Boosting your credit score often feels like a game—and you may not learn the rules until after you have broken one of them. One big rule—a rule that impacts 30% of your credit score—is the percentage of credit you are using, or your credit utilization. While experts say to keep your credit utilization below 10%, a new NerdWallet report explains why you may want to snip off that zero.
The concept behind credit utilization is simple: when your bank offers you a credit limit, your credit card balance may indicate how likely you are to pay it back. If you’re only using $50 of your $1,000 credit limit, you’re less of a risk than someone with an $800 balance. Your credit utilization changes every month as your banks report your balances to the credit bureaus—Experian, Equifax and TransUnion.
There are a few ways to achieve a true 0% credit utilization every month. You can pay off each credit card transaction as it posts—or you can pay off your balance by the statement closing date. The third option is to pay off your balance by the due date and stop using the card through the next billing cycle.
But experts say it’s better to aim for just above zero—or 1% utilization. As CNBC reports, some scoring models don’t like a 0% utilization because it looks like you aren’t using your credit cards at all. While 0% credit utilization still looks better than numbers above 30%, scoring models prefer to see single-digit utilization.
According to NerdWallet, there are a couple of ways to achieve the coveted 1% utilization. You can get every credit card to 0% except for the one with the highest limit—and use 1% of that card only. You can also pay off transactions as they post to keep your balances low. If you don’t like manually calculating utilization, check your credit card’s website for utilization updates.
If you’re struggling to reach either 0% or 1%, try to keep your credit utilization below 10%. It will still make a big difference, particularly if you also have a history of on-time payments—which impact 35% of your credit score.