Use of Credit Cards to improve credit score?

Question

I want to understand which percentage of credit usage is best and if it has to remain constantly at that level. It seems no matter what I do, I lose points (not always of course).

I was keeping my credit usage below 70% at first but then got my usage on all cards below 30% (since Apr for 2 and June for the 3rd) until recently which was gradually increasing my score.

My car insurance payment went through on the day of the end of the billing period putting my usage at 30.2%, so I lost 14 points.

Ok, so I paid off all my cards to make sure they are below 10%. I lost 3 points because I'm not using my cards (0%).

Now I left a small amount (less than 10%) on my cards to make sure they see that I'm using them. I lost another 2 points. Do I have to always stay in the same range to avoid getting docked points?

For reference, I started out with 0 credit 2 years ago when I moved back to the states so I opened a secured credit card. Then I got two credit cards this year in January and lowered the amount of the secured credit card to the minimum possible ($250). Both credit cards increased my credit limit in the last few months. My score is 726 or 750 depending on the agency.

I know other loans help your credit score but I don't want to take out a loan until I'm ready to leverage that money for REI. Will this hurt my ability to get financing?

My car is paid in cash, my rent and utilities are included on my paystub as part of my pay so only my phone bill and internet get reported as far as I know. I have no late payments, no collections, no debt.

Daniel Goerner · Answer

I meant low utilization, thank you Kyle.

Ramsey Rimkeit · Answer

Thanks for all your answers! I'm still a bit frustrated that maintaining a certain level e.g. fair 30%-49% seems to keep your credit score at the same level (or improve it gradually?), whereas going from below 30% to above 30% affects your score negatively, even though the utilization is the same in both scenarios for that particular month.  Also, @Kyle J. I noticed that the "Excellent" range in your chart includes 0%, yet I was penalized for having 0% at the end of last billing period and now I've been penalized for bringing my utilization back up. That's the key issue for me here.

Kyle J. · Answer

You actually want to ensure you have a LOW credit utilization ratio, not a high one.  (See the chart in my post above.)

Kyle J. · Answer

@Ramsey Rimkeit  Good for you for wanting to understand your credit usage better.  Your credit usage and utilization ratio has one of the biggest impacts on your overall credit score (second only to payment history).

A 70% credit utilization ratio is pretty high and will really hurt your score, so it's good that you got that down.  30% is much better, but in general you really want to keep it under 10% to have the best effect on your credit score.  Here's a chart to help you visualize where you should to aim to be at:

There are two ways to improve your credit utilization ratio: 1) pay down balance, or 2) increase your credit limits.  Both are good things to do.

To get a little deeper understanding of what goes into a credit score, you can read this:

https://www.myfico.com/credit-education/whats-in-your-credit-score

And then here's some additional reading specific to credit usage and credit utilization to add on to what I already posted above:

https://www.myfico.com/credit-education/credit-scores/amount-of-debt

Daniel Goerner · Answer

If you had one credit card for 10 years, then got a new one, your credit history would show as 5 years. They take the average of your cards.

So, getting two new ones would really lower your length of time holding the credit. Next, you want to ensure you have a high utilization rate (How much money you have spent as compared to your limit). I always push for higher credit limits, so that even if I do get a surprise increase in my credit amount, my utilization is still low.

I have had my credit cards for 1.5 years and my score is about 744, set up automatic payments, keep utilization low and don't keep opening and closing accounts to increase your score.

Charles Carillo · Answer

@Ramsey Rimkeit

I would continue what you are doing. FICO says to keep your credit utilization at no more than 30%. If you are over 740, you should not have any issues. As your credit history increases, so will your score.

Greg Scott · Answer

Congratulations on building a solid credit score.  You currently have a good enough score to buy SF rent properties so don't kill yourself trying to push it higher and higher.

From the podcasts I have listened to, opening or closing credit cards can hurt your score.  Using up more than 30-some percent of your limit sends warning bells so they lower your score. (e.g. If you limit is $10K, having a $5K balance would be bad).  Better to spread spending across cards so you don't go above that ~30% threshold.  Constantly using your cards and every month paying them off to zero will build your score quickly.