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Does Having a 0% Credit Utilization Hurt My Credit Score? – Credit Card Insider

Does Having a 0% Credit Utilization Hurt My Credit Score? – Credit Card Insider
10 Sep

Hi My name is John Ulzheimer, and I'm a credit expert who contributes to Creditcardinsider

com Today's question actually came from a comment on YouTube from one of Credit Card Insider's other videos So please feel free to submit questions in the comments section of these videos Today's question is this I've heard that a utilization ratio has to be 1% or higher to have any kind of effect, positive or negative, on my credit score Is that true? Is it also true that paying my bill in full by the statement date therefore leads to a 0% utilization ratio and will that or will that not help my credit score? Let's break it down and get a some succinct answers to the different components First off, utilization ratio, let's talk about what that is Credit scoring models consider the amount of your credit card credit limit that is actually being used in the form of a balance

And that's commonly referred to as utilization Some people also call it the debt to limit ratio And what you do is you divide the balance on your credit card by the credit limit on the credit card and that yields a percentage And that's the percentage of your credit limit that your currently using

That percentage is very important not only in your FICO Score, but in your VantageScore So in all credit scoring systems that's an important component The higher that percentage the lower your scores going to be And that's just a fact You want that percentage to be as low as possible

So for example on a credit card with a $10,000 limit, if you got a $9,000 balance, you are 90% utilized on that card That is bad news However if you have a $1,000 balance on that $10,000 card you're only 10% utilized and that's considerably better So there's this whole issue of what's better, 0%, 1%, or something else I can tell you that the consumers in this country who have the highest average credit scores, 780 or higher have an average utilization of 7% percent, which means that they've got very low balances relative to their limits and they're actually accomplishing this one of a variety of ways

They either have a lot of credit cards that are unused and therefore you have a ton of a credit limits to help keep that utilization ratio very low or they just simply don't use credit cards that often Or they go online and pay their bills before it even gets to the statement And therefore what shows up on their credit reports is very very low relative to the limit There is a reality that actually almost comes across as a myth sometimes that if you have a 1% utilization ratio you're actually gonna earn more points in your credit score than if you have a 0% percent ratio That is actually true As comical as that sounds, that's actually true However it's very very difficult to actually nail that 1% because you have to charge enough on your credit cards have that amount show up on your credit report, and that has to equal 1% of your aggregate credit limits It's a very very difficult thing to accomplish I do not suggest it at all

What I actually suggest that you is to go one step further and pay it in full And not by the due date; pay it in full by the date called the statement closing date The statement closing date is different than the due date The due date is actually 21 days after the statement closing date, and it's the date that most people refer to when they think about paying their credit card bills The statement closing date is actually the end up the 30 day period where you are making charges

So there's always this 30 day window when charges are recurring And when that 30 day window ends the balances and charges from the prior 30 days are aggregated and that's what goes on your statement That date is called the statement closing date If you're able to go online and make payments on your credit card bill, so that when the statement closing date hits, the balance is actually 0 Then 0 is what's going to show up on your credit reports and that's also gonna cause you to have a 0% utilization ratio which is fantastic for your credit scores

If you have any other questions pertaining to credit or other financial topics, then please submit them to Creditcardinsidercom or in the comments section below Thanks a lot for watching! Have a great day!

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