Reader Question: Is 10% the Best Debt-to-Limit Ratio for My Credit Score?

Credit scoring models are full of eccentricities and minutia that can make a big difference in your final score. Debt-to-limit calculation (which accounts for 30% of your credit score) is one of those confusing areas. Here is Jed's question:

I have read several sources who recommend using only 30% of your credit limit to enhance credit scores.

I recently read TWO articles that now recommend using less than 10% of the credit to best enhance the credit score.

Which (if either) is correct?  What is the recommended credit line usage limit to help credit scores?

Simple Answer: under 10% (and more than 0%) is the absolute best for your credit score.

For example: you would be earning the most score points in this category if you had four cards with a total credit limit of $15,000 and a total credit card balance level between $1 and $1,500.

But this is one of those "great idea, or greatest idea" sorts of things. A 30% DTL level would be a credit score improvement if you had previously been over 50%. The credit scoring model assigns fewer points toward your credit score the higher your debt-to-limit ratio is over 10%. 

And remember, this is your statement balances on the cards vs. the total credit limits. The individual balance ratio on cards has some value too, but it is really the total ratio for all cards on your credit report that is important.

Note: You can still have a high debt-to-limit ratio even if you pay your credit cards off in full each month.

Some consumers looking for a quick credit fix stop using their credit cards except for a couple very small purchases a few months before a loan application as a way to reduce their debt-to-limit ratio and improve their scores.

Next question? You can email our team of credit and finance experts at tidbits@credit.com anytime.

Emily Davidson – A former TransUnion insider and a member of Credit.com's expert team. Emily writes about credit reports, credit cards, loans and personal finance as the CreditBloggers.com moderator.