Credit Card Utilization: 1% vs. 0%

When people talk about credit reports and scores, they all repeat certain golden rules. One of them is “use as little of your credit card limits as possible.” That is mostly true. After all, a low credit card utilization number usually leads to a healthier credit score. And if you check, you will find that most people with excellent credit scores have utilization rates in single digits. So when it comes to the 1% vs. 0% debate, how come having 1% of your credit limits in use is better than 0%?

Let’s find out in our short credit card balance guide.

Why Should You Aim For Single Digits?

Several significant factors impact your credit score. Credit card utilization is one of them. It compares the current balance and credit limit of things such as credit cards. In other words, it is the percentage of your credit card limits you use.

It’s quite an influential factor, if only for the reason that it affects your score quicker than some other methods. Your utilization will rise or fall the moment your card issuer reports the new balances to the three bureaus.

Most people rightfully believe that using as little of your credit card limits as possible is better for a healthy credit score.

The Zero Usage Myth

You may think that zeroing out all your card balances is a great move, but you’d be wrong. It does seem counterintuitive, but a zero balance would not bring the best results.

A 1% may help your case better. That is due to the simple reason that people with 0% credit utilization pose a more considerable risk. Data showed this to be true – having low credit card utilization, as opposed to none, tells lenders that you can use credit responsibly. It also tells creditors that you are more likely to repay borrowed money.

How To Strive for 1% Card Utilization?

The benefit of going for the 1% balance is that it may gain you a few points on your credit score. People usually go for this if they are close to the perfect 850 credit score or are near the end of qualifying for a reduced interest rate on loan.

One of the most popular techniques for this is the AZEO (all zeros except one) method. You aim to get every credit card to a zero, except one. Credit utilization is then scored both overall and per card. So try and use the highest limit card as the one that will have a statement balance. Next, just add all the credit limits, and calculate 1% of that.

Another move looked on favorably is paying online as soon as a transaction posts to keep the balance low. You can also use a personal finance online service or your card issuer’s website to follow up on your credit card utilization week to week. Then make a payment to lower utilization instead of waiting for the statement to arrive that month.

Credit Card Utilization

Keep Your Credit Card Utilization Between 1% and 10%

There are always helpful moves you can make to lower your utilization rate and boost your credit score. Here is some crisp and great advice that can reduce your credit utilization ratio:

Pay Bills on Time, and More Often

Making smaller automatic payments can help keep your score between 1% and 10%. So don’t wait for the due date to pay off your balance.

Card issuers will report your statement balance to bureaus once per billing cycle. But you can’t exactly know the date when the issuers will report to the credit bureaus. So your best bet is to make multiple smaller payments during the billing cycle.

Ask For a Higher Credit Limit

If you are spending more than your preferred credit limits, you can negotiate with your card issuer for a higher credit limit.

That can give you a bit more room to breathe each month, but ensure that you can budget yourself properly. A higher limit means more chances that you spend over your means.

Avoid Closing Credit Cards

Closing your credit card accounts isn’t the best move you can make, particularly when it comes to your oldest one.

When you close out a credit card, you lose that particular credit limit from your total available credit. That leads to card utilization climbing up and dragging down your credit score.

Inform Yourself About Your Options

Striking that desired credit card balance is no easy feat. We have covered the fundamentals of the 1% vs. 0% debate. We also dealt with the best tips to keep your credit card utilization in the one-digit range. Nevertheless, doing all this by yourself can be tricky. Thankfully, there are credit experts on hand that can help. White, Jacobs and Associates has a team of credit analysts who will sit down with you for a free consultation.

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