Understanding how credit utilization impacts your credit score can let you quickly improve your credit score and understand why it changes. Utilization accounts for 30% of your overall credit score mix (using FICO) and is one of the most common reasons why many people’s scores go up and down each month. You can boost your credit score by using the AZEO (all zero but one) method.
Utilization is tracked for each individual credit card as well as across all your cards. If you have one card with a $10,000 limit and you have a $1,000 balance you have a 10% utilization on that card. If you have another card, also with a $10,000 limit and no balance, then you have 5% utilization overall.
Keeping your utilization between 1% and 9% on one card, while keeping your other cards at a zero balance is called the AZEO method (all zero but one). Boosting your credit score quickly is easy with this method.
One great thing about utilization is that it has “no memory” when it comes to the current credit scoring FICO models in use. If you have a high balance one month that negatively impacts your score, you can quickly improve your score by paying down the balance and in the next month your score will rebound.
Utilization Has No Memory – Use AZEO Method At Any Time!
It does not matter how long you kept a balance, as soon as you drop the balance down you will get a credit score improvement. In the future, credit scoring models like FICO 10T will use trended data, so in addition to avoiding paying interest, it is a good thing to not keep high balances for long.
Here is a general guide to how your overall utilization impacts your credit:
No balance on any card – Slight penalty to your credit score
- 1% to 9% – Slight boost to your credit score
- 10% to 30% – Neutral to slight penalty to your credit score
- 30% to 100% – Larger penalty to your credit score
- Over 100% – Huge penalty to your credit score
Learn more about everything else that makes up your credit score by understanding the difference between FICO and Vantage scores.