Will My Credit Score Drop If I Exceed 10% Utilization Even If I Pay It Off Immediately?
Your credit score is an important number, because it tells lenders how trustworthy a borrower you are. The higher your score, the more likely you are to get approved to borrow money when you want or need to, whether…
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Your credit score is an important number, because it tells lenders how trustworthy a borrower you are. The higher your score, the more likely you are to get approved to borrow money when you want or need to, whether in the form of a loan or a new credit card.
But there are different factors that can influence your credit score — for better and for worse. And one of those factors is credit utilization, which is a fancy way of describing your credit usage.
In this Reddit post, we have someone wondering if it’s bad to go above 10% utilization on their credit cards. They’re worried about their credit score dropping if they let their balances go too high.
It’s a good question to be asking, since credit score preservation is important. But the poster might have more leeway to use their spending limit than they think.
Why it’s best to keep your credit card balances to a minimum
The line of credit you get from your credit card issuers does not necessarily reflect the amount you can afford to spend. You might, for example, have three different credit cards, each with a $10,000 limit. But if your monthly paycheck is $5,000, you clearly can’t afford to be maxing out your credit cards month after month.
All told, the lower your credit card balances are, the more likely you are to be able to pay them in full every month. That could not only save you money on interest, but help protect or boost your credit score.
Credit utilization plays a role in calculating your credit score, and the lower it is, the better in that context. But that doesn’t mean you have to worry about using some of your available credit.
Here, the poster is worried about their utilization exceeding the 10% mark. But generally speaking, a credit utilization of 30% or less is considered favorable from a credit score perspective.
In other words, let’s say you have a $30,000 credit limit. If you charge $3,000 in expenses, you’re at 10% utilization. That shouldnβt harm your credit score, though.
Granted, if you donβt pay your $3,000 balance in full, and you then keep adding to it, you might eventually get to the point where your credit utilization creeps up into less favorable territory. But all told, you donβt have to assume your credit score will take a dive just because youβre using your credit cards. Thatβs what theyβre there for. And if you keep paying your balances in full each month, you shouldnβt have a problem.
Be sure to track your credit card spending carefully
Even though you shouldnβt stress about using a portion of your credit limit, itβs important to keep tabs on your bills so you donβt wind up in over your head. One option is to set a weekly calendar reminder to check your credit card balances. If you see them getting too high, you can curb your spending until your billing cycle resets and youβve managed to pay some of your balances off.
Also, pay attention to your credit cardsβ interest rates. If youβre in an emergency situation and you have to carry a balance forward, aim to do so on the card with the lowest APR.
Finally, check your credit cards for automatic bills and make sure theyβre expenses you should still be paying for. If you stopped going the gym months ago, you donβt want that recurring charge on your credit card every month. Paying attention to details like these could help you keep your credit utilization in great shape, which should help your credit score get to a good place or stay strong.
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Maurie Backman has more than a decade of experience writing about financial topics, including retirement, investing, Social Security, and real estate. Her work has appeared on sites that include The Motley Fool, USA Today, U.S. News & World Report, and Kiplinger.
Prior to becoming a full-time financial writer, Maurie worked in the financial industry trading distressed debt. She then changed course and spent a few years designing electronic toys. After a stint in content marketing and UX, she shifted back into writing and has since covered everything from the housing market to estate planning to Medicare.
When she's not busy writing, Maurie can be found hiking, walking her dogs, driving her kids to their various sports practices and games, and curling up with a good book. She cooks on occasion and bakes way too often.
