Why does using more of your credit limit hurt your credit score?

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According to my bank it’s best to use less than 10% of my limit, good if I use less than 30% and bad if I use more than 60%.

Because of this my credit score goes down if I use up more of my limit, even if I pay in full every month.

In my understanding someone who shows that he/she can pay back 100% of a bigger amount is more creditworthy than someone who demonstrated he/she can pay back 100% of a lesser amount. But the credit rating somehow sees this the exact opposite way.

So why is it bad to actually use your credit line, even if you pay back everything right away?

In: Economics

Even if you do pay it completely off every month, using the majority of your available credit indicates a “reliance” on credit.
This means that a bank considering extending you would see it as a risk to give you another loan, as it *could* result in you overextending your buying power. That’s why holding a high balance is detrimental.

Holding a balance makes you seem riskier in their eyes, because it looks like you might be reliant/have trouble paying it off.

>In my understanding someone who shows that he/she can pay back 100% of a bigger amount is more creditworthy than someone who demonstrated he/she can pay back 100% of a lesser amount. But the credit rating somehow sees this the exact opposite way.

The fact that you needed to dip into it makes you riskier than someone who didn’t, essentially. Also when the statement posts, they don’t know that you paid it off yet (or will pay it off).

That said, credit usage has no memory (unlike most other parts of the process). You can use 60% for years, and as long as you drop it to 10% before you start applying to stuff, it’s the same as if you kept it at 10%. It’s a snapshot.