Your credit utilization is a measure of the total debt you’re carrying across all revolving credit accounts against your total available credit (across the same accounts). It makes up 30% of your FICO Score, which is the most commonly used credit scoring model, and 20% of your VantageScore, another common model.
After payment history, utilization is one of the key factors impacting your score. If you’re trying to improve your credit score, we recommend working toward reducing the amount of debt you have to keep your credit utilization as low as possible—certainly below 30% of your overall credit limit.
What Is a Credit Utilization Ratio?
A credit utilization ratio compares the amount of money you owe to the amount credit lenders are willing to lend you. Your credit utilization considers all balances and credit limits across all open revolving credit accounts and individual accounts.
This calculation considers the balance on your card when your statement closes each month, even if you pay your card off in full. In other words, it may not be enough to pay your card off in full each month to have a low credit utilization—if you accrue a high balance that gets reported on your statement, this will impact your utilization even if you pay it off all in one payment.
We advise using no more than 30% of your limit, overall and on each individual card, to maintain healthy credit. Lenders will likely consider those who have too much credit utilization as higher-risk borrowers, so the lower your credit utilization, the better.
Note that only revolving credit, such as credit card accounts and home equity lines of credit, affect utilization. With these, you borrow and repay as you go. In contrast, installment credit like auto loans and mortgages involve borrowing a set amount and making a set monthly payment.
How Do I Calculate Credit Utilization?
Calculating credit utilization requires adding up the outstanding balances on your revolving credit accounts and dividing the total by the overall credit limit across all those accounts. Note that you should not divide the cumulative balance by the remaining available credit, but rather by the total credit limit.
For example, if you have one card with a $1,000 credit limit and a $200 balance, your credit utilization ratio is 20%. If you also have another card with a credit limit of $2,000 and a $1,000 balance, your credit utilization is 40%—you owe a total of $1,200 on cards with a total credit limit of $3,000.
How Does Credit Utilization Affect My Credit Score?
Credit activity is typically reported by banks to credit bureaus at least once per month. Whatever your outstanding balance is when this reporting occurs will influence how your credit utilization impacts your credit score. Credit bureaus indicate this date should be the billing cycle date, also known as the statement date.
Among the information reported to a credit bureau is your credit limit and outstanding balance. This information, once reported, is added to your credit report and can impact your credit score. Your credit utilization can affect up to 30% of your score and is one of the most important factors, just behind payment history.
Maintaining low credit utilization is an excellent way to improve a credit score or keep a good score. You can improve your credit utilization by paying down balances and by increasing the amount of available credit by opening a new account. However, beware that applying for new cards can impact your credit by triggering a hard inquiry, so do so thoughtfully and carefully.
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Frequently Asked Questions (FAQs)
How much will lowering credit utilization affect credit score?
Depending on the scoring model, your credit utilization can affect up to 30% of your credit score. For your FICO Score, utilization is the second most important factor behind payment history.
What is a good credit utilization ratio?
A good credit utilization ratio is anything below 30%. Your outstanding balances should remain below 30% of your overall available credit—this applies to utilization on each individual card as well. Keeping your credit utilization even lower will typically be better for your credit score.
When is credit utilization reported?
Credit utilization, as well as other account information, is typically reported to credit bureaus on your credit card statement date.
Does credit utilization matter if you pay in full?
Yes. The information required to calculate your credit utilization is reported to credit bureaus regardless of how and when you pay your bill. You can reduce the amount reported by repeatedly paying down your balance throughout the month, but the outstanding balance and credit limit on the date information is sent to the credit bureau will still impact your utilization rate and credit score. The safest bet is to avoid going above 30% utilization, even temporarily.
