Credit Utilization Ratio

Credit utilization ratio summary:

  • Credit utilization ratio is a percentage that shows how much of your available credit you’re using. 

  • A high credit utilization ratio has a negative impact on your credit score. 

  • You can lower your credit utilization ratio by paying down your balances, asking for a credit limit increase, and maintaining old accounts, even if you no longer use them.

Credit utilization ratio definition and meaning

Your credit utilization ratio is the revolving debt balance that you owe compared to your credit limit. It’s expressed as a percentage. Higher utilization can hurt your credit scores.

Credit utilization ratio is expressed as a percentage. For example, if you have a credit card with a $1,000 credit limit and your balance is $600, your credit utilization ratio is 60%.

$600 ÷ $1,000 = 0.60 (or 60%)

Key concept:

Your credit utilization ratio lets lenders know how much of your available credit is currently outstanding. A higher utilization ratio could indicate that you’re struggling to reduce your debt. The lower your ratio, the better.

More about credit utilization ratio

Your credit utilization ratio measures how much of your available credit you're using at any given time. It helps lenders understand how you manage available credit. 

A higher credit utilization ratio could mean that you’re headed for financial hardship. Statistically, people with maxed-out credit cards are more likely to fall behind on their debts.

For example, here's what it might look like if you had four credit cards, each carrying a balance. 

Credit card

Credit limit

Amount owed

A

$5,000

$4,000

B

$3,500

$1,000

C

$7,500

$3,500

D

$2,000

$1,500

Total

$18,000

$10,000


A lender can see that you have $18,000 in available credit, and you owe $10,000. Your utilization ratio is 55.5%: 

10,000 ÷ 18,000 = 0.555% 

The perfect utilization is hard to nail down. People with top credit scores have a utilization ratio under 10%. Some experts recommend that you keep yours under 30%, but that’s not a magic number. It’s just the point where the negative impact on your credit standing starts to become more noticeable. As your balances go up, your credit score is likely to come down. On the flip side, it’s normal to see a positive impact on your credit score as you chip away at your balances. Lower utilization is better for your credit standing.

Credit utilization ratio: a comprehensive breakdown 

Once you know how credit utilization ratio is calculated and where your ratio stands, you can decide whether it should be lower. If so, here are some of the ways to do it:

  • Open a new account. Opening a new credit card account is one way to increase your overall credit limit. Your credit utilization ratio should drop as long as you don't add more debt.  

  • Pay down balances and keep them low. The most straightforward way to decrease your utilization ratio is to pay off your credit card debt

  • Request a credit limit increase. Ask your credit card company to increase your spending limit. Your utilization ratio will drop as long as you don’t increase your revolving debt.

  • Avoid closing accounts. Even if you have a $0 balance on a credit card, keep it open so that its credit limit remains available to you. That’s a great way to maintain low utilization even if you have another card that you do use. 

  • Pay your balance before it’s reported. Even if you fully pay off your balance every month, your utilization ratio could be high. That’s because the balance could be reported to the credit bureaus long before the payment due date. Ask your credit card issuer when they report your payments (it could be on your statement closing date) and pay before that date each month.  

Achieve is not a credit repair organization and does not provide or offer services or advice to repair, modify, or improve your credit.

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Frequently asked questions

A too-high credit utilization ratio could hurt your credit scores. It’s the second-most influential factor affecting your credit standing, behind payment history. High utilization could make you ineligible for the lowest interest rates or make it harder to get more credit when you need it.

Paying off balances in full could improve your credit utilization ratio if you're doing so consistently and paying your bills on time. Credit scoring models tend to work best when you're actively feeding in new information, including paying off balances. 

If you’re paying off your balances every month but your utilization is still high, consider making your payment the day before your balance is reported to the credit bureaus. This could be weeks before the payment due date. You can call your credit card issuer to find out what day they report. (It’s often the statement closing date each month.)

The credit utilization ratio only includes revolving credit lines, like credit cards or personal lines of credit. With these types of credit, your balance can go up or down over time as you make purchases and pay them off. Installment loans, on the other hand, only go down over time as you make monthly payments, so they are not included in credit utilization calculations. Utilization is not calculated on personal loans, home equity loans, or HELOCs. The total amount you owe impacts your credit score, but the impact is insignificant compared to your revolving debt utlization ratio.

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