This post originally appeared April 19, 2018 on CreditCards.com as “Individual vs. combined utilization: Which one has greater effect on score?“
By Barry Paperno
Dear Speaking of Credit,
I recently paid off a number of credit cards, but I still have some with 90 percent utilization. My overall credit utilization is about 48 percent.
Should I transfer some of the balance from the high utilization credit cards to the ones with zero balance?
I was not sure what helps my credit score more – more cards with $0 balances or more with a lower utilization?
Transferring balances won’t impact my overall utilization. Since I paid them down as much as I could, in the end I will still be at 48 percent. – Matthew
It’s always great to hear of credit cards being paid off. And it can be great for your score when they continue to be used and paid in full every month.
Yet there are times when transferring a balance from a “highly utilized” card to one that was recently paid off can make sense, whether money-wise or score-wise.
Credit utilization – the amount you have borrowed compared to your credit limits, where lower is always better – is the second most important factor in credit scoring calculations, after making on-time payments.
For instance, taking advantage of a lower interest rate via a balance transfer can be an effective way to save on interest and pay down the debt faster.
Or if moving balances to optimize your score is the goal, transferring debt from a low-limit card to one with a higher limit can often add a few points to your score, as part of the individual utilization calculations that we will be the focus of this discussion.
It is understandable you would question whether having more cards with $0 balances or more with lower utilization is best for your score. Unfortunately, and as you’ll see, the answer is not an easy one.