I don't understand why low credit utilization is so important?

[Anonymous]

I'm new to this and I'm trying to figure out why low credit utilization on my cards is so important. Not that I carry a balance on three of them - I pretty much pay those off as soon as I make a purchase on them. And I don't make many purchases with those, as I like to consolidate my points on my primary card. I thought that the important thing when it came to credit cards was making your minimum payment (or more) on time every month. In other words, having a high balance even though you're making your payments is bad?

Here's exactly what happened:

August, September, October 2012 - I was unemployed, and my balance was pretty much at my limit of $800. My introductory 0% APR wore off not too long ago, and I was seeing some interest charges. Didn't make a payment for a bit, but I worked it out with Citi in the end as soon as I got employed. The account did go above my limit of $800 (due to interest charges and late fees), but Citi didn't file a bad credit report.

November 2012 through present - I've spent plenty of money (perhaps a little more lavishly than I should have), but at the same time lowered by balance each month by around $100 to $200 while avoiding interest charges. It's currently sitting at $75 after I made a big payment recently (think $500 compared to my limit of $800; the previous statement balance was $400 and the next will likely be $100 or less). From what I understand, that big payment probably bumped my score up by like 50 points? Yet my score would go right back down if I were to bring the balance back up to a high amount like $600 out of $800? Does credit really change that fast?

Thanks for the input guys.

[dodfire]

YES it really changes that fast. Your credit changes everytime a report from a creditor is given to the CRA.

YES utilization is that important and accounts for about 30% of your FICO score, that is why it is so important to keep your UTL down if you are planning to apply for anything.

[foofighter74]

If you're consistently carrying large balances on your credit cards, and your utilization rate is high, this suggests that you may be living beyond your means.  The formula's used for a lot of the credit scores seem to reward people who "manage" their available credit well.  Don't get me started, the whole credit score industry is a joke, and the fact that people use these scores as a tool to help determine someone's mortgage, car loan, etc worthiness is beyond scary...but that's the game you have to play.