To our OP:
Takeshi's response is very helpful. Although everything he says is on target, this is especially so:
10% isn't conventional wisdom. It's a guidline for "ideal" revolving utilization. It is also in reference to how much should report for ideal utilization. Spend can be up to 100% or more. Reporting all depends on whatever the balance is on report date. One doesn't have to restrict spend to control reported utilization. The balance can be reduced by report date to manage reported utilization.
So to expand on that a little bit, Takeshi is saying that your hypothetical student could easily spend thousands of dollars in a month, even though he has a $500 credit limit. He could run his card up to $450 in a week, and pay it to $0. Then do that again and again and again. A few days before the billing cycle ends, he could pay the card down to $20. The result is that he spends almost $2000 on his card, and it reports to the credit bureau with a balance of $20. He can do that each month.
That's just a simple example to show how easy it is for your student to spend as much as he needs to but also keep his utilization low.
As a few of our other folks have explained, he could also choose to make his card report a much higher amount, say $400 or so. If he always pays his bills perfectly on time then after 7 months he can make his card report at $20, get a high score, and then request a credit limit increase. If he has a solid income and credit score, his record of coming close to the credit limit will help persuade the issuer to give him a much higher limit.
Thus stuff is really pretty easy. It's definitely not the Kobayashi Maru scenario you were imagining. Best of luck!
