The Frugal Creditnista

Is It More Important to Keep Utilization Down On 1 Card or All of My Cards?

Q:  I am starting to rebuild my credit, I have 3 cards that I have been approved for.  I know I should stay below 30% but one of them is a travel rewards card and if I spend a certain amount in 3 months I get enough points to redeem for a much needed flight.  So, what is best?  If I spend 80% or more on one card and don't spend on the others is that okay?

A.  Congrats on starting to rebuild!  Oh…the temptation of a rewards card! 🙂  Well, ultimately it's up to you.  If you don't spend on the other 2 cards, you'll have to calculate if your overall utilization will be under 30%.  Example:  Let's say you have 3 cards at $1000; meaning $3000 total.  If you spend up to 80% on 1 card, or $800, and keep the other cards at $0; your overall credit utilization will be 27% ($800/$3000).  You will still lose points on that 1 card though.

Your utilization is based on both Each Card individually and your total utilization on All of your cards.  Each are important and according to FICO, one is not more important than the other.  You have a couple options:

1.  Charge it to 80% and pay it down to 30% or completely off prior to the statement date.  Most credit card companies report your usage to the bureaus a few days after they generate a statement.  So if you pay it off before the statement comes out, your high usage it won't get reported to the bureaus; call them to find out specific dates/time frames.

2.  Take the hit to your score for the 3 months that you are attempting to get the miles for a free flight, and rebuild after you've gotten it.  The hit will be totally temporary as the fastest way to boost your score is and always will be to pay down current debts.  This time instead of keeping the balance below 30%, you'll keep it below 7%.  You get awarded the most points this way.

Hope this helps 🙂

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