How Much Does Charging More Than 1/3 of Your Credit Limit Hurt Your Score?

The FICO scoring model counts the percentage of the credit limit you use -- known as credit utilization -- in its calculation of your credit score. A lower credit utilization ratio improves your credit score, although it is difficult to determine how much a particular credit utilization percentage affects your score, because many other factors come into play.

Identification

There is considerable debate about what a suitable credit utilization percentage is. The Credit Scoring website references a number of sources on the subject, with some sources suggesting that your credit utilization be less than one-third of the credit limit, while others claim 50 percent or 75 percent is sufficient. The credit scoring method of the credit bureaus remains secret, so financial experts can only approximate how credit utilization affects scores based on data they have seen. The Credit Karma website reports credit card utilization should never exceed 35 percent and produces charts on the effects of utilization ratios on credit scores based on a study it performed.

What Is Known

Maxing out a card -- that is, using all the available credit -- almost always lowers a score, sometimes up to 45 points, according to Bankrate. However, a zero percent utilization can hurt a score too, because if you do not use any credit, the credit bureaus don't have enough information to rate you. In general, less credit card debt raises a credit score.

Other Factors

Credit card utilization ratio falls under the "amounts owed" category in the credit score calculation, and "amounts owed" are worth about 30 percent of the FICO score. But credit card utilization is not the only aspect of the "amounts owed" category. Other parts include your total debt burden, number of accounts with an existing balance and the proportion of debt left on any installment loan accounts.

Tip

Charging more than 33 percent of your credit limit may put you in the danger zone, so it usually is worthwhile to pay off as much as possible. You do not need to carry a balance to keep a credit card account active, and the interest rate on credit cards often exceeds that of other types of credit. You could try consolidating your credit card debt into an account that has a lower rate, such as a home equity line of credit, although that may not lower your overall credit utilization ratio.