How will going from 75% Credit Utilization to 0% Credit Utilization affect my credit score?
I wrote an article about FICO scoring which shows that 30% of your score is based on utilization or amount owed. I can't say exactly how much your score will rise, or how long it will take, but your score will improve dramatically from what you propose.    This chart is from Credit Karma, and it shows how zero utilization is actually bad when it comes to your score. I wrote an article on my blog titled Too Little Debt in which I discuss further. Under 20% is ideal, just not zero. "You really don't know how credit scoring works. Let's think about the purpose of a credit score: to assess whether you're a high default risk. A lender wants to know, in this order: Utilization factors into the solvency assessment. If you are at 100% utilization of your unsecured credit, you're insolvent -- you can't pay your bills. If you are at 0%, you're as solvent as you can be. Most people who use credit cards are somewhere in the middle. When a bank underwrites a large loan like a mortgage or car loan, they use your credit score an application information like income and employment history to figure out what kind of loan you qualify for. Credit cards are called ""revolving"" accounts for a reason -- you're supposed to use them to buy crap and pay your bill in full at the end of the month.  My advice to you:"
I'm going to be buying a house / car / home theater system in the next few months, and this loan would show up on my credit report and negatively impact my score, making me unable to get the financing that I'll need. "Having no utilization makes you an outlier, it's an unusual circumstance for most people, and the scoring model cannot make any predictions based on it. If you think of it from the underwriter's perspective, zero utilization could mean all sorts of things... are you dead? indigent? unable to work?  When you buying a product (like money or insurance) whose pricing is based on risk, being ""weird"" will usually make you a higher risk. That said, it isn't the end of the world. If you are in this situation, I wouldn't lose sleep over it." One of your credit reports said this was negatively impacting your credit. You are entitled to a free copy of your credit report once per year from each of the three major credit reporting companies in the U.S. (TRW, Equifax and one other). It is a good idea to check on these anyway, if you have credit accounts.  Get copies from the other two credit reporting companies. See if they also say that your credit is negatively impacted by so many loans, even though the balances are small. If all three credit reporting companies are in consensus about negative effecting your credit, then it is true. If that IS the case, check with your subsidized loan lender about consolidation. If the unsubsidized loans are from the same lender, ask them too. If they're from different lenders, you might want to ask at your bank about getting a debt consolidation loan. You might be able to save money by refinancing (consolidating) the unsubsidized student loans as one loan, maybe even ALL the loans as one loan, particularly if you bank at a credit union. "If you find a credit card with 0% interest, let us know!  I guess I'll just be the one to tell you that this belongs in /r/personalfinance  No, a new credit card balance won't affect your existing mortgage. However opening that mortgage so recently definitely dinged your credit substantially and it almost definitely hasn't recovered yet so your credit score isn't as good as you think it is from the home purchase.  If you can magically finance $4k for 0% APR then obviously you should do that since you're house poor but be absolutely sure you're right about the terms of financing. I normally make purchases like that on a rewards credit card (airline miles) then pay it off immediately but that's just me.  Using the word ""adulting"" answers that question immediately." 5% cashback? Wow. No, this would not generally affect your credit rating. You aren't altering anything that is generally tracked by the credit rating agencies. You put a purchase on your credit card which temporarily increases your utilisation, but then immediately pay it off, leaving your utilisation practically unchanged. Credit scoring has changed since the time of this question (July 2017) and it is now possible that having a high available credit balance can negatively affect your credit score. ... VantageScore will now mark a borrower negatively for having   excessively large credit card limits, on the theory that the person   could run up a high credit card debt quickly. Those who have prime   credit scores may be hurt the most, since they are most likely to have   multiple cards open. But those who like to play the credit card   rewards program points game could be affected as well. source The only time the utilization percentage makes a difference is when the data is being pulled for a credit check. During the months leading up to the loan application through the settlement date of the loan keeping this percentage low makes sense. The number reported is the current value of the ratio not an average.  You can pre-fund the credit card but don't go overboard. If you keep a negative balance (lets say they owe you $100) for a few months they may decide to send you a check for the balance they owe you. The old underwriting standards were 28% home debt to income ratio and 33% consumer debt to income ratio. Consumer debt is calculated based on minimum payments. Now, most models are revised upwards... I believe 33/38 is more common today.  As long as you are current on the accounts, closing credit or store revolving accounts will have little or no bearing. Just leave them dormant... there is no positive result from closing accounts that have no balance. Having low or no balances has NO negative impact on your credit score. Low balances are NOT red flags to lenders. Period. Here's a quote from Fair Issac: It's just not true that you can have too much available credit. That by itself is never a negative with the score. Sometimes the things you do to get too much can be a problem, such as opening a bunch of new accounts, but for the most part, that's just kind of an old wives' tale. The major drivers of credit scoring are: To improve your prospects for getting a mortgage, you should be reducing your spending and focusing 60/40 on saving for a down payment and paying down that $15k credit card, respectively. Having cash for a down payment is critical to your buying power, as zero-down loans aren't widely available in 2011, and a large downpayment will allow you to eliminate or reduce the time you are paying PMI. PMI reduces your buying power, and is a big waste of money. "Your use of the term ""loan"" is confusing, what you're proposing is to open a new card and take advantage of the 0% APR by carrying a balance.  The effects to your credit history / score will be the following:" "Curious, why are you interested in building/improving your credit score? Is it better to use your card and pay off the bill completely every month? Yes. How is credit utiltization calculated?    Is it average utilization over the month, or total amount owed/credit_limit per month? It depends on how often your bank reports your balances to the reporting agencies. It can be daily, when your statement cycle closes, or some other interval. How does credit utilization affect your score?  Closest to zero without actually being zero is best. This translates to making some charges, even $1 so your statement shows a balance each statement that you pay off. This shows as active use. If you pay off your balance before the statement closes, then it can sometimes be reported as inactive/unused. Is too much a bad thing?  Yes. Is too little a bad thing? Depends. Being debt free has its advantages... but if your goal is to raise your credit score, then having a low utilization rate is a good metric. Less than 7% utilization seems to be the optimal level.  ""Last year we started using a number, not as a recommendation, but as a fact that most of the people with really high FICO scores have credit utilization rates that are 7 percent or lower,"" Watts said. Read more: http://www.bankrate.com/finance/credit-cards/how-to-bump-up-your-credit-score.aspx Remember that on-time payment is the most important factor. Second is how much you owe. Third is length of credit history. Maintain these factors in good standing and you will improve your score: http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx" I struggle with 0% interest things in my personal life.  A responsible me that thinks logically says continue to pay it on time and take advantage of the benefit of the interest free loan you got. It will keep your funds liquid in the case of an emergency, build your credit and teach you self control.  Paying it off now has little to no benefit. It does however tie up $3,000 worth of capital you could be using for building interest or leveraging against other purchases. "One of the things that you have to be aware of is a little gotcha in the credit utilization rate. They, or at least the credit company I worked for, used the ""high balance"" in figuring the credit utilization, not the ending balance. For example, say you had a single card with a $2000 credit limit and used it to charge everything during the month. Say that the high balance was $1900 and you paid it down to zero at the end of the month. The company would calculate your credit utilization at 95%. This is not good and not really fair, but that was the way it was done. Increasing the credit limit helps, but you can also usually make interim payments, say as a paycheck comes in, during the month, if you have an online account." Credit scores are designed to reflect your ability to make payments on time. As long as you're not closing your old credit card account, you will only see a minimal impact on your score. See estimated credit score breakdowns below: "There are two factors in your credit score that may be affected. The first is payment history. Lenders like to see that you pay your bills, which is the most straightforward part of credit scores IMO. If you've actually been paying your bills on time, though, then this should still be fine. The second factor is the average age of your open accounts. Longer is considered better here because it means you have a history of paying your bills, and you aren't applying for a bunch of credit recently (in which case you may be taking on too much and will have difficulties paying them). If this card is closed, then it will no longer count for this calculation. If you don't have any other open credit accounts, then that means as soon as you open another one, your average age will be one day, and it will take a long time to get it to ""good"" levels; if you have other matured accounts, then those will balance out any new accounts so you don't get hit as much. Incidentally, this is one of the reasons why it's good to get cards without yearly fees, because you can keep them open for a long time even if you switch to using a different card primarily." "1 - yes, it's fine to pay in full and it helps your score. 2 - see chart above, it's calculated based on what the bill shows each month.  3 - answered by chart. 1-19% utilization is ideal. 0% is actually worse than 41-60% Note: The above image was from Credit Karma. A slightly different image appears at the article The Relationship Between Your Credit Score and Credit Card Utilization Rate. I don't know how true this really is. Since writing this answer, I've seen offers of a true ""FICO score"" from multiple credit cards, and have tinkered with my utilization. I paid my active cards before the reporting date, and saw 845-850 once my utilization hit 0. Credit Karma still has me at 800."