Credit Utilization Rate: Your Easy 1-2-3 Guide
About a year ago, I could not get my small business and personal credit in line. I tried everything until I stumbled across something that was so simple, I couldn’t believe I’d missed it before.
My credit utilization rate was too high and it was affecting my credit rating. But it was easy enough to fix, and boy, am I glad I did!
Credit utilization is a simple concept, but it can have a big impact on your financial life. In this guide, we’ll break down what the credit utilization ratio is, how to calculate it, and why it matters — with six practical tips to keep it in check.
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What is a credit utilization rate?
Your credit utilization rate (or ratio) is the percentage of your available credit that you’re currently using or the percentage of available credit that you’re using on your credit cards and other lines of credit.
In simpler terms, it shows how much of your total credit limit you’ve borrowed at any given time. This ratio is a major factor that credit bureaus consider when calculating your credit score.
How to calculate your credit utilization ratio
Calculating your credit utilization ratio is straightforward. You divide your total balances on credit cards and lines of credit by your total credit limits, then multiply by 100 to get a percentage.
This ratio shows how much of your available revolving credit you’re using, which is important because both credit cards and lines of credit are forms of revolving credit that impact your credit score.
Examples of calculating a credit utilization rate
Example 1:
You have one credit card with a $1,000 limit.
- Current balance: $300
- Credit utilization ratio:
($300 ÷ $1,000) × 100 = 30%
Example 2:
You have one credit card and one line of credit.
- Credit Card A:
- Balance: $500
- Credit limit: $2,000
- Line of Credit A:
- Balance: $1,500
- Credit limit: $3,000
- Total balances:
$500 (credit card) + $1,500 (line of credit) = $2,000 - Total credit limits:
$2,000 (credit card) + $3,000 (line of credit) = $5,000 - Credit utilization ratio:
($2,000 ÷ $5,000) × 100 = 40%
Including lines of credit in your calculation provides a more accurate picture of your overall credit usage. These calculations help you understand how much of your available credit you’re using, which can impact your credit score and financial health.
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Do all types of credit accounts affect my credit utilization ratio?
Not all credit accounts impact your credit utilization ratio. This ratio specifically applies to revolving credit accounts, such as credit cards and lines of credit.
Revolving credit allows you to borrow up to a certain limit and pay back the borrowed amount over time, with the flexibility to borrow again up to that limit as needed. The balance on these accounts can fluctuate from month to month, which is why they’re included in the utilization calculation.
Installment loans, on the other hand — like mortgages, auto loans, student loans, and personal loans — are not included in your credit utilization ratio. These loans involve borrowing a fixed amount of money and repaying it in set installments over a predetermined period.
While installment loans do affect your overall credit health and are reported on your credit report, they don’t impact your credit utilization ratio because they don’t offer the revolving line of credit that allows for variable borrowing and repayment.
What is a good credit utilization rate?
A good credit utilization rate is typically below 30%. This means you’re using less than 30% of your total available credit.
If you want an excellent credit score, you’ll need to keep your utilization rate below 10%.
Lenders and credit bureaus view lower utilization rates favorably because they suggest you’re managing your credit responsibly and not relying too heavily on borrowed money.
How credit utilization affects your credit score
Your credit utilization ratio significantly impacts your credit score. It’s one of the major factors in the “amounts owed” category, which makes up about 30% of your FICO score.
A high utilization ratio can signal to lenders that you’re overextended, which may lower your credit score. Conversely, a low utilization ratio shows that you’re using credit wisely, which can boost your score.
6 tips to lower your credit utilization rate
Reducing your credit utilization ratio can improve your credit score and make you more attractive to lenders. Here are seven practical tips to help you achieve a lower ratio.
Tip 1: Pay down your balances strategically
Focus on paying down balances on your credit cards with the highest interest rates first. By reducing the amounts you owe on these cards, you can save money on interest payments and lower your overall utilization more effectively.
Tip 2: Increase your credit limits
Requesting a credit limit increase from your card issuer can lower your utilization ratio — provided you don’t increase your spending. Before you ask, ensure that a hard inquiry won’t be required, as this could temporarily affect your credit score.
Tip 3: Make your payments early
Consider making credit card payments early to keep your balances low. By reducing your balance before the statement closing date, you may be able to lower the balance that gets reported to credit bureaus.
Tip 4: Keep unused credit cards open
Even if you don’t use certain credit cards regularly, keeping them open adds to your total available credit. Closing them would reduce your total credit limit, potentially increasing your utilization ratio.
Tip 5: Avoid new debt
Be cautious about taking on additional debt. Limiting new purchases on your credit cards helps prevent your balances from increasing and keeps your utilization ratio in check.
Tip 6: Monitor your credit reports
Regularly check your credit reports to ensure all information is accurate. Errors or fraudulent activities can inflate your reported balances and utilization ratio. Dispute any inaccuracies you find promptly.
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FAQs about credit utilization
Have more questions? Below are a few of the most commonly asked questions about credit utilization.
How often should I check my credit utilization?
It’s a good idea to check your credit utilization at least once a month, especially before making significant financial decisions like applying for a loan. Regular monitoring helps you stay aware of your credit health and address any issues promptly.
Can I have a high credit utilization and still have a good credit score?
While it’s possible, a high credit utilization ratio will keep your credit score lower than it would be otherwise. Keeping your utilization low is one of the simplest ways to improve or maintain a good credit score.
What happens if my credit utilization ratio increases?
An increase in your credit utilization ratio can lower your credit score. Lenders may view a higher ratio as a sign that you’re relying too much on credit, which could make you a riskier borrower in their eyes.
Is it better to pay off my credit card in full or keep a small balance?
It’s best to pay off your credit card in full each month. Carrying a small balance does not improve your credit score and results in unnecessary interest charges.
Just remember to use each card you own about once a year or so to keep the accounts open — even if you pay off the balance immediately.
Does requesting a credit limit increase hurt my credit score?
It can, but the impact is usually small. Creditors may perform what’s called a “hard inquiry” when you request a limit increase, which can lower your score temporarily.
The same thing is true when you request a new loan, so it’s best not to make hard inquiries too often. Hard inquiries generally remain on your credit score record for 2 years.
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About the Author

Jason Weiland
Writer, founder of Singularity Management Group, LLC, and advocate for coloring outside the lines, Jason Weiland thrives where business meets technicolor living. He loves challenging the idea of ‘normal’ and expanding our ability to express our authentic selves.
Disrupting unforgiving landscapes of tech bros and Ivy League entitlements wherever he finds them, Jason envisions a world in which business is a place for everyone — where different is good, and alternative equals remarkable.
If you’re looking to break free from imbalance, embrace innovation, and explore professional behaviors that promote mental health and wellness, he’d love to chat.