Is 0% Credit Utilization Bad?

Having 0% utilization on your credit cards can help your score, but you don't need to maintain zero balances to have excellent credit. Keeping your utilization under 10% works great, while going over 30% can hurt your score.

Is 0% utilization really bad?

Having 0% credit utilization isn't necessarily bad, but it's not ideal either. Here's why:

If you never use your credit cards at all, this can actually hurt your credit in several ways:

• Card issuers might close inactive accounts

• You won't build positive payment history

• With no activity for 6+ months, you might not even generate a FICO score

The sweet spot for excellent credit scores is keeping your utilization between 1-10%. This shows lenders you use credit responsibly without relying on it too heavily.

For healthy credit, it's better to use your cards occasionally and pay them off completely than to never use them at all.

How credit utilization works

Credit utilization is the percentage of your available credit that you're using. For example, a $500 balance on a card with a $5,000 limit equals 10% utilization.

Your score considers both:

• Individual card utilization (each card's balance divided by its limit)

• Overall utilization (total of all balances divided by total of all limits)

This factor makes up about 30% of your credit score - making it a big deal for your financial health.

How to lower your utilization

Pay down your balances

Target the cards with the highest utilization rates first. Try to get all cards below 30% utilization.

Increase your available credit

• Ask for credit limit increases on existing cards

• Consider opening a new card if you have a good reason (but don't do this just to lower utilization)

Remember that applying for new credit can temporarily drop your score a few points.

What really matters

Using your cards occasionally and paying them off is better than not using them at all. To keep accounts active without paying interest:

• Make small purchases a few times a year

• Pay the balance in full before the due date

• Keep overall utilization low

This way, you'll build payment history while avoiding interest charges and keeping your utilization rates in check.