Many credit experts say you should keep your credit utilization ratio — the percentage of your total credit that you use — below 30% to maintain a good or excellent credit score.
Credit utilization is a major factor in your credit scores, so it pays to keep an eye on it. View the 30% rule as a good guideline, but be aware that using even less is better for your score.
Keeping up with what percentage of your credit limits you're using is easier than you may think. You can set up alerts with your credit card issuers to track your balances. Or sign up for a free credit score that displays utilization rates.
How much of my credit card should I use?
Keeping your credit utilization at no more than 30% can help protect your credit. If your credit card has a $1,000 limit, that means you’ll want to have a maximum balance of $300.
Why the 30% rule? It’s likely because the recommendation to keep your credit utilization low invariably prompts the question, “How low?” Having a number gives you an upper limit when thinking about how much to spend on your credit cards.
The 30% answer finds backing from the credit bureau Experian: "The 30% level is not a target, but rather is a maximum limit. Exceeding that level will have significantly negative impact on credit scores," says Rod Griffin, Experian’s senior director of public education and advocacy. "The lower a person’s utilization rate, the better from a scoring standpoint."
In general, using as little of your credit card limits as possible is better for your scores. So logic would suggest that paying off your credit cards early so that a zero balance is reported to the credit bureaus would produce the highest scores. But using 1% of your credit limits may help your credit scores even more than 0% usage.
Credit scoring systems are designed to predict how likely you are to repay borrowed money. The two biggest credit factors — accounting for about two-thirds of your scores — are paying on time and the amount you owe.
If you are trying to squeeze every possible point from credit utilization, the trick is to aim low — just above zero. Credit expert John Ulzheimer says that data has shown that 1% credit utilization predicts slightly less risk than 0%, and scoring models reflect that.
Tommy Lee, a senior director at FICO, one of the two dominant credit scores, explains it this way: “Having a low utilization indicates you are using credit in a responsible manner.”
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How credit utilization affects your scores
How much you owe on your credit cards relative to your credit limits makes up about 30% of your FICO score and 20% of your VantageScore, a competitor scoring model.
Note that your credit scores are composed of several factors. If your overall credit profile is excellent, it’s unlikely that your credit scores will plunge if your credit utilization ratio rises slightly one month.
And, happily, damage from credit utilization is easily reversed. With the vast majority of scores, as soon as a new, lower balance (or lower credit utilization) is reported to credit bureaus, the harm is undone.
What's next?
Sign up to get your free credit score and report from NerdWallet. Information is updated weekly, and the factors affecting your score are broken out to make them easier to understand.
NerdWallet suggests using no more than 30% of your limits, and less is better. People with the best credit scores often have a credit utilization number in the single digits.
You should aim to use no more than 30% of your credit limit at any given time. Allowing your credit utilization ratio to rise above this may result in a temporary dip in your score.
To maintain a healthy credit score, it's important to keep your credit utilization rate (CUR) low. The general rule of thumb has been that you don't want your CUR to exceed 30%, but increasingly financial experts are recommending that you don't want to go above 10% if you really want an excellent credit score.
This means you should take care not to spend more than 30% of your available credit at any given time. For instance, let's say you had a $5,000 monthly credit limit on your credit card. According to the 30% rule, you'd want to be sure you didn't spend more than $1,500 per month, or 30%.
Visit your My NerdWallet Settings page to see all the writers you're following. Many credit experts say you should keep your credit utilization ratio — the percentage of your total credit that you use — below 30% to maintain a good or excellent credit score.
Maintaining a 0% utilization rate on all your credit card accounts can help your credit scores, but you can achieve excellent scores without doing so. A low utilization rate, preferably under 10%, is ideal.
You make one payment 15 days before your statement is due and another payment three days before the due date. By doing this, you can lower your overall credit utilization ratio, which can raise your credit score. Keeping a good credit score is important if you want to apply for new credit cards.
It's possible that you could see your credit scores drop after fulfilling your payment obligations on a loan or credit card debt. Paying off debt might lower your credit scores if removing the debt affects certain factors like your credit mix, the length of your credit history or your credit utilization ratio.
Making on-time payments to creditors, keeping your credit utilization low, having a long credit history, maintaining a good mix of credit types, and occasionally applying for new credit lines are the factors that can get you into the 800 credit score club.
It's a good idea to pay off your credit card balance in full whenever you're able. Carrying a monthly credit card balance can cost you in interest and increase your credit utilization rate, which is one factor used to calculate your credit scores.
The golden rule of credit card use is to pay your balances in full each month. “My best advice is to use a credit card like a debit card — paying in full to avoid interest but taking advantage of credit cards' superior rewards programs and buyer protections,” says Rossman.
Paying the balance in full has great benefits. If you wait to pay the balance or only make the minimum payment it accrues interest. If you let this continue it can potentially get out of hand and lead to debt. Missing a payment can not only accrue interest but hurt your credit score.
The Amex 2/90 rule limits the number of American Express credit cards you can get approved for to two within a 90-day period. This limitation has been widely reported, though it isn't an official American Express company policy.
Checking your credit score on NerdWallet only prompts a soft inquiry on your credit report - not a hard inquiry - and will never impact your score in any way, no matter how often you check it. This article includes more detail about this: Does Checking My Credit Score Lower It?
If you're just starting out, a good credit limit for your first card might be around $1,000. If you have built up a solid credit history, a steady income and a good credit score, your credit limit may increase to $5,000 or $10,000 or more — plenty of credit to ensure you can purchase big ticket items.
You should try to spend $90 or less on a credit card with a $300 limit, then pay the bill in full by the due date. The rule of thumb is to keep your credit utilization ratio below 30%, and credit utilization is calculated by dividing your statement balance by your credit limit and multiplying by 100.
You should use less than 30% of a $500 credit card limit each month in order to avoid damage to your credit score. Having a balance of $150 or less when your monthly statement closes will show that you are responsible about keeping your credit utilization low.
Aim to keep your credit utilization ratio below 30%. This means that on a credit card with a $500 credit limit, you should try to keep your monthly statement balance below $150.
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