How to minimize credit utilization while maximizing rewards

Opening Credits columnist Eric Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for

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Question Dear Opening Credits,
My husband and I are considering getting our first credit card. We are both in our 30s, own a home and both have good to excellent credit. We would like to get a credit card so we might be able to earn rewards for traveling on the money we are already spending, but we are a little confused how credit card rewards work. My questions are: If we have a line of credit and use it to pay all our bills every month (which we will pay off every month), but the amount exceeds 30 percent of our line of credit, will it negatively affect our credit score even if we owe nothing? We also were wondering what credit card you might recommend to get the most travel benefits from everyday purchases not linked specifically to travel? – Elana


Dear Elana,
You are in the perfect position to obtain a credit card equipped with the most premium of perks! Because you and your husband are homeowners, your credit rating is already high, and (I presume) at least one of you has a steady income, so you should qualify for a top-tier rewards card.

First, your concerns. Credit utilization – often called the debt-to-credit-limit ratio – is an important part of credit scoring. To keep your scores up, you’ll have to keep your balances on credit cards down.

By the way you describe your proposed charging and repaying actions, however, your scores should be protected from harm. That’s because credit scoring companies, such as FICO and VantageScore, calculate the amount of debt you have at a snapshot in time. If you charge and repay what you owe on a frequent basis, instead of rolling over a large balance, you shouldn't have to worry too much about what you spend with the card.


Video: What is your credit utilization ratio?

It would be beneficial to find out when your new card issuer reports to the credit bureaus. Once you get a card, call and ask them, then time your payments accordingly.

If you pay the bill in full before the creditor’s due date, you won’t be holding onto a balance. You’ll be paying on time and in full, thus satisfying the two most crucial aspects of credit scoring. The only potential problem I see is if the credit scoring systems input that the amount you charge into their mathematical models that predict lending risk before you pay it all off, which can happen. To offset this possibility, you can use one of the following methods:

  • Pay as you go. Every time you make a charge, make a payment online the next day for that exact amount. It’s easy to do if you set up your account on your smartphone. All the major credit issuers have free apps you can install. With them you can send payments and monitor account activity.
  • Delete your balance before it reaches 30 percent of the credit line. The less you owe on a card the better, but if you leave 70 percent of the credit line unused, your scores should be fine. So, if your credit card has a $20,000 limit, hit the pay button before you owe $6,000. 

It makes sense to spend as much as possible with a rewards-rich card so you can maximize the points. There are so many to choose from, though, so check out the current array of rewards cards here at Focus on the number of points you can get just for opening the account (which can be something as high as 50,000 points for spending $3,000 within the first four months). Credit cards affiliated with major hotel chains and airlines are great if you have specific plans to use that airline or hotel group, otherwise redeeming points from those kinds of cards doesn’t have a lot of value. American Express, Chase, Capital One and Citi all offer cards with rewards programs in which you can redeem for anything from statement credits, gift cards, car rentals, hotel stays or airfare.

If travel rewards are not your priority, I would recommend a cash back card. Cash back reward programs are great for people who want to keep things simple. Most also offer an initial cash bonus for signing up, then you rack up points from purchases that you can apply toward your balance or other items.

Only you know what makes the most sense for your spending style, so read through a wide variety of offers, seeking the card that has the kind of features you’re seeking: big points for charging anything, plus whatever else you might want. It shouldn’t take long before one stands out.

See related: How to redeem your card’s cash back reward, 7 ways to get the most from rewards credit cards

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Updated: 02-19-2019