Q&A Video: Does Having a 0% Credit Utilization Hurt My Credit Score?

John Ulzheimer

John Ulzheimer | Q&A Videos

Jan 04, 2016 | Updated Jan 12, 2016

Your credit utilization ratio, also called the debt-to-limit ratio, has a huge impact on your credit scores.

So how do you have the best credit utilization ratio possible?

Do you pay off your card in full every month to keep your credit utilization ratio at 0%?

Or can keeping a balance on your credit card from month-to-month actually be beneficial?

Learn the answer here from our credit expert John Ulzheimer.


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.

Learn everything you need to know about credit card utilization in our blog post »

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

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