Raise Your Score
Credit Utilization Ratio: What It Is and How to Lower It
Credit utilization is the second-biggest factor in your credit score, and one of the easiest to improve. Here's how it works.
If your score dropped even though you pay every bill on time, credit utilization is often the reason. It makes up a large share of the "amounts owed" category, about 30% of a FICO score, and it changes every month.
What is credit utilization?
Credit utilization is the percentage of your available revolving credit that you're using. It mainly applies to credit cards and lines of credit, not installment loans like car loans or mortgages.
How to calculate your utilization ratio
Add up all your credit card balances, divide by your total credit limits, and multiply by 100.
Example
Card A: $1,500 balance, $3,000 limit. Card B: $500 balance, $7,000 limit.
Total: $2,000 ÷ $10,000 = 20% overall utilization. Card A alone is at 50%.
Scoring models look at both your overall ratio and your per-card ratio. One maxed-out card can hurt even if your overall number looks fine.
What's a good utilization ratio?
- Under 30%: the common guideline to avoid hurting your score.
- Under 10%: where people with the highest scores tend to be.
- 0% on every card: can actually score slightly lower than a small balance on one card, because it shows no active use.
How to lower your credit utilization
- Pay down balances, starting with cards closest to their limits.
- Pay before your statement closing date so a lower balance is reported.
- Make multiple payments per month if you use your cards heavily.
- Request a credit limit increase on cards you've had for a while.
- Keep paid-off cards open so their limits keep counting.
- Consider a personal loan to consolidate card debt. Installment debt isn't counted in utilization, but only if you don't run the cards back up.
Good news: utilization has a short memory
In most widely used scoring models, utilization is based on your most recently reported balances. Once your balances drop and are reported, your score can recover quickly. (Some newer models also look at balance trends over time, so steady paydown helps too.)
Check for reporting errors
Sometimes utilization is high because of an error: a card reporting a $0 limit, a lower limit than you actually have, or a paid-off balance that hasn't updated. Those can be disputed. Learn how to read your credit report to spot them.
Get a personalized plan
At 30 Day Credit Pros we look at utilization alongside everything else on your reports. Request a free credit assessment, or read 9 ways to raise your credit score fast.
Not sure which items on your reports are worth disputing? Our team will go over all three reports with you for free.
Get a Free Credit AssessmentFrequently asked questions
What is a good credit utilization ratio?
Keeping utilization under 30% is a common guideline, and under 10% is typical for people with the highest scores.
Does utilization include car loans or mortgages?
No. Credit utilization mainly applies to revolving credit like credit cards and lines of credit.
How quickly does lowering utilization help?
Usually as soon as your lower balances are reported, often within one or two billing cycles.
Should I close a credit card I paid off?
Usually not. Keeping it open preserves your available credit, which helps keep utilization low.