Credit Cards – Darned if You Use Them, Darned if You Don’t

Ever since Congress passed the CARD Act of 2009, consumers have been scrambling to bring their credit scores back to former levels.

At that time, credit card issuers made drastic changes in anticipation of how the act’s provisions were going to affect their profits. One of those changes was to slash spending limits and close unused accounts.

Since “utilization” contributes to 30% of your credit score, thousands of consumers found themselves unable to get the best rates on loans – some weren’t even able to get loans.

Utilization is the ratio between how much credit you have and how much you use. When the credit card companies slashed credit lines to at or below consumers’ current balances, they suddenly showed 100% utilization. Some even showed that they were “over limit.”

Since credit scores impact everything from getting a loan to renting a house to being hired for a job, most consumers are working to improve their scores. They’re paying down credit cards and getting new cards with no plans to actually run up balances.

And that’s where some consumers are making a credit-damaging mistake.

It turns out that carrying cards with zero balances can actually lower your scores.

While staying under 30% utilization is good and staying under 10% is even better, the credit scoring models do want to see some activity and proof of your bill paying habits, so 0% utilization is NOT good.

However, you don’t need to carry a balance. The best way to protect your credit scores is to use up to 10% of the available credit on your cards, then pay the balance each month to avoid interest charges.

The credit card issuers report your balance as of the day they issue your monthly statement, so even when you pay the balance in full, your credit report will show activity.

Of course there are exceptions.

If you’ve been carrying a balance at or near your credit limit, paying off the card and showing a zero balance will help your scores. In addition, having a mix of utilized cards and zero balance cards won’t hurt you.

But don’t make the mistake of thinking that becoming debt free will mean higher credit scores. It just doesn’t work that way.

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Disclaimer: This information has been compiled and provided by as an informational service to the public. While our goal is to provide information that will help consumers to manage their credit and debt, this information should not be considered legal advice. Such advice must be specific to the various circumstances of each person's situation, and the general information provided on these pages should not be used as a substitute for the advice of competent legal counsel.