How Credit Utilization Affects Your Credit Score and How to Manage It

Credit utilization is one of the most important factors that influence your credit score. It refers to how much of your available credit you're using compared to your total credit limit. Keeping your credit utilization low can help you maintain or improve your credit score, while high utilization can hurt it.

What is Credit Utilization?

Credit utilization is the percentage of your total available credit that you're currently using. It’s a key factor in credit scoring models like FICO and VantageScore, making up about 30% of your total credit score.

Credit Utilization Formula:
(Total Credit Used ÷ Total Credit Limit) × 100

Why Does Credit Utilization Matter?

Creditors and lenders use your credit utilization ratio to assess how responsibly you manage debt. A lower utilization rate shows that you aren’t overly reliant on credit and can handle your finances well.

Low Credit Utilization (0-30%)

✅ Positive impact on credit score

✅ Shows responsible credit management

✅ Makes you more attractive to lenders

High Credit Utilization (Above 30%)

❌ Can lower your credit score

❌ Indicates potential financial stress

❌ Makes it harder to get new credit

How to Calculate Your Credit Utilization

Let’s say you have the following credit card limits:

  • Card 1: $5,000 limit, $1,500 balance
  • Card 2: $3,000 limit, $900 balance
  • Card 3: $2,000 limit, $600 balance

Your total credit limit is $10,000, and your total balance is $3,000.

Credit Utilization Ratio: (3,000 ÷ 10,000) × 100 = 30%

Best Practices to Keep Credit Utilization Low

To maintain a healthy credit score, it's recommended to keep your credit utilization below 30%, but ideally under 10%. Here are some ways to achieve that:

1. Pay Down Balances Regularly

Making multiple payments throughout the month can help keep your utilization low when creditors report to the bureaus.

2. Request a Credit Limit Increase

Increasing your total credit limit can lower your utilization without changing your spending habits. Just be careful not to increase your debt along with it.

3. Spread Your Balances Across Multiple Cards

Instead of maxing out one card, distribute your expenses across multiple credit cards to keep individual utilization ratios low.

4. Keep Old Credit Accounts Open

Closing credit card accounts reduces your total available credit, which can increase your utilization percentage.

5. Use Personal Loans for Large Expenses

If you need to make a big purchase, consider using a personal loan instead of a credit card. Installment loans don’t affect credit utilization the same way credit cards do.

What If Your Credit Utilization is Too High?

If your credit utilization is above 30%, don’t panic. Here are some steps you can take to lower it:

  • Pay more than the minimum: Reduce your balances quickly by making larger payments.
  • Make payments before your statement closes: Credit bureaus often record utilization based on your statement balance.
  • Use balance transfer offers: If you qualify, transferring debt to a card with a 0% intro APR can help you pay off balances faster.
  • Avoid new purchases: Try to minimize additional charges until your utilization improves.

Final Thoughts

Credit utilization is a major factor in your credit score, but it's also one of the easiest to manage. By keeping your balances low, requesting credit limit increases, and making timely payments, you can maintain a healthy credit score and improve your financial standing.