The amount of debt you owe on your credit card is one of the biggest factors affecting your credit score. That's why it's not a good idea to max out your credit card. If you do use up your entire credit limit on your card, you'll discover that your credit score may go down. And when your credit score goes down, you could end up having to pay higher interest rates on any other credit cards or loans you take out. A low credit score could also impact your applications for apartment rentals, phone plans, and more. Show
Here's why: How credit cards affect credit scoresWhat many people don't realize, is that credit scores don't include or account for your income. So even if you feel you can afford to max out your card, it's still going to have a negative effect on your score. Research by the Consumer Financial Protection Bureau has indicated that high income earners are as prone to financial stress because of debt as low income earners. So when lenders see that your credit card is maxed out, they might assume that you're living beyond your means. How do credit cards affect the credit score?VantageScore® and FICO® credit scoring calculations consider your credit utilization — the ratio between the amount of debt you owe on a credit card and the card's credit limit. Credit utilization is what constitutes that 30% impact on your credit score. To determine what your credit utilization is, you can do the following things:
How much debt is too much?There's no magic number as to how much debt is too much, although the rule of thumb is to try and keep your credit utilization level at less than 30% in total. Remember that this is total or "aggregate utilization" that's calculated by your credit score, so taking out a new card to spread your debt across cards to reduce your utilization rate on each card may not be a good strategy to lower your utilization. It can potentially hurt your credit score to do this, because taking out a new card will result in a "hard inquiry" or credit check of your score — something that can also reduce your score. However, if your available credit limit increases, it may not affect it. Does paying off credit card debt raise your credit score?You may be able to improve your credit score if you pay off a large chunk of your credit card balances. Even if you don't reduce your aggregate utilization rate down to less than 30%, getting it down to as close to that as possible will have a positive impact. Any effort to pay off more than the minimum payment on your cards each month might result in an incremental improvement of your credit score — as long as you're doing all the other things that positively impact your score, like paying bills on time. Does consolidating credit card debt hurt your credit score?Most people find it much easier to pay off debt if they consolidate it on either a credit card with a lower interest rate or one with a zero interest rate promotional period. These zero or low percent cards may be useful for people who want to consolidate credit card debt and chop down that balance entirely, before the promotional period ends. But keep all of your credit card accounts open, even after you've transferred the balance to a promotional zero or low percent card. Consider cutting the physical cards up if you don't want to be tempted to use them, but keeping the account open will improve your aggregate utilization. Credit cards can be excellent financial management tools, especially for unexpected expenses or to smooth out bumps in your overall monthly cash flow. But it's critical to keep an active role in monitoring your finances and how much debt you're putting on those cards. Try to keep an eye on your credit utilization rate and pay your bills on time. Just those two things alone will go a long way to improving your financial health.
 In a Nutshell How much of your available credit do you use each month? Lowering your credit card utilization rate could help to strengthen your credit scores. Editorial Note: Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our third-party advertisers don’t review, approve or endorse our editorial content. It’s accurate to the best of our knowledge when posted. Before we dive into how using your credit card may affect your credit scores, let’s recap what we mean when we talk about “credit card utilization.”Credit card utilization — or just credit utilization, for short — refers to how much of your available credit you use at any given time. You can figure out your credit utilization rate by dividing your total credit card balances by your total credit card limits. The resulting percentage is a component used by most of the credit-scoring models because it’s often correlated with lending risk. Most experts recommend keeping your overall credit card utilization below 30%. Lower credit utilization rates suggest to creditors that you can use credit responsibly without relying too heavily on it, so a low credit utilization rate may be correlated with higher credit scores. Now that we’ve defined our terms, let’s look more closely at how your credit utilization relates to your credit scores.
Why does my credit card utilization affect my credit scores?Your credit utilization rate is an important indicator of lending risk. In the eyes of most lenders, a person who constantly charges all the money they can — hitting or going over their credit limit on a regular basis — is more likely to have difficulty repaying that money. Conversely, someone who charges smaller amounts may be more likely to be able to pay off their balance in full each month, so they represent a lower risk to the lender. How does my credit card utilization affect my credit scores?There are many different credit-scoring models, so it’s difficult to calculate exactly how credit utilization will affect your credit scores. With that said, there’s a strong correlation between a consumer’s credit card utilization rate and their credit scores. Though individual cases may vary, those who keep their utilization percentage low generally have higher scores than those who habitually max out their credit cards. If you don’t want your credit utilization to negatively affect your credit scores, consider your spending habits. Factors such as your credit history and the number of cards in your wallet matter, too. High utilization on a single credit card could especially hurt your credit scores if you have a short credit history and only one card. On the other hand, you may feel the effects less if you have a long and excellent credit history and spread your utilization across multiple cards. Though it’s an important factor in calculating your credit scores, try not to focus just on this one aspect. Keep the big picture in mind. What factors determine my credit scores?A number of credit-influencing factors are commonly used in calculating your credit scores. These include your credit card utilization, percentage of on-time payments and the average age of open credit lines. The charts below show what factors make up two popular credit score models, the FICO® Score 8 credit score and VantageScore 3.0® credit score models. You’ll notice that credit card usage, or utilization, is important to both, but not the only factor. How can I lower my credit card utilization?Here are three tips that may help you lower your credit utilization.
Bottom lineYou don’t have to carry a credit card balance or pay interest every month to show credit card utilization. Even if you pay your credit card balances in full every month, simply using your card is enough to show activity. While experts recommend keeping your credit card utilization below 30%, it’s important to note that creditors also care about the total dollar amount of your available credit. This means that if you have a low credit limit, it’s not necessarily a huge deal if your credit card utilization rate is slightly higher than recommended. Does inactivity hurt your credit score?An inactive credit card is not a matter of concern, but the period of inactivity is. The key takeaway here is- If the cards remain inactive for a long period of time, it can negatively impact your creditworthiness.
Is it good to have a credit card and not use it?While having a zero balance on your accounts is great for your utilization rate, it's also important to keep them open and active. That means you may have to use them for more than just emergencies.
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Does not using your credit card hurt your credit score
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