What is credit utilization and how does it affect your score?
Credit utilization compares what you owe on credit cards with your limits. Learn how to calculate it per card and overall, why it matters and how to lower it.
Quick answer
Your credit utilization ratio is the share of your credit card limits you are using: balance ÷ limit × 100. It is part of the amounts-owed category, which FICO says makes up about 30% of its score. A common guideline is to keep it under 30%, and lower is generally better.
Key takeaways
- Utilization = balance ÷ limit × 100, per card and overall.
- FICO says amounts owed make up about 30% of its score.
- Common guideline: keep it under 30%; lower is better.
- Balances are usually reported on the statement closing date.
Credit utilization is the percentage of your available revolving credit, mainly credit cards, that you are currently using. It is one of the most influential pieces of data in credit scoring models and, unlike your payment history, it can change quickly.
How to calculate credit utilization
Utilization = reported balance ÷ credit limit × 100
It is calculated two ways, and both can matter:
- Per card: each card’s balance against its limit.
- Overall: the sum of all balances against the sum of all limits.
Example:
| Card | Balance | Limit | Utilization |
|---|---|---|---|
| Card A | $900 | $1,000 | 90% |
| Card B | $300 | $4,000 | 7.5% |
| Card C | $0 | $5,000 | 0% |
| Total | $1,200 | $10,000 | 12% |
Overall utilization is low, but card A is almost maxed out. Some models consider both numbers.
Why it matters
According to FICO, the “amounts owed” category, where utilization is a central element, accounts for about 30% of its general score. High utilization can signal higher risk even if you always pay on time. See every factor in what affects your credit score.
What is a good credit utilization ratio?
There is no official number. A widely repeated guideline is to keep utilization under 30%, and in general, lower is better. Using a card and paying it in full every month is fully compatible with low utilization.
The detail most people miss: when it is reported
Card issuers usually report your balance to the credit bureaus around your statement closing date, not your payment due date. If you use the card heavily during the month and pay it in full by the due date, the reported balance can still be high even though you never pay interest.
If that matters to you (for example, before applying for a mortgage), make a payment before the closing date so the reported balance is lower.
How to lower your credit utilization
- Pay down balances, starting with cards closest to their limit.
- Make mid-cycle payments before the statement closing date.
- Keep old no-fee cards open: closing them reduces your total available credit and can raise utilization.
- Ask for a credit limit increase only if it will not tempt you to spend more; some requests trigger a hard inquiry, so ask first.
What not to do
- Open several new cards just to lower the percentage: each application can add an inquiry and lower the average age of your accounts.
- Shuffle debt between cards without a payoff plan: the debt stays the same.
The bottom line
Utilization measures how much of your available credit you are using. Keeping it low, paying on time and understanding when your balance is reported helps protect your score. Find your closing date and limit on your credit card statement.
Frequently asked questions
What is a good credit utilization ratio?
There is no official number. A widely used guideline is under 30%, and in general lower is better for your score.
How do I calculate credit utilization?
Divide your card balances by their limits and multiply by 100. Do it per card and overall, since some models consider both.
Does paying before the statement closing date help?
Yes. Issuers usually report the balance on the statement closing date, so paying before then can lower the utilization the bureaus see.
Will closing a credit card hurt my score?
It can raise your utilization by reducing total available credit, and closing an old account can affect the age of your history.
Sources
- What's in my FICO Scores? myFICO (Fair Isaac Corporation)
- Credit reports and scores Consumer Financial Protection Bureau
This article is general and educational; it is not personalized financial, legal or tax advice. Financial product terms change: always confirm current terms with the institution.