5

I read Little Advisor's article How does that thing with the credit cards work, again?

According to the article, you should always keep your balance below 30% of your credit limit. However, I just recently got a secured credit card from Capital One, with a "credit" limit of $200.

Does the 30% guideline apply to secured cards as well?

JoeTaxpayer
  • 172,694
  • 34
  • 299
  • 561
Soviero
  • 1,362
  • 1
  • 12
  • 17

1 Answers1

6

This thinking has shifted and shifted again over the years. It used to be recommended that one should maintain an approximate 30% balance to achieve the highest score.

Credit Karma has an excellent random sample of 70,000 credit scores:

enter image description here

To achieve the highest score by this reliable sample, one should maintain a 1-10% balance.

Why the large drop at 0%? Creditors must be assured that a borrower can manage credit, namely regular interest payments.

Credit scoring is fairly accurate at determining default risk as shown by VantageScore's calculation based upon TransUnion data:

enter image description here

For creditors to be able to produce credit, the cost of default risk must be compensated, and this is done via the price of credit, the interest rate:

Auto loans

enter image description here

Credit cards

enter image description here

Mortgages

enter image description here

In short, one should keep a 1-10% balance of all available credit card credit, including secured credit cards.