How Credit Actually Works

Utilization matters more than almost anything else people focus on. Utilization is how much of your available credit you're using, compared to your limit. It's recalculated based on whatever balance is sitting on your statement when it gets reported — not whether you eventually pay it off.

This trips a lot of people up: paying your card in full every month doesn't help your score if your reported balance (the one on your statement date) is still high. Someone who puts $4,000 through a $5,000-limit card and pays it off completely every month can still show 80% utilization and take a real hit — because the score doesn't know you paid it off after the statement closed. Generally, keeping reported utilization under 30% (lower is better, under 10% is ideal) matters more than whether you're "debt-free" on paper.