Should I worry about credit utilization if I always pay in full?

Question

I just got my first credit card (several months ago)!

I'm reading about credit card best practices, and I see credit utilization over and over again.

One site that really got my interest is this, where they state:

Higher balances are more difficult to afford and could indicate that you're overextended. High utilization lowers your credit score and signals to prospective lenders an increased risk that you will fall behind on payments.

However, I pay my balance in full every month, and I'm not looking to make partial payments anytime soon. Do I need to worry about credit utilization?

I now often hit the 50% or more mark, but that's just because I'm using the card much more frequently versus always carrying cash (I found that the card is faster and more convenient).

Hart CO · Accepted Answer

Historically credit scoring models recorded utilization as a point in time metric. That means you only really needed to worry about it if you are about to make use of your credit. If you were looking to take out a new loan you might want to pay twice a month to keep utilization down, or if you knew exactly when your credit would be pulled you could time a payment to hit just before and hit an ideal utilization rate.

The latest FICO scoring model appears to leverage utilization trends over time, so the actual impact to you just depends on what method your lender is using, but at this point most likely it will be a model that has a point in time approach to utilization.

Asking for a limit increase will help in any case. Personally, unless you have a need to make use of your good credit score in the very near future I wouldn't worry much about utilization rate.

Should I worry about credit utilization if I always pay in full?

One Answer

Add your own answers!

Ask a Question