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Why the "common knowledge" of keeping your credit usage under 30% is actually hurting you

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Why the "common knowledge" of keeping your credit usage under 30% is actually hurting you

Why that 30% rule of thumb about credit card use could be costing you

I was out with a few friends recently who really thought that it was best to keep a 30% utilization to improve their credit score. I was like "No, that's a misconception" and this article goes into it a bit. I was surprised when I lost a few points for just going from 2% to 5% total usage.


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Current Score: 684
Goal Score: 751

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Message 1 of 6
5 REPLIES 5
Super Contributor

Re: Why the "common knowledge" of keeping your credit usage under 30% is actually hurting

Nobody ever said that there isn’t a score impact before 30%. Some profiles even have one at around 5%. The score doesn’t take a significant hit until 30% though.

It’s also a matter of individual versus aggregate. A single card over 30% isn’t going to be as impactful as your aggregate going up over 8.9% as well.

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Message 2 of 6
Regular Contributor

Re: Why the "common knowledge" of keeping your credit usage under 30% is actually hurting

This is always very good information for people to know! Thank you for sharing this.
Message 3 of 6
Established Contributor

Re: Why the "common knowledge" of keeping your credit usage under 30% is actually hurting


@Saeren wrote:
Nobody ever said that there isn’t a score impact before 30%. Some profiles even have one at around 5%. The score doesn’t take a significant hit until 30% though.

That was the first article I read that mentioned a 5% threshold. They still don't tell people that a 29.4% aggregate utilization is not 'less than 30%' because FICO takes the ceiling of the computed utilization, but it's got better info than most.

 

On my thin profile I could only confirm (using EX CreditWorks daily) an extra 3-4pts on some EX/EQ scores and +1 on TU 8, but it's something.

 

 I had a 9% to 4% aggregate utilization change.

(8.82% to 3.89%)

 

27 FICO Scores + 3 VS3. MTG (Mortgage), AUT (Auto), and BKC (Bankcard) are scores 5,4, and 2 from the top.

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Message 4 of 6
Senior Contributor

Re: Why the "common knowledge" of keeping your credit usage under 30% is actually hurting


@Saeren wrote:
Nobody ever said that there isn’t a score impact before 30%. Some profiles even have one at around 5%. The score doesn’t take a significant hit until 30% though.

It’s also a matter of individual versus aggregate. A single card over 30% isn’t going to be as impactful as your aggregate going up over 8.9% as well.

A have a couple cards up to 48% and my aggregate is around 11% and I seem to do OK, Fico around 730. But in my experience letting any CC report over 50% is a killer, back in 2017 I let a card report around 65% while my aggregate was only around 16% but my scores dropped from around 720 to 690. So ever since my golden rule is never let any CC go over 48%.

It wouldn't take much to get my aggregate util down to 8.9% but I don''t think it would have much impact on my score, I have a BK7 from 2010 on my report and from what I've read it's pretty much impossible to get much higher than 730 while a BK is still on your report. Next year when the BK falls off and I'll be shooting for an 800 score I'll play the utilization game a little more carefully.

 

The one thing that article doesn't mention is installment loans, my pet peeve in credit scoring. On my Fico scores I get the blaring Loan Balances Too High!!! as a negative factor affecting my score. That's my car loan, a great loan with DCU taken out in Oct. 2017 for 2.99% for 60 months for a 1 year old used car that I got a great deal on. It's now down to 67% of original loan amount, and to my thinking it should be a "Atta boy, great job on responsible, timely payments on that car loan!" instead of "loan balance too high". Well, the heck with Fico, I'll take all the 2.99% loans they want to give me and pay them down as amortized, not Fico's preference.


Fico 08: 734/716/734 TU/EX/EQ
Message 5 of 6
Valued Contributor

Re: Why the "common knowledge" of keeping your credit usage under 30% is actually hurting

I agree. The way that installment loans score is a bit backwards and does not actually make sense. As long as they are being paid on time then they should not impact a credit score imo. 

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