djrez4 wrote:The general consensus is that your best scores will come with between 1-4% utilization. Why that is, I couldn't tell you. I would guess that it's because 0% doesn't show any use and can't build positive history. If you're not using your cards, you can't say you're responsible with them.
I would like to add to this, In many credit score models, including FICO 08, TransRisk, and Vantage, the optimal range of utilization depends on whether you are trying to keep your existing account, or apply for a new account. If you are trying to apply for a new account, scores are typically maximized by maintaining greater than 5% utilization and less than some number between 20 and 35 percent.
The thinking behind the minimum usage is that, if you are using very little of your available credit now, then the fact that you are applying for more says something about you, like maybe you are going to need to borrow a ton soon, or your income/expenses wouldn't support more credit and spending, and in general is a risk predictor of delinquent accounts and charge offs. Many consumers don't like this line of thinking but from the bank's perspective it is necessary to protect its assets.The thinking behind the upper boundary is much more common sense. If you are using too much now, then you will use too much then and put more dollars at risk for the bank.
However, when looking at scoring for an existing account management perspective, the acceptable range is widened at both ends usually, and is looked at on an individual account basis and not on the aggregate of your personal accounts.
In both cases, having inactive accounts is not good. In general, inactive accounts are on their own just un-profitable but not loss generating. The holders however, tend to use their accounts only when financially stressed, another predictor of delinquent and charged off accounts. So it is common to see limit decreases when utilization stays at 0 for a period of time.