Should I REALLY keep all my credit cards totally paid off every month to optimize my credit score?

Question

Every time I search for the question "Should I pay off my credit cards", everyone says "YES! It's great for your credit!" BUT THEN, you run into articles with directly conflicting information like this one from Experian themselves: https://www.experian.com/blogs/ask-experian/is-no-credit-utilization-good-for-credit-scores

This article states "A 0% credit utilization rate has no real benefit for your credit score. Instead of aiming for no utilization, keep your credit utilization rates below 30%, and preferably under 10%, to help your credit."

In other words, DON'T pay off all your credit cards every month. Keep like, 1% utilization or something on all of them.

So which is it? Pay off all your credit cards every month, or keep a tiny balance on them? I don't care about the few dollars of interest or whatever I'll be charged on the 1% balance. Who cares. I care about making my score as high as possible.

Summary: Everyone says "pay your credit cards off", but then you read "Don't have 0% utilization", and these are literally opposite things. What is the correct percent of utilization to keep on your credit cards for the best possible credit score? Is it zero, or non-zero (one percent, two percent, anything below six percent)?

Answer 1

Paying the statement balance each month is not the same as 0% utilization. 0% utilization means that you didn't use the card at all that month, or you made payments to get the balance to zero before the monthly statement was created.

The balance that gets reported to the credit bureaus is typically the statement balance on your card, not the balance after you make a payment. The "utilization" that the credit scorers calculate is therefore based on how much you put on the card over the month, not how much you float from month to month.

The reason to pay at least the statement balance every month is not to build credit, but to avoid paying interest. You get the same benefit to your credit score by making a minimum payment on time, but you'll get charged 2% interest (24% annualized) or more on the remaining balance each month. (It's actually charged on more than the remaining balance, but that's not the point here)

For example, if your credit limit is $10,000 and you want to have a 6% utilization (I'm not saying that's the perfect amount, just an example) then you would try to spend about $600 each month and pay it off each month.

I would also note that your payment history is generally a bigger factor than utilization. Utilization is more to measure if you're using too much credit, or have too much to use (meaning you could theoretically go on a shopping spree). If you pay your bills each month and don't use too much credit you'll be fine.

Secondly, your credit score is not a measure of how good you are with money. It's a measure of how likely you are to pay off your debts. There is very little benefit to making it "as high as possible" other than personal feelings. My credit score has wavered between 750 and 820 and the variance has had absolutely no impact on my ability to get loans or any other aspect of my life. There are negative consequences for low credit scores if you want to borrow money, but those are because of bad behavior that make you a possible credit risk (trust is hard to earn but easy to lose). The only thing a max credit score gets you is a little more grace if you mess up once.

What is the correct percent of utilization to keep on your credit cards for the best possible credit score? Is it zero, or non-zero (one percent, two percent, anything below six percent)?

It's not zero but no one knows the exact percentage. It may also be the case where the "best" percentage is different depending on other factors.

Answer 2

Per the very first line in the article:

A 0% credit utilization rate has no real benefit for your credit score.

Well guess what, it doesn't harm your score either.

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The misinformation/misunderstanding surrounding credits cards will never cease to amaze me; much of the blame rests on credit bureaus which expect you to behave a certain way in order to gamify their metrics.

Tangentially, if you find yourself "needing" to gamify your score in order to afford something then it probably means you cannot afford it. The only relevant use-case for gamification is to achieve a lower interest rate; don't gamify your way into a larger loan.

With modern credit cards, you typically you get 30 days to accrue charges, then you get a 30 day interest-free grace period to pay off those charges.

During the payoff period you will usually accrue new charges which will be due in the next payoff period.

If your credit card has a limit of $1000 and on average you accrue $300 in charges each month and pay off each statement in full then your credit utilization will usually be 30-60% depending on when the creditor reports your balance to the credit bureau.

Do NOT ever think that it is wise to mindlessly carry a credit balance because the interest is usually an astronomical 25-30%. To compound the issue, if you carry an unpaid statement balance past the due date then your new purchases do not get the aforementioned interest-free grace period and are rather costing you interest from the moment they get charged; read What happens if you don’t pay your full statement balance (emphasis added by me)

When you receive a credit card bill then pay it off by the due date, period. If you are unable to pay it off in full then that is a big red flag that you are overspending and will wind up in a debt spiral if you don't adjust your spending habits or increase your income.

Answer 3

germany

In Germany, Charge Cards are the more popular type of credit cards, which must generally be paid in full monthly to not accrue late fees or bad APR. If you have one, you probably should pay in full.

(I'm not even sure how I'd make a partial payment to my charge card as amex direct debits the full debt from my bank account every month.)

If you have a traditional credit card, it makes no difference for credit purposes if you pay off fully every month (unless you're in non-payment and are getting payment notices (Zahlungsaufforderung)). Schufa does not get any information about credit utilization % and generally does not even know of your credit card limit, so that has zero impact on your credit score. They do know how long you've had a credit card, and based on lack of payment notices can deduce that you don't lapse payments, so best you can do is keep paying for it.

If you have your credit card through your bank, and you're trying to get a loan from your bank, then of course they can look at your credit card with them as part of their decision making process, but what they want to see can in turn vary bank to bank, your best option is probably to talk with your bank representative and ask what they prefer to see.

As for the non-credit-score aspect, you can do the appropriate calculation based on APR, inflation and your personal finances to decide if you want to pay in full or not, but I don't think that's what's being asked here.

Answer 4

you run into articles with directly conflicting information like this one from Experian themselves: https://www.experian.com/blogs/ask-experian/is-no-credit-utilization-good-for-credit-scores

This article states "A 0% credit utilization rate has no real benefit for your credit score. Instead of aiming for no utilization, keep your credit utilization rates below 30%, and preferably under 10%, to help your credit."

As Dave Ramsey has pointed out, all a "credit score" is good for is getting into debt. If you're paying off your balance every month, it's because you don't want to be in debt and pay interest on your balance, so why do you even care what your credit score is?

And for the rare occasions when you might actually need a loan... if you're financially responsible enough to do things like this, those few extra points Experian mentions aren't going to make a difference. About a year and a half ago, my wife and I applied for a mortgage to buy a house. We were a bit nervous because everyone was talking about how it was nearly impossible to get a mortgage back in 2023. I have never had a credit card in my life, and I paid down previous loans such as student loans and auto loans on an accelerated schedule. I had been 100% debt free, "zero utilization," for the better part of a decade at this point.

We basically sailed through the mortgage process, and the bank's mortgage agent was very accommodating to us, because they put a much higher value on financial responsibility than Experian would have you believe. And now we're working on paying the house down as quickly as possible, because we don't want to be in debt and pay interest.