A data storage system includes a controller that controls a non-volatile memory array including a plurality of blocks. The controller assigns blocks to a plurality of different health grades. The controller maintains a plurality of ready-to-use queues identifying blocks that do not currently hold valid data and are ready for use for data storage. Each of the ready-to-use queues is associated with a respective one of the health grades. The controller monitors fill levels in the ready-to-use queues, and based on the monitoring, adjusts at least one health grade block distribution for the plurality of blocks. Based on the adjustment of the at least one health grade block distribution, the controller thereafter re-grades blocks and assigns blocks to the plurality of ready-to-use queues in accordance with the at least one health grade block distribution that was adjusted, such that distribution of blocks within the plurality of ready-to-use queues is improved.