents. Joshua received a Bachelor of Science in Management (Finance) from Brigham Young University's Marriott School of Business and earned his Master of Business Administration from Seattle University in 2009.

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Comments

Quora's picture

Will I hurt my credit score if I apply for more credit cards than 2?...

You definitely should work on getting your credit utilization ratio under 30%, preferably 10% or less [1]. You can do that by spending less, increasing the credit limits on your current cards, or acquiring a new card. Adding a 3rd card to your credit p...