Tag Archives: credit card utilization

Does My Credit Card Utilization Matter?

For people new to credit, and even many that have been dealing with their finances for a while, the question of what credit card utilization rate is best comes up quite frequently.  Some people are surprised to see that their zero balances can lower their score in some instances. The reason for this is that credit scoring is a very opaque process that, for the sake of their business, credit bureaus keep tightly guarded.  Credit Utilization makes up a portion of people’s credit scores, and while it is the component of the score that a person has the most control over each month, it really only matters when you are looking to acquire a new line of credit.

The problem with credit card utilization as a factor in a person’s credit score is that it only shows the balance on a single day of the month. As a result,  this means that the only time the balance on your credit cards should be of any concern  is on the closing day of your billing cycle, which is generally 3-10 days after your monthly payment due date.  If somebody wanted to chase this golden apple, they would simply just pay their balance in full on the due date and wait for their statement to close, resulting in a zero balance being reported each month.

While this is responsible behavior, it isn’t optimal behavior, which is what a tiger will strive for. Rather than micromanaging your credit score, you should be concerned with keeping a second number as low as possible: the amount of interest you pay. As a result the optimal action in this situation is to pay the balance of purchases that are about to leave the grace period, maintaining a balance of the value of your purchases that are less than the grace period (typically 25-30 days), so that you ensure that you won’t pay any interest. As a side effect, this will also ensure that you keep your cash as long as possible, meaning you can optimize the amount of money you earn in your high yield checking account.


Key Takeaways:

  • Your credit report will only provide the balance of your accounts on their last closing date.
  • If you aren’t opening a new line of credit in the next 60 days, you don’t need to micromanage your credit accounts.
  • Zero Balances aren’t guaranteed to raise your credit score.
  • Utilization under 30%, on each card and in total correlate with higher credit scores.
  • Focus on paying less interest rather than raising your credit score, as this will be the most beneficial for you in the long run.