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Why to Keep Your Credit Utilization at 30% or Below

a person checks their current credit utilization through online banking

For many of us, using credit cards or other forms of credit is just part of life. This may be especially true around the holidays. But spending with credit means there’s a lot more you need to keep in mind compared to when you’re spending cash. Your credit score and credit utilization are two of these factors.

When it comes to credit utilization, it’s important to find the sweet spot of just how much you should be using. Learn more about how it impacts your credit score, how much to use, and other ways to improve your credit score.

How Credit Utilization Impacts Your Credit Score

While there are two types of credit score -- the FICO Score and the VantageScore -- the FICO is much more common when it comes to lending decisions.

FICO Scores are calculated using five different pieces of data, each of which makes up a different percentage of your score:
  • 35% Payment History: This is the most important factor when your credit score is calculated. Lenders want to know whether you make your payments on time, which gives an indication of how reliable you are.
  • 30% Credit Usage: If you are using too much of your available credit, it may mean that you are overextending yourself and spending at an unsustainable level.
  • 15% Length of Credit History: If you have a long and established history of using credit responsibly, this impacts your credit score in a positive way. If you’re new to using credit, it can make you seem like a bit more of a risk to a lender.
  • 10% Credit Mix: Credit doesn’t just mean credit cards. Whether it’s mortgages, loans, retail accounts or something else, the better you’re able to manage your mixture of credit, the better your score will likely be.
  • 10% New Credit: If you have a lot of new credit lines opened in a short amount of time, this could impact your credit score. However, it’s not one of the most important factors.

How Much Credit Should You Use?

As you can see, credit usage -- or credit utilization -- makes up the second-most important piece of data when it comes to calculating your credit score. So, just how much credit should you be using to optimize your credit score?

You may have heard about 30% as a rule of thumb. This means you should take care not to spend more than 30% of your available credit at any given time. For example, if you had a $5,000 monthly credit limit on your credit card, you’d want to be sure you didn’t spend more than $1,500 per month, or 30%.

But it turns out that using even less than 30% of your credit may have the best results when it comes to increasing your credit score. According to Can Arkali from FICO, the customers with the best credit scores -- the top 25% who have a score of 795 or higher -- use an average of 7% of their credit.

With a credit limit of $5,000, spending only 7% or $350 per month could be challenging. But this is only the case if you pay your credit card bill once a month. You can always make multiple payments toward your credit card throughout the month in order to keep your credit utilization low.

How Else Can You Improve Your Credit Score?

Credit utilization is just one piece of the puzzle when it comes to determining your credit score. Taking care to use less of your available credit or make more frequent payments when possible can help boost your score. But there are many other steps you can take to improve your score as much as possible.

First, be sure to make your monthly payments on time and pay your balance in full whenever possible. If you get in the habit of not paying or making only minimum payments, it does more than impact your credit score. It also means you get hit with additional interest charges. That interest can really add up, making it harder to pay off in the future.

You’ll also want to review your credit reports at least once a year. This can help you catch any errors on your report as well as find out what exactly is hurting your score the most. That way, you’ll know which particular areas you need to work on.

You’re allowed to request a free credit report from each of the three major credit bureaus -- Equifax, Experian, and TransUnion -- once per year.

Keep in mind that requesting your credit report is not the same thing as making a credit inquiry, so viewing your credit report will not hurt your credit score. However, applying for too many credit lines at once would mean multiple credit inquiries in a short amount of time, and this can hurt your score.

Unfortunately, if you become a victim of identity theft or fraud, your credit score will likely suffer, even though it isn’t your fault. Which means it’s of utmost importance that you pay attention to your credit score -- in some cases, that could be the first red flag that something is wrong.

At Academy Bank, we also offer several products that can help you protect yourself from identity theft and fraud, whether you’re a personal banking or business banking customer.

Our Select Rewards Checking** offers Credit Monitoring and Reporting, as well as Identity Theft Monitoring & Resolution† Services.

And our Business Banking services include ACH Block and Filter, Check Positive Pay, and e.Business -- all of which help monitor your account and ensure you're protected from fraud.

Your credit score could be your key to lower interest rates, insurance discounts, and more. Academy Bank is here to help protect it.

Your Partner in Good Financial Habits

At Academy Bank, we’re committed to your financial health -- which comes along with establishing good financial habits. We’re here to answer your questions about credit and credit usage. And we offer a secured credit builder credit card* for those looking to improve their score.

Member FDIC
*Subject to credit approval. Secured Credit Builder Savings account required.
**$100 opening deposit required. $6 monthly service charge applies. Other fees may apply. Closing new accounts within 90 days of opening will result in a $20 early closure fee. Registration/activation required. Benefits are available to personal checking accounts and their primary account owner and joint account owner(s) subject to the terms and conditions set forth in the Guide to Benefit and/or insurance documents for the applicable Benefits. Some Benefits require authentication, registration and/or activation. Benefits are not available to the "signer" on the account who is not an account owner or to the businesses, clubs, trusts, organizations and/or churches and their members, or schools and their employee/students.
† Insurance Disclosure: Insurance products are NOT insured by FDIC or any Federal Government Agency; NOT a deposit; NOT guaranteed by the bank or any bank affiliate.