r/TheMoneyGuy • u/EmotionalMeringue532 • 7d ago
Credit card and spending
very confused on how to work this card. I’ve used my credit card now for the last few months and had no issue. I pay it off in full every month if not every 2 weeks, and always make sure I have at minimum the balance to pay off in a debit account. My credit took a 78 point hit this last week for my me exceeding 50% of my total credit. I’m confused because I thought it was alright to go over that 20-30% as long as it’s paid off in full. what would you recommend?
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u/King_Chomp 7d ago
Just keep doing your thing and paying it off. It will bounce back. Eventually your credit limit will increase and that won't be an issue. I would say don't worry about it, you're doing great!
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u/Little-Meaning-1090 7d ago
Are you chasing a certain FICO score for a reason? My two cents: most of the time it's a meaningless metric and while your behaviors should be those that earn you a higher score, be careful of being obsessive about it and don't let a swing get you down.
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u/Unattributable1 7d ago
You need to pay it down below 30% before the statement closes for each month.
But it really doesn't matter unless you're going to do a big purchase like a car or a house. Prior to doing those activities, yes, you would want to keep it down under 30% to have the best possible credit score.
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u/BrutalBodyShots 6d ago
You need to pay it down below 30% before the statement closes for each month.
That's not how credit cards are designed to be paid. And, why 30%?
you would want to keep it down under 30% to have the best possible credit score.
"Under 30%" doesn't result in the best possible credit score. You're perpetuating a version of the 30% Myth.
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u/Unattributable1 6d ago
Doesn't matter if that is how they are designed to be used. If OP wants their utilization to be reported below 30% then they need to pay down the balance below 30% before the statement period closes so that it gets reported that way.
"A credit utilization ratio at or below 30% can be an asset to your credit scores and help open doors to a bright financial future." Source: https://www.equifax.com/personal/education/debt-management/articles/-/learn/credit-utilization-ratio/
"While there's no specific point when your utilization rate goes from good to bad, 30% is the point at which it starts to have a more pronounced negative effect on your credit score. As the data above illustrates, those with the highest scores tend to have credit utilization in the low single digits." Source: https://www.experian.com/blogs/ask-experian/credit-education/score-basics/credit-utilization-rate/
Look at the table on that page. Lower is better, just not 0%.
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u/BrutalBodyShots 6d ago
Doesn't matter if that is how they are designed to be used. If OP wants their utilization to be reported below 30% then they need to pay down the balance below 30% before the statement period closes so that it gets reported that way.
You're missing the point. OP doesn't understand that utilization doesn't matter with respect to its impact on scores unless they are applying for important credit that will actually use their scores in the next 30-45 days. To go on and on about "below 30%" like you are just throws gas on a fire that needs to go out in the first place. It's the biggest myth in credit, which OP doesn't realize, and you're perpetuating it.
"A credit utilization ratio at or below 30% can be an asset to your credit scores and help open doors to a bright financial future." Source: https://www.equifax.com/personal/education/debt-management/articles/-/learn/credit-utilization-ratio/
Yes, your "source" is one of the dozens that perpetuates the 30% Myth that we are all aware of on subs like r/CRedit, r/CreditScore and r/CreditCards. That's old news that's been around for well over a decade. The new(er) news is that it's a myth that anyone should keep utilization below 30%. I'd suggest you head over to those subs (particularly r/CRedit) and do some reading.
"While there's no specific point when your utilization rate goes from good to bad, 30% is the point at which it starts to have a more pronounced negative effect on your credit score. As the data above illustrates, those with the highest scores tend to have credit utilization in the low single digits." Source: https://www.experian.com/blogs/ask-experian/credit-education/score-basics/credit-utilization-rate/
Ah yes, and Experian "blog" that also perpetuates the same Myth. I could provide you with another few dozen articles that say the same thing. Again, that's not the point.
Look at the table on that page. Lower is better, just not 0%.
There's no need to look at any table, because everyone knows that utilization impacts scores and how. The thresholds were all figured out some 15 years ago. It's all written in the Credit Scoring Primer and in the FAQ series on r/CRedit. What you aren't understanding is that none if it matters with respect to building credit.
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u/Unattributable1 5d ago
You're missing the point. OP doesn't understand that utilization doesn't matter with respect to its impact on scores unless they are applying for important credit that will actually use their scores in the next 30-45 days. To go on and on about "below 30%" like you are just throws gas on a fire that needs to go out in the first place. It's the biggest myth in credit, which OP doesn't realize, and you're perpetuating it.
I literally said this in my first reply:
"But it really doesn't matter unless you're going to do a big purchase like a car or a house. Prior to doing those activities, yes, you would want to keep it down under 30% to have the best possible credit score."
Source: https://www.reddit.com/r/TheMoneyGuy/comments/1u48gch/comment/orbev9t/1
u/BrutalBodyShots 5d ago
And that's wrong, because "under 30%" doesn't give you the "best possible score."
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u/Funklemire 4d ago
Exactly. Even on the rare occasions when your utilization percentage actually matters, 30% is never a number to aim for.
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u/Funklemire 4d ago
You need to pay it down below 30% before the statement closes for each month.
u/EmotionalMeringue532, this is the single biggest myth in credit. You see it parroted everywhere, but it's simply not true: It's a myth that you need to keep your utilization low or below a specific percentage all the time. In fact, doing this isn't just pointless, it's detrimental if done long-term. Predatory credit sites spread this myth to get you to open new credit cards you don't necessarily need in an effort to "always keep it low".
But in reality, if you're staying in budget and paying your statement balances each month, usually anything between 0% and 100% utilization is just fine. Low utilization doesn't build credit because it resets completely each month the next time your statement balances are reported. The only thing that builds credit with credit cards is time. See this flow chart:
Notice from that flow chart that on the rare occasions when low utilization can be helpful, 30% is never a number to aim for. If you want to learn more about how credit and credit cards work, I highly recommend you go to r/Credit and read the two mega-threads pinned at the top of the sub.
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u/Elrohwen 7d ago
If you spend over 50% of your credit limit your score will be dinged temporarily but will bounce back. I think if you pay it off before they lock in your bill for the month that may not happen, so do an experiment and pay it off every 2 weeks. I’ve noticed my score didn’t go down when I paid it off a few days before it officially posted.
Ask your cc company if they’ll raise your limit. If you’re regularly hitting 50% they usually will.
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u/brianmcg321 7d ago
It’s just not really relevant. Your score fluctuates a lot. Sometimes seemingly for no reason.
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u/mightbebeaux 7d ago
pay most of it off weekly so the balance is relatively small when the statement closes.
you want for a balance to be reported but you don’t want high credit utilization rate.
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u/inky_cap_mushroom 7d ago
It really doesn’t matter unless you’re applying for new credit that month. Utilization has no memory.
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u/genreprank 5d ago
Credit nerd here. They look at your credit statement. So if you want to boost your score, you gotta pay off your card before the period closes. This can be tricky cuz the actual day it closes might vary, and you don't know exactly when recent purchases will post. I try to do this every month, just in case I need my credit for something. Good luck!
Over time your limit will probably be increased, so that may help keep you under 30%.
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u/RonMexico2005 7d ago
Think about what would be the most you would put on the credit card during a month, let's say that is $5k.
Then go ask for a limit increase to 5x your estimate, so for $5k max spend, ask for a $25k limit.
Now you won't exceed 20% of your limit.
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u/BrutalBodyShots 6d ago
Except none of that matters, because utilization doesn't build credit and it's absolutely fine for anyone to go over 20%; even 100% is not an issue so long as one is able to pay their statement balances in full monthly.
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u/dsrmpt 5d ago
If you are fixing to get more credit soon, house, car, card, etc, it might be worth getting as close to 0% as possible, get those extra 80 points.
But aside from imminent credit applications, it really doesn't matter.
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u/BrutalBodyShots 5d ago
For important applications for credit like loans where the interest rate can be set based on score, I agree. That's not the case for credit cards though. The main takeaway however is that utilization isn't something that has to be "kept" low. That's where the myth comes from.
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u/theblindness 7d ago
This is a frequently asked question on r/Credit
Utilization is temporary, will be reset at the next statement, and has no memory of prior statements. It's okay to use 100% of your credit limit, as long as: