Credit Score: What do they mean by keeping your balance at 30% of your credit limit?

Question

Let's say I have a $5000 credit limit. 30% of that is $1500. If I keep the credit I owe for let's say a 12-month period at $1500, does my credit score increase? Or does it mean that I should use up 30% and pay it all off the following month, then my credit score increases?

Answer 1

Your Fair Isaac and Fico scores are secrets.  However the credit scoring method is known in general.  

The point score would be minimal if you went over $1,500 on a cr card.  If you had a couple and they were up to date for years, and over 30%, not much, lets say to $1,750, you'd probably go up.  The  factor of how much available credit you have has been estimated to make up anywhere from 25 to 30% of your score.  If there are other mitigating positive factors however, like a long history with the lender, and never been late with the lender, or with any lender, than the available credit percentage of your score factor,,,,,,,,,would go down.  That is why no one knows the EXACT method of scoring, there are mitigating factors, that effect other parts of the scoring process.  The estimates are believed to be pretty good, or close though.

It is thought that 30% approx is what credit bureau is looking for as available credit used.  It is not written in stone, but will give you an example.  If that same credit card was at the balance of $4,600, it would definitely be bringing points off the score, near its max out amount, and 85% used up appox.

Don't forget that late payments, and how long you have had the card are big factors too, so that if that balance went to two thousand on 5 thousand limit, had been open three years, and never been late, and two other lenders showed the same data-- then I would say it would not bring score down.  Too many other positive factors, in that situation, and card company would be more likely soliciting you to raise your limit.

Answer 2

Mostly it means that if your balance goes above 30% (or $1500), then your credit score will suffer.  If you use the account modestly, say $200 - $400 a month for routine expenses, and pay it *** in full on time***  every month, then that behavior will greatly increase your credit score.  I wouldn't recommend keeping a $1500 balance for 12 months.  That will cost you close to $300 in interest, and will not give you any credit score increase.

Late payments are the most damaging things to your credit score.  The other thing is having too many accounts that are new.  Try to find one or two cards without an annual fee, and use them responsibly, and they will help you build good credit.