Want to boost your credit card score? Try opening a few new credit cards and keeping zero balances ... right? This will increase your credit utilization rate ... right? Not exactly.
Will zeroing out all your credit cards maximize your credit utilization rate and boost your credit score? Or actually hurt your score?
Is there a magic amount to leave as balance? It turns out that there just might be ...
Perils of Zeroing Out My Credit Cards - Table of Contents
0% Credit Utilization on a Single Card? How Low is Low Enough?
Reddit user u/cool_ohms reported the following problem when he tried to leave a $0.99 balance on his credit card:
I paid my quicksilver bill in full, then tried to leave a 99 cents on my balance by the statement date so it would show some tiny utilization. Then there was some “charge adjustment” and my balance went down to $0, so the monthly utilization ended up being reported as 0%. A couple days later I check my score and find it has decreased by 23 points.
Is this normal? I have been trying really hard to improve my score and I need to finance a car soon, so this is super frustrating. I haven’t missed any payments. What the hell?
So what's the answer? Should u/cool_ohms have left a $10 balance? A $20 balance?
What's the magic number for credit card balance that won't be automatically zeroed out?
First Off, Why Did the Credit Card Company Zero Out His Balance?
A credit card company zeroed out my balance?? That's a cause for celebration, right? ... Right? Why am I not hearing the champagne corks?
Per u/cool_ohms:
Then there was some “charge adjustment” and my balance went down to $0
What is this?
This is also known as a "low balance waiver." Below a certain amount, some lenders won't even bother. Collecting the payment isn't worth the effort for such a low amount.
What's the Effect of a Zero Balance on a Credit Card? The Zero Balance Penalty
This guy just zeroed out his credit card. The credit score gods should shower him with praise, right? ... Right?
Per u/cool_ohms:
A couple days later I check my score and find it has decreased by 23 points.
Is this normal? Why didn't his credit score GO UP??
Yes, it's normal. If every one of your credit cards reports 0 balance, you will get hit with a penalty. 20 points, give or take, seems to be what people typically report for this "zero balance penalty".
Can't Zero Out My Credit Cards. Can't Keep Balances. What To Do? The AZEO Technique vs. AZ
It's a Trap! Right?
The best short term score optimization technique is known as AZEO: All Zero Except One. The best method is not AZ: All Zero.
How Long Does the "All Zero Penalty" Last?
The "all zero penalty" disappears as soon as even one card reports a low, but non-zero amount.
So, how quickly will I recover? Your credit score can recover in 5 weeks or less, depending on any other cards you have.
So What's the Magic Number? What $ Balance Should I Keep on My Credit Cards?
In the future, should you try to leave $5 or so on your credit cards to avoid getting the waiver?
Not a bad idea, but what is the actually lowest amount to leave on your credit cards -- because why not?
It appears that $1.01 will work. Capital One waives up to $1.00, for example.
To figure out the exact amount, you need to know your specific credit card's "Low Balance Waiver" amount. Then add a penny.
If you have a card that you don't normally use, you can put $1/month on Amazon reload. Just an example. It keeps the card active, and it gets waived.
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