Card usage, also known as credit utilization, relates to the percentage of available credit that you actually use. For example, if you add the limits of all your credit cards and have $5,000 in total limits, and you have a current total balance of $600, your 'usage' is 12%. Credit reporting agencies rely on your activity to accurately calculate your credit score, and having 0% utilization doesn't give them much to work with. Maintaining a low utilization rate of below 30% is recommended, as it shows that you're responsibly using your card and paying off your balances.
Your card usage is a highly influential factor in regards to your credit score. Within Vantage 3.0 scoring model shown within Rocket Money, this is a 20% factor into your overall score. Lower card usage indicates to lenders that you aren't heavily reliant on credit, demonstrating some level of financial responsibility. Keeping your credit utilization low can have a significantly positive impact on your credit score.
Included in Credit Utilization 👇
Credit cards you're named as an authorized user on
Personal lines of credit
Home equity lines of credit (HELOC)
Closed revolving accounts with outstanding balances
Your credit utilization calculation will depend on the balances and credit limits from your credit report, which may be different from your current credit limits and balances. Please check out this guide for more information on how often that is updated.
Tips on keeping your score low
Make multiple monthly payments towards your credit card balances. If you're noticing your credit utilization is typically high, you can combat this by making more than one payment per month. That way your balance never gets particularly high.
Ask your card issuer when they report data to credit bureaus. Typically credit card issuers only report your data to credit bureaus once a month. If you call their customer support team and learn what day this is you can plan around it. By paying off your balances or as much as you can before your data is sent off, your credit utilization will be lower.
Ask for higher card limits. By increasing your limits without changing your spending habits, you can reduce your credit utilization. You're most likely to be approved if you have good payment history; however, be wary that this can sometimes result in a hard inquiry. You can confirm this with your provider prior to requesting a limit increase if needed.