Credit scores: Is 1 percent utilization better than 10 percent or zero?


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A tiny card balance can give you a small score boost, but you should still pay in full

Staff Reporter
Focusing on credit scores and what consumers can do to improve them

Carrying over a sliver of your credit card balance can give
you a small credit score boost, but 0 percent utilization is better for your
financial health.  

Credit experts and consumers hold differing views on how
various credit utilization levels help or hurt your FICO credit score. Many say
that staying at or below 30 percent utilization can keep your score in good
shape, but it’s more of a rule of thumb than a clear dividing line. It’s also rumored
that 9-10 percent utilization is the sweet spot for maximizing your credit

Although it would seem a 0 percent debt-to-limit ratio is
ideal in credit scoring, that’s not necessarily the case.

Barry Paperno, a
credit scoring expert who has worked at FICO and Experian and is a columnist
for, said keeping a 1 percent credit utilization ratio can
score you a few more points than 0 or 10 percent, though that’s not applicable
to all consumers all the time.

However, personal finance experts warn against paying only a
portion of your balances in order to achieve a credit score boost.

“There is no reason to carry a balance and pay interest on
any credit card for the sake of your score,” said Rosemary Frank, a financial
adviser based in Tennessee.

For instance, if your overall available credit is $100,000,
1 percent of that is $1,000. That’s a hefty sum to carry on a card, especially
if it has a high APR. Additionally, if you have negative items in your credit
report, such as a recent missed payment, a 1 percent utilization rate (as
opposed to 0 or 10 percent) may not help your score much.

There are ways to play the 1 percent utilization game
without actually revolving a balance from month to month. It just takes a
little research and strategic budgeting. But experts still question the value
of doing so, given that any credit score increase isn’t likely to change your
overall credit situation in a significant way.

Why is 1 percent
better for your score than 0 percent?

It may seem counterintuitive that carrying a tiny balance on
one of your credit cards is better for your score than paying them all in full
each month or not using them at all. However, $0 balances are seen as a sign of
infrequent credit use, which could suggest that you’re a high credit risk.

Pat Culhane, a credit scoring expert and former vice president of FICO, said that could be because you may appear to be reserving the $0 balance account for a large, perhaps unforeseen financial need. (If you use a credit card as an emergency account, that may be a sign that you don’t have cash on hand to pay for a sudden expense now or when the card balance is due.) 

Additionally, if you keep all of your cards at 0 percent
utilization by rarely using them, it gives potential lenders little information
as to what kind of borrower you might be. In addition, by not using your cards,
you’re not viewed as a profitable customer for the lender as banks make their
money through card transaction fees every time a card is swiped.

A credit scoring model can penalize you for showing
infrequent card use because it doesn’t provide any insight into your payment
habits. For all the lender knows, you could be a responsible borrower or
someone who is prone to missing payments.

“There can be reasons why in a given [credit scoring]
algorithm the points associated with 0 percent utilization are not quite up to
what a small percentage utilization would be,” Culhane said. “It could be related to what
the developer sees as re-payment odds.”

How to maintain 1
percent utilization on your card(s)

If you want to experiment with your score by maintaining 1
percent utilization, you’ll need to find out when each of your card issuers
reports your account information to the credit bureaus. (In many cases, issuers
report around the end of your billing period each month.)

So, if you have a card with a $5,000 credit limit, you’ll
want to ensure that the balance is $50 on the day you expect your issuer to report.
(Paperno noted that FICO’s model rounds up to 1 percent if your utilization
share is greater than 0 but less than 1 percent.)

Do the same for any other
cards you own – or just pay them down to zero before their issuers report – to
keep your overall utilization at 1 percent.

credit bureau reporting dates affect credit utilization

if you pay your card’s balance in full before the due date, your credit report
could reflect high utilization – and potentially lower your credit score – depending
on when your issuer reports the account information to the credit bureaus.

hypothetical example involves a card with a credit limit of $5,000 and a $500

due date:
The 25th of the month

issuer reports account information to credit bureaus:

The 20th of the month


as of the 19th:

utilization after $450 payment made on the 19th:

1 percent

utilization if $500 balance is paid in full on the 25th:

10 percent

How you achieve 1 percent utilization depends on how much
credit you have available and how you use your card. For example, if you have
only one card that has a $500 credit limit, you can simply buy one cup of
coffee at Starbucks with it and wait until after the balance is reported to pay off your card.

But it’ll take more payment discipline to have a 1 percent
balance reported on a higher limit card that you use for all your routine
spending. If you’re accustomed to revolving a balance on your “everyday” card, you
may need to adjust your budget in order to begin paying off 99 percent of it
just before your issuer reports each month.

After the reporting date, be sure to make at least the
minimum payment before it’s due (if you didn’t already achieve that by paying
it down to 1 percent), otherwise you could damage your score. Better yet, pay
the remaining debt in full and don’t revolve a balance. 

“There is no reason to carry a balance and pay interest on any credit card for the sake of your score.”

Strive for good
credit habits, not short-term score gains 

Ask yourself whether it’s worth the trouble
to make multiple strategically timed payments per month instead of just paying
them in full.

Besides, if you keep your balances relatively low and pay
them in full
on time every month, your credit score will stay in good shape. And
you can give your score a boost by using a healthy mix of different trade lines
and not applying for too many cards in a short period of time.

“Establishing your behavior relative to your credit and
sticking with that over the long haul is a better strategy than short-term
optimization,” Culhane said.

See related: Individual vs. combined utilization: Which one has a greater effect on score?, When paying off multiple credit card balances backfires

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