What is Credit Utilization?
Credit utilization is the percentage of your available credit that you are currently using. It accounts for 30% of your credit score, making it the second most important factor after payment history.
How to Calculate Your Credit Utilization
The formula is simple:
Credit Utilization = (Total Credit Card Balances ÷ Total Credit Limits) × 100
Example:
- Card 1: 00 balance, ,000 limit
- Card 2: ,000 balance, ,000 limit
- Total: ,500 balance, ,000 limit
- Utilization: (,500 ÷ ,000) × 100 = 30%
The 30% Rule and Beyond
While staying under 30% is good, lower is better for your credit score:
- Under 10%: Excellent for your score
- 10-20%: Good for your score
- 20-30%: Acceptable but room for improvement
- Over 30%: Likely hurting your score
- Over 50%: Significantly damaging your score
Individual Card vs. Overall Utilization
Both matter, but in different ways:
Overall Utilization
This is your total balances divided by total limits across all cards.
Per-Card Utilization
Each individual card should also stay under 30%. Having one card maxed out can hurt your score even if your overall utilization is low.
Strategies to Lower Your Utilization
1. Pay Down Balances
The most straightforward approach - pay off your credit card debt.
2. Make Multiple Payments Per Month
Pay your balance before the statement closes to lower the reported balance.
3. Request Credit Limit Increases
Higher limits with the same balances = lower utilization. But do not use this as an excuse to spend more.
4. Keep Old Cards Open
Closing cards reduces your available credit, potentially increasing utilization.
5. Spread Balances Across Cards
Instead of maxing out one card, spread balances to keep each card under 30%.
When Utilization Updates
Credit card companies typically report balances to credit bureaus once per month, usually on your statement closing date. This means:
- Changes can appear within 30-45 days
- You can strategically time payments
- Even paying off cards completely can take a month to reflect
Special Considerations
Zero Utilization
While low utilization is good, having some small balance (1-9%) may be better than 0% on all cards.
Business vs. Personal Cards
Business cards often do not report to personal credit reports, so they may not affect your utilization.
Quick Wins for Utilization
For fast score improvements:
- Pay down cards to under 10% before statement closes
- Request credit limit increases on existing cards
- Make mid-cycle payments to keep balances low
- Consider balance transfers to spread utilization