Most people will tell you to keep your utilization at 30%. Not me. You should actually keep it at 0% but actually use 100% of your credit. How can you do this? You see, if you use 100% of your credit limit and pay it off every month, you demonstrate you are a good credit card user and the issuer will quickly increase your score. Keeping your utilization at 100% will indeed make you score lower but there is a way to get around this by paying the full 100% right before the statement date. Using this method, I and many other are able to quickly increase the limit very quickly.
How’s it goin everybody does this be the bush today i’m going to talk about myths about utilization ratios oftentimes you hear of other people saying you should keep your utilization as low as possible no more than 30% or something i actually don’t know where people got 30% from but what i recommend is either keep at 0% or 100% do i look like i’m kidding preschoolers
Serious business you see saying you should always keep your utilization below 30% it’s kind of like saying you should always drive that 55 miles an hour on the freeway sometimes yes you would want to go 55 miles an hour other times you should go a little faster but you definitely shouldn’t be driving 55 when it’s snowing all right so where should you keep your
Utilization ratio should you keep at 0 percent 30 percent 100 percent 65.8% the answer is it depends the higher your utilization ratio the lower your score would be of course however if you keep your utilization always at 30 percent or lower your credit card issuer is going to say hey you don’t really need that much credit so your total credit limit it’s not going
To rise all that fast what i recommend for people that have regular spending that’s actually higher than their limit is actually to use the credit card all the way up to 100 percent your credit score depends on a whole bunch of different factors and each one is weighted differently your utilization ratio is worse a big chunk right here thirty percent of it is your
Credit score thirty-five percent of it is your payment history it’s if you’re on time or not fifteen percent use your credit age which is the average age of all your credit lines ten percent is the types of credit you have so if you have a mortgage car loans that’s paid off student loans that’s paid off personal loans self lending loans then the more of those you
Have the higher percentage you’re going to get here another 10% is new credit so if you have too many new credits you’re going to start to shrink this 10% down to zero so if you don’t have any new credit for several years then you’re going to get to the full points on here a typical fico score is out of 850 points your utilization ratio is thirty percent of your
Score that means you can get two hundred fifty five points maximum if you have perfect utilization ratio now what’s perfect it’s zero utilization ratio i made up this formula we should roughly track your utilization ratio and the contribution of points to your total credit score you’re you realization ratio points is really 255 times 1 minus the credit use divided by
Total credit limit the credit used is whatever you owe on your credit cards that is reported to the credit bureau right on the statement date the total credit limit is the total limit across all your credit cards if you have more than one you can see here if your utilization ratio is 0 divided by 1000 1 minus that is 1 times 255 you’re going to get the full points of
255 now however let’s say you maxed out your credit cards and you spent $1,000 out of the total $1,000 limit that you have so your utilization ratio is going to be 255 times 1 minus 1,000 divided by 1,000 which is 1 right here so this is 0 and so this whole thing is 0 so you’re going to get 0 points out of 255 then you’re going to get really low score because 850
Minus 255 is roughly 595 that’s a really low score people have been mentioning 30% or less utilization ratio now you’re going to see what happens here 30% out of $1,000 limit is actually $300 spending 1 minus 0.3 is 0.7 so you’re going to end up getting only 178 and a half points out of the 255 that you could have gotten yes if you use your credit all the way up to
100% of your limit it will temporarily reduce your credit score a little bit however the point here is to force your credit card issuer to give you a higher credit by demonstrating that yes you can pay it all off so you spend it all the way up to 100 you pay it all off and you do that 3 months and before you know it your credit card is going to say hey oh my gosh
This guy you’re using a lot of credit and they’re paying it off you’re generating a lot of revenue for us then they’re going to increase your limit they might double it or triple it even so if you don’t need your credit score for a while this is a really great way to increase your total limit very very fast you can even run your credit card all the way up to 100%
And then pay it all up right before your statement date therefore you can get the best of both worlds where you can force a total limit increase several months down the line and you zero out your utilization ratio so your credit score will not be impacted when you’re doing this maxing out for several months now you might get to a point where your total spending is
I’m going to reach your total credit limit in that case let’s say you spend only 80% or 90% but if you keep on doing that they’re going to get double your total credit limit again because they see that you’re spending way too close to your limit and they don’t like that they want to give you more credits so that you have more room to spend then it might drop down
To 50% and you have twice as much credit limits as you need and if you just keep on spending month-to-month and paying at all for every month they’re going to increase your total limit really faster because it’s going to double it and then double it some more so once it reaches to a point where your total credit limit is maybe let’s say 10 times of your regular
Spending then you don’t really care about your utilization ratio and you don’t even have to do the boost trick anymore because the total utilization ratio even on your total spend amount is only 10% let’s say you spend a thousand dollars normally and your total credit limit reaches to let’s say 10,000 even if you spend $1,000 a month on a $10,000 credit limit
Eventually doing going to double this it’s going to increase pretty quickly and then it’s going to be 5 percent utilization ratio you see where this is going you’re just going to increase your limit so that even your regular spending it’s going to be a very tiny portion of your utilization ratio and when it gets to this point you don’t have to do any boosting
Trick and yet you can still get the full point from 30% of your credit score and you’ll get the maximum points in that category already so i hope that explains a lot i know a lot of people have asked me about the utilization ratio where you have to use a hundred percent it’s really counterintuitive so i hope this video explains all of this if you’re interested in
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Transcribed from video
Credit Card Utilization Myths | BeatTheBush By BeatTheBush
