Is 0 percent credit utilization bad?



You know you’re supposed to keep your credit utilization below 30 percent (below 10 percent if possible) to maximize your credit score.

But is it possible to go too low? Would having 0 percent utilization harm your score?

The short answer: “Harm” is the wrong word, but 0 percent utilization may actually hold your score back slightly. We asked the credit experts to help us explain.

A little utilization is better than none – but only slightly better

FICO’s goal is to tell lenders which borrowers can use credit responsibly. Emphasis on the “use credit” part. So if your utilization on all your cards reads “0” month after month, your score won’t be as high as it would be if you had a little utilization.

“Our research has shown that all else held equal, consumers who are inactive on their cards represent a higher default risk relative to those who use their cards, but utilize only a small fraction of their available credit,” wrote Can Arkali principal scientist at FICO in an email to CreditCardForum.

So your best bet is to use your cards but keep your utilization low.

“Put simply, when it comes to credit card debt and the FICO Score, less is better than more, but some can be better than none,” Arkali wrote.

But just because having no utilization can constrain the heights your scores can reach, it’s over-dramatic to say that 0 percent utilization “hurts” your score, says credit expert John Ulzheimer, formerly of FICO and Equifax.

“When I use the phrase ‘hurt your score,’ I’m thinking of what a collection account or charge-off or missed payment is going to do to your score,” he says. “Just not using your cards doesn’t mean you’re going to turn an 820 into a 520.”

However, inactive cards may get closed by the issuer – and that can lower your total credit available and make keeping a low utilization harder. So “knock the dust” off your cards from time to time by making small purchases, Ulzheimer says.

If you use your cards regularly, don’t even worry about having 0 percent utilization

If you’re worried about accidentally getting a 0 percent utilization and holding your FICO score back, don’t be.

According to Ulzheimer, if you’re using your cards regularly, you have to really try to have 0 percent utilization reported across all your card accounts.

“That’s really hard to swing,” he says.

Either you’d have to stop using all your accounts, or you’d have to take care to pay off your balance in full before your statement cuts (which is usually when your balance gets reported to the credit bureaus). If you have bills on autopay that are charged to your card, things become even more complicated.

“You have to make sure nothing else hits your card during that interim,” Ulzheimer days. “It’s not as easy as some would have you think — pay your bill every month, and you’ll have zero utilization. That’s absolutely not the truth.”

So relax

The big-picture answer to the question, “Is 0 percent utilization bad?” is no — it’s not bad. Having 1 percent as opposed to 0 percent can be a hair better, but you’re really splitting hairs at that point. The only time the word “bad” should be used would be to describe a very high utilization and a credit report riddled with late payments. Anything — including 0 percent utilization — is better than that.

So to avoid clipping your FICO score’s wings and keep it soaring, just use your cards responsibly.

“Consumers can receive good FICO Scores by actively using and subsequently paying their credit obligations on time, maintaining low balances and judiciously applying for new credit,” Arkali wrote.

But you already knew that.

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