Credit Utilization: What It Is + What You Need to Know

October 5, 2020 | by Jacob Hamilton

woman buying coffee

Credit utilization—sometimes referred to as the credit utilization ratio—is the amount of credit you use compared to the total amount of credit you have. For example, if you have a limit of $1000 and you’re using $500, your credit utilization is 50 percent.

Credit utilization is a significant factor in determining and understanding your credit score. We’ve outlined everything you need to know about credit utilization and how it can help with your overall creditworthiness.

What Is Considered Good Credit Utilization?

The Consumer Financial Protection Bureau suggests keeping your credit utilization under 30 percent. If your credit utilization is consistently higher, your credit score might take a hit.

The best advice is to always try and keep it as low as possible—do this by not spending too much on your credit card and paying off your monthly bill in full. This shows credit lenders that you can responsibly use your credit.

To figure out if you’re using too much, you need to calculate your credit utilization ratio.

How to Find Your Credit Utilization Ratio

Finding your credit utilization ratio is simple and involves four steps:

  1. Add up the total amount that you owe on all of your cards.
  2. Add up your credit limit on all of your cards.
  3. Divide the total amount owed by the total credit limit.
  4. Multiply the answer by 100 to view it as a percentage.
credit utilization ratio

This ratio is only based on revolving credit and doesn’t include debt from things like mortgages and auto loans. Revolving credit refers to lines of credit that are available to use each month, with no end date to the amount you owe, like credit cards. The amount carries over—or revolves—from month to month.

Mortgages and auto loans are known as installment loans and are a type of credit that factors into your debt-to-income ratio. This ratio is used to see how much of your income is dedicated to paying off debt. Both your debt-to-income ratio and credit utilization ratio have a hand in determining your credit score. However, it’s your credit utilization that’s the biggest determining factor.

Regularly exceeding your credit limit brings down your credit score and marks you as a high-risk borrower. More on that next.

How Does Credit Utilization Affect Your Credit Score?

Credit utilization can either help or hurt your credit score, depending on how much is being used. 30 percent of your FICO® score is determined by your credit utilization, and VantageScore considers it “extremely influential.”

keep credit utilization under 30%

This doesn’t mean that the moment your credit utilization reaches 31 percent your score starts sinking. If you consistently have over 30 percent utilization or are consistently maxing out your credit cards, your credit will go down.

The good news is that there are some easy ways to help improve your credit utilization if you find yourself using too much.

4 Tips to Improve Credit Utilization

Credit utilization changes based on your credit limits and the amount of debt you owe. Here are four ways you can improve your credit utilization.

tips about credit utilization

1. Pay Off Debt

You should always carry a balance on your credit card—true or false?


It’s one of the most common credit card myths. The truth is that paying off your credit card every month keeps your credit ratio low and strengthens your credit score.

2. Refinance Credit

Refinancing refers to moving your debt from one lender to another with different terms. Doing this to your credit card debt can help in more ways than one. First, by combining your credit card debt, you’ll maintain a single monthly payment with a lower interest rate. Second, if your credit cards are still open after transferring your debt, your credit utilization ratio goes down.

3. Open Another Credit Card

Having a higher credit limit improves your overall credit utilization ratio. To increase your credit limit, think about opening another credit card. If you’re having trouble getting approved for a new one, there are a few options that can help build your credit.

4. Ask for a Credit Limit Increase

Another way to improve your credit utilization ratio is to simply ask your lender for a higher limit on an existing card. They may take into account some other factors before approving, such as your income and credit history. Some lenders will offer credit limit increases after you’ve been with them for a long time, while you may have to call or write to request a limit for others.

Your credit utilization can have lasting effects on your overall creditworthiness. Be sure to take the time to figure out and understand everything going into yours. If you find that it’s becoming too difficult to handle your credit card debt, there are professional services that can help you.

Jacob Hamilton

Jacob Hamilton

GM of

With his master's degree from the University of Phoenix, Jacob has been working as the General Manager for for 2 years. Jacob is passionate about consumer finances and doing everything he can to make credit repair accessible....

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