How Credit Card Utilization Affects Your Credit Score

Paying your bills on time is one of the best ways to keep a good credit score. But it’s not the only thing that matters. Another big factor is credit utilization — how much of your available credit you’re using. Keeping this number low shows lenders that you can handle credit wisely.

What is credit utilization?

Credit utilization is the amount of credit you’ve used compared to how much credit you have in total. Credit scoring companies, like FICO and VantageScore, use this number when they calculate your credit score.

Here’s how to figure out your credit utilization rate:van

Add up the balances on all your credit cards.
Add up all your credit limits.
Divide your total balance by your total limit.
Multiply that number by 100 to get a percentage.

Example:

If your two credit cards have a total limit of $10,000 and you owe $5,000, your utilization rate is 50%. That means you’re using half of your available credit. However, it’s better to keep your utilization much lower — as rule of thumb, under 30%. Using less of your available credit tells lenders you’re managing money carefully. It also helps to keep balances low on each card, not just overall. Having one maxed-out card can hurt your score, even if your total utilization looks fine.

Why credit utilization matters

Your credit card utilization rate plays a significant role in your credit score. The lower your utilization is, the higher your score will be. On the other hand, the higher your utilization, the lower your score. To maintain a healthy credit score, you’ll need to keep your expenses in check and avoid having high balances. People with exceptional credit scores often have utilization in the single-digits.

Your score also depends on other things, like how long you’ve had credit and how many accounts you have. For example, if you use only one card and have a short credit history, your score might not grow as quickly. Spreading your purchases across a few cards can sometimes help.

How to improve your credit utilization

If you want to raise your credit score by improving your utilization, try these simple tips:

Keep old accounts open. When you close a card, your total credit limit goes down, which can raise your utilization.
Use more than one card. Spreading out your spending helps keep each card’s balance lower.
Ask for a higher credit limit. A bigger limit lowers your utilization — as long as you don’t spend more.
Pay off your balance in full each month. This helps avoid interest and keeps your balances low.
Make extra payments. Paying a little throughout the month can help keep your reported balance smaller.
Aim for under 10%. Staying in the single digits shows excellent credit habits.
Know when your balance is reported. Credit card companies report balances at different times. Try to pay before they report if your balance is high.

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