The other day I had a client come to me saying her lender recommended she keep her credit card balances at 30% to the limit. Have you received this advice too? This is a myth I’ve heard passed around far too often and (spoiler alert!) doesn’t support your credit score.
So I thought I’d jump over here to share my insights on why I believe this myth is so popular and what magic number will actually enhance your credit score.
Why 30% to limit credit card balances doesn’t work for your credit score.
Simply put, this percentage is still too high and therefore not the best for your overall credit. When it comes to credit card balances the standard rule is: the lower the better.
Obviously if your cards are maxed out and you bring the balance down to 30% of the limit, that’s fantastic and will certainly improve your overall credit stance! However, generally speaking, 30% should not be the end goal when it comes to credit card balances.
Side note: This is only referring to credit cards, not revolving or installment balances like student loans or mortgages.
How did the 30% myth come to be?
It’s my belief that this myth took form due to a transfer of how a FICO score is calculated, which is as follows:
- 35% payment history
- 30% balances
- 15% length of credit
- 10% new credit
- 10% types of credit
As you can see, the “30% balances” as it pertains to score generation could have easily been taken outside its original context and funneled into beliefs surrounding credit card balances.
Also note here, installments are taken into consideration for this 30% but they’re calculated differently, so don’t worry about those balances for this portion.
What is the magic number for credit card balances?
Onto the good stuff! What is the magic number you want to keep your credit card balances at? My suggestion is 10% to the limit. This is where you’ll see the best results and maximize your credit. Anything below 7% will report as if it’s zero, which makes 10% the sweet spot!
FAQs about credit reports.
We live in a fast-paced world, where instant results are the new standard of expectation. But when it comes to credit, slow and steady wins the race. Healthy credit habits take time to implement and time to reflect on reports. So when you pay your credit card and see the balance updated on your account, this isn’t exactly what credit reporting agencies will immediately see on their end. Credit reports get updated monthly. To see a score improvement once lowering your debt, you will most likely have to wait until agencies report your statement balance, and this can take up to 30 days.
My golden credit rule and next steps to take.
The strategy for mastering the credit game is awareness. No moves can be made until you know what you’re dealing with, where you stand, and what your options are. And there’s no time like the present to get started!
If you haven’t yet, I want to invite you to take my FREE credit snapshot to get a review of your credit. This snapshot has no effect on your credit status, so use this resource to your advantage.
If you want to listen to the full episode about this topic, tune into my podcast Credit Over Coffee.
And as always, come connect with me on Instagram @creditjeanne. I would love to hear your takeaways, wins, and answer any q’s!
