Want Perfect Credit? You May Want to Only Use This Much of Your Total Credit Card Limit

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Perfect credit hinges on certain financial habits. Read on to see why limiting your credit card usage could help your score rise a lot. 

FICO, the most commonly used credit scoring model in the U.S., has a score range of 300 to 850. If your FICO® Score is 300 or somewhere in that vicinity, your chances of getting approved for a loan are pretty slim. But with perfect credit, you’re extremely likely to get approved to borrow. You’re also likely to snag a competitive interest rate.

Now, there are different things you’ll need to work on to achieve perfect credit. For one thing, you’ll need a pretty spotless payment history. That means no late or missed payments on your credit record.

You’ll also need an established credit history. Chances are, if it’s your first year holding a credit card or paying off a loan, that alone will stop your credit score from being perfect.

But there’s another important step you’ll need to take on the road to perfect credit, and it’s keeping your credit utilization ratio low. That’s not always such an easy thing to do.

What’s a credit utilization ratio?

Your credit utilization ratio measures how much of your total credit card limit you’re using at once across your various accounts. If you have a $10,000 spending limit across your different credit cards and you rack up a $2,000 balance, that puts your utilization at 20%.

Generally, a credit utilization ratio of 30% or less is helpful to your credit score. But if you want perfect credit, then you may want to keep that ratio to 4.1% or less.

FICO found that the average consumer with perfect credit (a score of 850) has a credit utilization ratio of 4.1%. So for context, on a $10,000 credit limit, that would mean limiting your balance to $410.

An easy way to keep your credit utilization low

Normal credit card usage can drive your credit utilization up well beyond 4.1%, even if just temporarily. That could make it difficult to achieve perfect credit. If that’s important to you, one way to keep your credit utilization low is to ask for a credit limit increase each time your income rises. Credit card issuers are usually willing to do this (as long as your account is in good standing), because they want you to spend more.

Now, if you do get your limit increased on a given card, you’ll need to stay disciplined and avoid the urge to spend more. Not only might that drive your utilization up, but it might also land you in debt.

Don’t worry if you don’t have perfect credit

Keeping your credit card usage low could result in a credit score of 850 if other factors also align in your favor. But perfect credit is not necessarily something you have to push yourself to attain.

Not only is it a very hard thing to do, but for the most part, once your credit score reaches the 800 mark, it doesn’t really matter how high it is beyond that point. The borrowing options you’ll get with a score of 805 versus 850 are likely to be very comparable.

However, it’s generally just a good idea to keep your credit card balances as low as possible so you’re more likely to be able to pay them in full before interest accrues against you. While it may be helpful to know that a low credit utilization ratio can boost your credit score, it can also save you money indirectly by making it less likely that you’ll have to carry your balances forward.

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