Key takeaways
- Credit utilization is how much of your available credit card limits you’re using.
- Experts commonly suggest keeping it under 30% of your total limits. Lower is generally better.
- Scoring models can look at both your overall utilization and each card’s.
- Paying down balances is the most reliable way to lower it.
- Closing cards can raise your utilization, because it lowers your total available credit.
After paying on time, one of the biggest things affecting your credit score is how much of your available credit you’re using. It’s called credit utilization, and unlike your payment history, it can change quickly once your balances go down.
How to calculate it
Divide your credit card balances by your credit limits, then multiply by 100.
These numbers are only for illustration:
| Card | Balance | Credit limit | Utilization |
|---|---|---|---|
| Card A | $900 | $3,000 | 30% |
| Card B | $2,400 | $4,000 | 60% |
| Card C | $0 | $3,000 | 0% |
| Total | $3,300 | $10,000 | 33% |
Your overall utilization here is 33%. Card B on its own is at 60%, which scoring models may also notice.
Utilization mostly applies to revolving credit like credit cards. Installment loans, like car loans, are treated differently.
Why it matters
Scoring models use utilization as a sign of how stretched you are. According to the CFPB, credit scoring models look at how close you are to being “maxed out,” and experts advise keeping your use of credit at no more than 30% of your total credit limit.
What balance gets used?
Card companies usually report your balance to the credit bureaus once a month, often around your statement date. That means even if you pay in full every month, a high balance on your statement can show high utilization. Paying down part of the balance before the statement closes can lower the number that gets reported.
How to lower your utilization
- Pay down balances. The most reliable way. Our guide to the debt avalanche and snowball can help you plan it.
- Pay before the statement date, or make more than one payment a month.
- Spread balances out rather than maxing out one card, if you’re carrying balances anyway.
- Ask for a higher credit limit, only if you won’t use it to spend more. Some issuers do a hard inquiry for this, so ask first.
- Keep old cards open if they have no annual fee. Their limits count toward your total.
Be careful about closing cards
Closing a card removes its limit from your total. If you carry balances on other cards, your utilization can jump. Debt management plans sometimes close cards for this reason, which is one way they can affect your score for a while. See how debt relief affects your credit score.
Consolidation and utilization
Moving card balances to a debt consolidation loan turns revolving debt into installment debt, which can lower your card utilization. That only helps if the cards stay paid off. A balance transfer, on the other hand, moves debt from one card to another, so your total utilization may not change much.
Utilization isn’t everything
According to the CFPB, paying on time is the most important factor for most credit scores. Other factors include the length of your credit history and how often you apply for new credit. Lower utilization helps most when the rest of your report is in good shape.
Check your numbers
You can see your balances and limits on your free credit reports from AnnualCreditReport.com, available weekly according to the FTC. Our guide on how to read your credit report shows where to look.
The bottom line
Keeping your card balances low compared with your limits, ideally under 30%, supports a healthier credit score. Pay down what you can, pay before your statement date, and think twice before closing old cards.
Sources: CFPB: how do I get and keep a good credit score · FTC: free credit reports