The utilization rate myth that won't die on credit forums

Keep seeing people say you need to keep your credit card balance at zero to build credit. That's not how it works. The scoring models want to see you using some of your available credit, like $50 to $200 on a $1000 limit card, but paying it off in full each month. Zero balance on all cards can actually drop your score a few points because it looks like you aren't using credit at all. Has anyone else run into this advice from their bank teller or a family member?

2 comments

2 Comments

wright.michael6d ago

My own dad told me to just cut up my credit cards and pay cash for everything to build credit. I tried that for three months and my score dropped 40 points because I had zero utilization at all. Now I keep a $30 Netflix subscription on one card on autopay and my score is actually higher than when I was doing his "no credit cards" method. I guess dad was wrong but at least he didn't tell me to keep a balance and pay interest like some people I know.

juliagonzalez6d ago

That's a fair point about the utilization thing, but honestly I think your dad's advice wasn't that bad. Not using credit cards at all forces you to live within your means and avoid debt, which is smarter than most people give it credit for. Plus, having zero utilization for a few months isn't a big deal if you're not applying for loans right then.