Is 0% a good rate of use of credit?


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AT maintain good credit rating, it is important to keep your credit utilization rate (CUR) low. The general rule of thumb is that you don’t want your CUR to go over 30%, but more and more financial experts are recommending that you don’t want to go. above 10% If you really want a great credit score.

But what if you had a 0% utilization rate? For credit card issuers, this may not sound as good as you think.

“When it comes to credit cards, it is important to ‘use but not abuse’ these cards,” Jim Droske, president of the credit counseling firm Illinois Credit Services (and someone with a perfect credit score), tell CNBC Select. The key is to feel comfortable putting your daily expenses on your card knowing you can pay the bill at the end of the month.

Below, we take a look at how to calculate your credit utilization rate and why keeping yours at 0% can negatively impact your credit score.

How to calculate your credit utilization rate

Your credit utilization rate (also known as the credit utilization ratio or debt-to-credit ratio) measures how much credit you use versus how much you have. The calculation takes into account both your credit card balance and your credit card limit.

For example, if your current balance is $ 2,000 and you have a limit of $ 5,000, that’s 40% of your credit utilization rate.

($ 2,000 / $ 5,000 = 0.4 X 100 = 40%)

“It’s not the amount owed that’s important, it’s the percentage,” Droske says. “So a balance of $ 500 on a $ 10,000 credit limit is a 5% ratio, but the same balance of $ 500 on a $ 1,000 limit is 50%.”

Why you shouldn’t go down to a 0% credit utilization rate

If your CUR is 0%, it tells lenders and credit card issuers that you are not making any purchases with your credit card. Remember that it is important to use Your card.

“When a credit card account is reported with a zero balance, some scoring models will treat a zero balance as if the card was not in use,” Droske explains. “Maybe it’s in your drawer at home, or, for some reason, you’re not using it right now. Not using it at all isn’t as good as it is. ‘use in a very small and controlled way. “

While 0% usage is certainly better than having a high CUR, it’s not as good as a single digit. Depending on the scoring model used, some experts recommend aiming to keep your credit utilization rate at 10% (or less) as a healthy goal for achieving the best credit score.

How to lower your credit utilization rate and achieve a higher credit score

It is important to keep your CUR as low as possible, without reaching 0%. This will help you get a good credit rating, which in turn will help you qualify for the best rewards credit cards.

To improve your CUR, work on paying off your existing balances before you do anything else. If you already have a good credit score but are still struggling to pay off your credit card debt, consider getting a credit card balance transfer. Balance transfer cards offer temporary interest-free periods so that you can simply make payments on your principal balance without worrying about accruing interest.

If you want to maximize the interest-free periods, consider the Citi Simplicity® Card with an APR of 0% for the first 18 months on balance transfers (then from 14.74% to 24.74% variable TA).

Once you’ve paid off at least part of your balance, it may be a good idea to request a credit limit increase, as long as you’re sure you’re not overspending with a higher credit limit.

How to keep credit utilization low

Already have a low percentage of use? Make sure you never charge more than you can afford. “Don’t treat credit cards like a long term loan,” Droske says. “Think of it as a short term loan and a convenient way to pay your expenses.”

And finally, avoid closing any of your credit cards, in particular your elder. Closing credit cards often has an immediate negative impact on your percentage of use (and your credit score) as your credit limit will decrease.

“Low balances and high credit limits are the recipe for low usage,” says Droske.

The information on the Citi Simplicity® card was independently collected by CNBC and was not reviewed or provided by the card issuer prior to publication..

Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.

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