credit cards

How much credit do you really have?

The difference between charge cards and credit cards

If you like living on plastic, you don't necessarily have to choose between a low utilization rate and the convenience of credit cards.

Charge cards that require you to pay the balance in full every month aren't included in your utilization rate in the most recent versions of the FICO score, says Paperno.

How to tell which is which: either call the issuer, or pull out that credit report again. If the notation for a card says "revolving," it's a credit card, says Paperno. If it states "open," it's a charge card.

But several credit experts say it doesn't pay to stress over utilization rates. "If you're keeping a low balance and your scores are fine, I wouldn't worry about that," says Griffin.

When it can pay to really look more closely at the equation:

  • You're a year or less from a major purchase, like a home or car. That's a good time to make sure the balances are paid down, and there's enough activity on the cards to give you the most advantageous score and terms.
  • You have unexplained card problems, like lower credit limits, declining scores and/or increasing APRs.
  • You've recently gotten a new card and want to see how it's impacting your score.

Other lenders

Your utilization rate isn't the only factor you want to consider if you're setting your personal card limits with an eye toward maintaining strong credit.

When you apply for a home or auto loan, those lenders will look at your debt load. But the amount of debt they'll accept will vary widely, says Chris Kukla, senior counsel for government affairs with the Center for Responsible Lending, in Durham, N.C.

Among other factors, lenders will look at your back-end ratio, which is the total of your payments for one month (car payment, college loans, credit cards, mortgage) divided by your gross income, says Kukla. When it comes to the credit cards, lenders will use the minimum payments based on the current balances, he says.

A few years ago, some lenders were satisfied with figures that went to 55 percent or 60 percent, Kukla says. These days, 40 percent to 50 percent is "on the high end," he says. Lenders want to know "that you're not spending more than half your income on debt."

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