Does spending a lot on your credit card help your credit score?

Credit cards and credit score relationship is often misunderstood. Many people believe that spending more on their credit cards will improve their credit scores. Surprisingly, this common misconception could actually harm your financial health.

In fact, credit utilization accounts for about 30% of your FICO® Score, making it one of the most significant factors affecting your credit standing. The average credit utilization in the U.S. was 28% in Q3 2022, which is right at the threshold where it starts to negatively impact scores. People with exceptional credit typically maintain utilization rates below 10%, while credit experts generally recommend keeping your credit card utilization under 30%. However, this doesn't mean you should spend more—it means you should use less of your available credit.

Throughout this article, we'll explore how credit cards affect your credit score, why high spending can hurt rather than help, and what strategies you can use to maintain an excellent credit profile.

Does spending a lot on your credit card help?

One persistent myth about credit scores has confused countless cardholders: the belief that spending more on credit cards helps boost your score. Many people mistakenly think that carrying balances month to month demonstrates responsible credit use to lenders.

Why this is a common myth

This misconception often stems from misunderstanding how credit scoring works. Some believe that maintaining balances shows lenders they're actively using credit, thus improving their scores. Others incorrectly assume higher incomes lead to better credit scores. In reality, your income doesn't appear on your credit reports at all, so it cannot factor into credit scores. Credit scoring models focus solely on your borrowing history and debt repayment patterns – not how much you spend or earn.

What credit scoring models actually look at

Credit scoring models analyze specific aspects of your credit history instead of spending volume. The FICO® Score, one of the most widely used scoring models, evaluates:

• Payment history (35%) – your record of on-time payments

• Amounts owed and utilization (30%) – how much of your available credit you're using

• Length of credit history (15%) – the age of your accounts

• New credit (10%) – how often you apply for new accounts

• Credit mix (10%) – the variety of credit types you manage

Notice that "amount spent" isn't a factor. Scoring models are designed to predict lending risk based on past behavior, not spending habits. They assess how responsibly you manage available credit, not how frequently you use it.

How spending can hurt if not managed well

Contrary to helping, spending heavily on credit cards can potentially damage your score. When your balance exceeds approximately 30% of your card's limit, your credit utilization ratio increases – and subsequently, your credit score typically decreases. Credit utilization is the percentage of available credit you're using, and it's a major factor in scoring models.

Additionally, carrying high balances between billing cycles brings interest charges that compound over time. For example, paying only the minimum on a $2,500 debt with a 19% interest rate would take nine years to repay and cost nearly $2,500 in interest. This debt trap can lead to missed payments, which further damages your credit score.

Responsible credit card use doesn't mean spending more – it means managing your available credit wisely. Tools like CardBenefit can help compare card options that match your spending habits without encouraging excessive use.

How credit card usage affects your credit score

Behind the scenes, credit card usage affects your score in very specific ways. Your balances and limits create a measurable ratio that credit bureaus use to assess your creditworthiness.

Understanding credit card utilization

Credit utilization is the percentage of your available credit that you're currently using across your revolving accounts. This applies primarily to credit cards, personal lines of credit, and HELOCs. To calculate this ratio, divide your total outstanding balance by your total credit limit. For example, a $2,000 balance on a card with a $5,000 limit equals 40% utilization. Credit scoring models consider both your overall utilization across all cards and the utilization on individual accounts.

How high balances lower your score

Credit utilization accounts for approximately 30% of your FICO score, making it the second most important factor after payment history. When your utilization exceeds 30%, your credit score typically begins to decrease noticeably. This happens because high utilization suggests you might be overextended financially. Credit bureaus examine the most recently reported balances, which card issuers typically send around the end of your billing cycle—not when you make payments. Consequently, even if you pay in full each month, high utilization during the reporting period can temporarily hurt your score.

Why low utilization is ideal

Data confirms that people with exceptional credit scores (800-850) maintain an average utilization ratio of just over 7%. Interestingly, 0% utilization isn't actually ideal—a 1% ratio may help your score even more. This occurs because scoring models need some activity to evaluate your credit management skills. For best results, aim to keep your overall utilization below 10%. If your utilization is currently high, paying down balances can quickly improve your score since most scoring models only consider your most recently reported numbers.

For help finding cards with appropriate limits for your situation, tools like CardBenefit can match you with options suited to your credit profile and spending habits.

Best practices for using your credit card wisely

Maximizing your credit score requires strategic credit card usage. Implementing these proven practices will help you maintain healthy credit while avoiding costly mistakes.

Pay in full each month

Carrying a balance is not necessary to build credit. In fact, paying your full balance each month offers significant advantages. Credit card companies typically charge APRs ranging from 16% to 25% on purchases, with interest usually compounded daily. This means you're essentially paying interest on your interest, creating a debt spiral that's difficult to escape.

Paying your entire balance by the due date eliminates interest charges while maintaining a lower credit utilization ratio. Furthermore, consistently paying on time establishes an excellent payment history, which accounts for 35% of your FICO score.

Keep utilization under 30% (or 10% ideally)

Credit utilization significantly impacts your credit score. Although 30% utilization is generally recommended as the upper limit, people with exceptional credit scores typically maintain ratios in the low single digits - around 7%.

Notably, some experts suggest that 1% utilization may help your score even more than 0%. This occurs because scoring models need some activity to evaluate your credit management skills. For optimal results, keep your utilization under 10% whenever possible.

Make multiple payments per month

Making several smaller payments throughout your billing cycle can be more beneficial than one large payment. This strategy reduces your average daily balance, decreasing the interest charged on carried balances.

Moreover, credit card companies typically report your balance to credit bureaus near the end of your billing cycle. By making a payment 2-3 days before this reporting date, you can ensure a lower balance is reported, potentially boosting your score.

Set up alerts and auto-pay

Payment history forms the largest component of your credit score. Setting up automatic payments provides a safety net against missed deadlines. You can configure autopay for the minimum payment, full balance, or a fixed amount.

In addition to autopay, consider establishing balance alerts to monitor your utilization. These notifications can warn you when approaching 30% of your limit, helping maintain lower ratios.

Choosing the right credit card to build your score

Selecting the right card is crucial for building a strong credit profile. Your choice can either accelerate your credit-building journey or create unnecessary obstacles.

Start with a secured or student card if needed

Secured credit cards serve as excellent starting points for those with limited or damaged credit. These cards require a refundable security deposit that typically determines your credit limit. Most secured cards need deposits between $200-$5000. After several months of responsible use, many issuers periodically review your account to potentially return your deposit and upgrade you to an unsecured card.

Student credit cards, unlike secured cards, don't require deposits but are specifically designed for college students building credit. They often come with lower credit requirements, making approval easier than with traditional cards.

Look for cards with no annual fee: No Annual Fee Cards

When building credit, avoiding unnecessary fees is critical. Cards like the Chase Freedom Unlimited or Chase Freedom Rise offer cash back rewards without annual fees. Likewise, many secured cards nowadays come with no annual fees while still reporting to all three credit bureaus.

Consider rewards cards for responsible spenders: Rewards Credit Cards

Once you've established basic credit habits, rewards cards can provide additional benefits. The Discover it® Secured Card uniquely offers cash back rewards despite being a secured card. For students, options like the Capital One Savor Student Cash Rewards card provide impressive rewards rates comparable to many premium cards.

Explore cards for limited or no credit: Limited Credit Cards

Cards specifically designed for limited credit histories often provide tools to help you succeed. The Capital One Platinum Secured card may require only a $49 deposit for a $200 credit line. Additionally, Discover offers secured cards that automatically review your account after 7 months for potential upgrades.

Use tools like CardBenefit to compare options

Firstly, consider your approval chances – applying for cards beyond your credit profile leads to unnecessary rejections and hard inquiries. Comparison tools help identify appropriate options based on your credit profile, desired benefits, and long-term financial goals.

Conclusion

Contrary to popular belief, credit card spending doesn't inherently boost your credit score. Throughout this article, we've uncovered that responsible credit management, not high spending, drives credit improvement, even if you are spending a lot on your credit card.

First and foremost, your credit utilization ratio significantly impacts your score. People with exceptional credit maintain utilization below 10%, while exceeding 30% can damage your profile. Additionally, paying your balance in full each month eliminates interest charges while demonstrating financial responsibility to lenders, regardless of how much you are spending on your credit card.

Multiple payments throughout your billing cycle can further benefit your score by keeping reported balances low. Setting up alerts and autopay provides a safety net against missed deadlines, protecting your payment history—the most influential factor in credit scoring models, which is crucial even when spending a lot on your credit card.

Choosing the right credit card also plays a crucial role in your credit-building journey. Whether you need a secured card to establish credit or want to maximize rewards with responsible use, finding the perfect match matters. Tools like CardBenefit can help you compare options and identify cards aligned with your spending habits and credit profile, especially if you are spending a lot on your credit card.

Remember that credit scoring models evaluate your credit management skills—not how much you spend. By maintaining low utilization, paying on time, and selecting appropriate cards, you'll build a strong credit foundation, even when spending a lot on your credit card. Before applying for your next card, research your options thoroughly by exploring Featured Credit Cards that match your needs and credit profile.

Your credit score ultimately reflects how responsibly you handle available credit—not how often you use it. With the strategies outlined in this article, you can maintain excellent credit while avoiding unnecessary debt, regardless of your credit card spending habits.

FAQs

Q1. Does spending more on my credit card improve my credit score? Spending more on your credit card does not directly improve your credit score. What matters most is how responsibly you manage your credit, including keeping your credit utilization low (ideally under 30%) and making on-time payments.

Q2. How does credit card usage affect my credit score? Credit card usage impacts your score primarily through credit utilization, which accounts for about 30% of your FICO score. Keeping your utilization below 10% is ideal for maintaining a good credit score. Your payment history and the length of your credit history also play significant roles.

Q3. Is it better to pay off my credit card balance in full or carry a small balance? It's best to pay off your credit card balance in full each month. This practice helps you avoid interest charges and demonstrates responsible credit management. Contrary to a common myth, carrying a balance does not improve your credit score.

Q4. How many credit cards should I have to build a good credit score? The number of credit cards you have is less important than how you manage them. Having multiple cards can potentially help by lowering your overall credit utilization, but it's more crucial to use your existing cards responsibly by making on-time payments and keeping balances low.

Q5. What's the fastest way to improve my credit score using credit cards? To quickly improve your credit score, focus on paying down existing balances to lower your credit utilization, make all payments on time, and avoid applying for new credit frequently. Consider becoming an authorized user on someone else's well-managed credit card account. Remember, building good credit takes time and consistent responsible behavior.