Swiping That Credit Card Could Hurt Your Score. Here’s How

person putting a credit card into a credit card reader.
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I recently asked myself a “Shouldn’t I, as a mostly-functioning adult, know the answer to this?” question:

“Is it possible to use your credit card too much?”

Wait. Before you dismiss me as a doofus and click away, know I religiously pay off my credit card in full at the end of each month.

If I’m paying off my card and stay within my credit limit, I’m good, right?

Well, I’ve been doing a lot of swiping recently. I made a fairly big move, and I had to pay for other costly commitments I’d made months back. All these expenses went on my credit card, because, you know, rewards.

At the end of last month, I received an email with my credit score.

I use an app called Credit Sesame, which lets you get your credit score for free, plus lays out your credit history and gives you tips to improve your score. We reviewed the service here, if you’d like more details.

It let me know my credit score had dipped. Ring the alarms, y’all.

OK, it wasn’t a huge dip, but I still needed to know why. In addition to offering a free credit score, Credit Sesame also grades the various factors that affect your score.

Sure enough, because I’d been charging so many expenses to my credit card, my credit utilization rate had increased, resulting in my reduced credit score.

Credit Utilization: How Swiping Your Card Effects Your Credit Score

You might know this already, but let’s get a refresher on exactly what goes into calculating your FICO credit score:

  1. 35% is payment history.
  1. 30% is credit utilization.
  1. 15% is credit age.
  1. 10% is different types of credit.
  1. 10% is number of inquiries.

As you can see, payment history and credit utilization are the two most important factors.

Credit utilization is the percentage of your available credit you’ve used — and it goes up with every swipe. Basically, divide the amount of credit you’ve used by your total credit limit then multiply it by 100. Simple math.

Because the amount of credit I’d been using had increased and my total credit limit had remained the same, my credit utilization rate had increased, and my credit score had dipped.

What’s a Good Credit Utilization Rate?

According to my Credit Sesame profile, using less than 30% of my credit is where I need to be, though my best bet is to stay under 10%. That’s when I’ll get the best rates from lenders.

Rod Griffin, the director of public education at Experian, encourages consumers to remember 30% isn’t your goal or a target.

“You shouldn’t try to reach [30%],” he says. “That’s a max. The lower, the better. Above that, your scores start to suffer.”

He compares it to diamonds — but in reverse. Once you hit a karat, the price of the diamond jumps. With credit scores, when you hit 30%, it jumps. But just how much depends on the individual.

So, we know lower credit utilization rates are better.

In fact, when I asked what the ideal credit utilization rate is, Griffin responded simply, “Zero percent.”

But what if, like me, you’re paying off your credit card each month? Shouldn’t your utilization rate remain low?

Not necessarily.

“Even if you can manage [your credit] and pay it off, [your credit utilization rate] can still have a negative [impact],” Griffin says. “If you can pay your balances in full each month, that’s the thing to do. The credit report will show a balance, especially when you get a billing statement, but the lower your balances are, the better.”

So… Should I Just Apply for a Higher Credit Limit?

I asked Griffin this, because I’ve been on the verge of calling Chase to see if I could get a higher credit limit on my card.

He suggested holding off, because I’d have to also ask myself: How am I using that credit? Is a higher limit encouraging me to spend more more?

It probably would.

Plus, some lenders might treat your application for more credit as a hard inquiry, which can have a negative effect on your score.

“Any time you pull a string, everything else moves, too,” Griffin says.

Instead, he encourages patience.

“Typically, [credit card companies] will increase that for you — if you’re managing that account well,” he says. “Let it happen naturally. It depends on the individual situation, but typically, just let it happen.”

And keep an eye on your credit score and your credit utilization rate. You can do so for free over at Credit Sesame.

Carson Kohler (@CarsonKohler) is a junior writer at The Penny Hoarder. In November, her credit utilization rate topped out at a cringeworthy 52%. It’s doing better now, and her credit score is once again increasing.