Your credit score is the three-digit number lenders check when you apply for a credit card, a car loan or a mortgage. One of the biggest pieces of that score is called credit utilization.
Credit utilization is how much of your credit card limits you're using. If your cards have $5,000 in total limits and you owe $1,000, you're using 20 percent.
Here's where credit utilization fits in your FICO score. According to myFICO, amounts owed make up 30 percent of a FICO score, and myFICO's page on amounts owed says utilization matters more there than the total you owe.
Credit utilization is also a part of your score you can change with your next card payment, since a lower balance shows up once the card company reports it. You can check yours right now: open your credit card app, find your balance and your credit limit, and divide the first by the second.
Below is the math for your full utilization ratio, a two-card example, what counts as a low ratio and four ways to bring yours down. To keep building your financial literacy alongside your credit, join our free investor livestream on November 17, where CEO Jaspreet Singh shows how to use ChatGPT and Claude to research stocks like a pro.
What Counts Toward Credit Utilization
Before you do the math, you need to know which debts to include, since not every debt counts toward utilization. Only revolving accounts count, meaning credit you can borrow, repay and borrow again.
Credit cards and some lines of credit are revolving accounts, but scoring models do not treat every type alike. For the card-utilization calculation below, use the credit-card balances and limits on your credit report; do not assume a home equity line is included in the same ratio.
Car loans, student loans and mortgages are installment loans, so they aren't part of the ratio. Our guide to good debt vs bad debt covers how those loans compare.
One more thing to know before you calculate: scores use the balances and limits on your credit report. The numbers on your report can differ from what your card app shows today.
How to Calculate Your Credit Utilization Ratio
Here's how to calculate your overall utilization ratio. Add up your card balances, add up your credit limits, divide the first by the second and multiply by 100.
Then do the same for each card on its own, because Experian says scoring models may look at your highest single-card ratio as well as the overall one. So utilization is measured two ways: for each card and for all your cards together.
Here's an example with two cards, before and after putting $1,000 toward Card A:
| Card A | Card B | Overall | |
|---|---|---|---|
| Limit | $3,000 | $2,000 | $5,000 |
| Balance before | $1,500 (50%) | $900 (45%) | $2,400 (48%) |
| Balance after $1,000 to Card A | $500 (about 17%) | $900 (45%) | $1,400 (28%) |
Overall utilization falls from 48 percent to 28 percent. Card B stays at 45 percent, so it's still the highest single-card ratio on the report.
The balances and limits are examples.
What Is a Good Credit Utilization Ratio?
Once you have your ratio, the next question is whether it's high or low. Lower is generally better, and there's no single cutoff.
Experian says utilization starts to have a more noticeable negative effect around 30 percent, and that people with the highest scores tend to be in the single digits. myFICO adds that a low ratio can help your score more than not using any credit at all.
In other words, a small balance on your report can count in your favor compared with no balance on any card.
What is the 30 percent credit utilization rule?
Experian describes 30 percent as roughly where the effect on your score becomes more noticeable, and lower ratios tend to go with higher scores. So 30 percent isn't a pass-or-fail line. Lower utilization is generally favorable, but a change from 29 percent to 20 percent does not guarantee a higher score.
How much of a $2,500 credit limit should I use?
On a $2,500 limit, 30 percent is $750 and single digits means under $250. On that card, a $600 balance is 24 percent and a $200 balance is 8 percent.
Why Your Balance Can Show Even if You Pay in Full
Your ratio uses the balance on your credit report, which isn't always the balance in your card app. You can pay your card in full every month and still see a balance on your report.
myFICO says the balance on your last statement is generally what appears on your credit report, and Experian says card companies usually report around the end of each statement period.
So a card you pay in full by the due date can still show a balance. Paying before the statement period ends may lower the balance that gets reported, and some people pay early for that reason.
How to Lower Your Credit Utilization
Now that you know how utilization is measured, here are four ways to bring yours down: pay down balances, stop new charges, be careful about closing paid-off cards and ask for a higher limit.
Pay down card balances
Paying cards down lowers the balances on your report, which lowers your utilization. Our guide on how to pay off your credit cards in the right order lays out the full plan.
The Climb to Wealth class teaches an order: save your first $2,000, pay off credit card debt in the right order, then automate it so you're not relying on willpower. The $2,000 cushion keeps a surprise bill, like a car repair, from landing back on the card you just paid down.
The class teaches the order for paying cards down and doesn't promise any change to your score.
Stop adding new charges
While you pay down a card, pause new charges on it. Paying $500 off a card and charging $500 more leaves the ratio where it was.
Think before closing a paid-off card
Experian says closing a card lowers your total available credit, which can push utilization up. If the card has an annual fee, Experian suggests asking the card company about switching to a card without one.
Asking for a higher limit
Experian says a higher limit can lower the ratio, but the request can lead to a hard inquiry, and it only helps if the balance doesn't grow. Some people ask for a higher limit only after their monthly spending stops adding to the balance.
Questions People Ask About Credit Utilization
Does paying off a credit card raise your score?
Paying off a card lowers your reported balance, which lowers your utilization. Experian says many scores only look at the most recently reported balances, so a lower balance counts once the card company reports it.
How much a score moves, and how fast, depends on the rest of your credit report.
How long does high credit utilization hurt your score?
Experian says many scores look only at your current utilization. Some newer scoring models also consider how your utilization changes over time.
What to Remember About Your Ratio
- Utilization is your card balances divided by your card limits, checked overall and card by card.
- Lower is generally better, with 30 percent as the point Experian says the effect gets more noticeable.
- Paying down balances, and keeping new charges off the cards, is the main way to lower your utilization.
Before your next statement closes, divide each card's balance by its limit and write down the per-card and overall percentages.
To keep learning how to manage your money beyond your credit score, join our free investor livestream on November 17, where CEO Jaspreet Singh will research stocks live with ChatGPT and Claude.
