Credit Card Utilization

What is credit card utilization and how can it impact your credit score? Your revolving accounts make up 30% of your credit score in the mortgage FICO credit scoring model. That is almost one third of your score. Only your revolving accounts will score in this 30% section. The impact of the score is solely based on how much your credit cards are used.

It works like this. If you open up a credit card with a $1000 credit limit and then buy a set of tires for $900 you are utilizing 90% of that credit card. If you pay that same card down to $300 you are utilizing 30% of that credit card. The higher the utilization percentage the less points that card will contribute to your credit score. The lower the utilization percentage the more points that card will contribute to your credit score. This means when you pay down your credit cards your score will increase. The ideal percentage is below 20%.

Each card that you have reporting on your credit report scores in silo. Example if you have three credit cards you would divide the 30% section by three. Therefore, each card would impact the overall credit score 10% each. This is why if you did a balance transfer from one card to another you can impact your credit score without changing the overall revolving debt owed.

Paying down your credit cards to acceptable utilization percentage is an effective strategy to raising your credit scores. Please see one of our other blogs on Strategies for Paying Down your Credit Cards.