Credit Utilization Ratio: What You Need to Know

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Written by Dar

July 10, 2024

Do you know how your credit utilization ratio affects your credit score? This key metric makes up a big 30 percent of your credit score. But what exactly is it and why is it important to keep it low?

Key Takeaways

  • Credit utilization ratio accounts for 30% of your credit score
  • It’s calculated by dividing total debt on revolving credit accounts by total credit lines
  • Experts recommend keeping credit utilization below 30% for a good credit score
  • People with perfect credit scores have an average credit utilization ratio of 6%
  • Strategies like paying down balances and increasing credit limits can lower your ratio

Understanding Credit Utilization Ratio

Your credit utilization ratio shows how much of your revolving credit you’re using. It compares your current use to your total available credit. This includes credit cards and home-equity lines of credit (HELOCs). Lenders look at this ratio to see how well you handle your debts. They like it when you use less than 30% of your total revolving credit.

What is a Credit Utilization Ratio?

The credit utilization ratio is key for lenders to check your creditworthiness. It’s found by dividing your credit card and revolving credit balances by your total credit limits. This ratio is a percentage, and keeping it under 30% is best for your credit score.

Let’s say you have a credit card with a $2,000 limit and a $600 balance. Your credit utilization ratio for that card would be 30% ($600 balance / $2,000 limit = 0.30). Keeping your credit utilization low on all accounts helps keep your credit score healthy.

Experts recommend keeping your credit utilization below 30%.

FICO® says debt makes up 30% of its credit scores. VantageScore® puts credit utilization at 20% of its scores. The Consumer Financial Protection Bureau (CFPB) also advises keeping your ratio under 30%.

Understanding and managing your credit utilization ratio is key to a strong credit profile. A low ratio is vital for getting good terms on loans, credit cards, and other financial products.

Importance of a Low Credit Utilization Ratio

Credit utilization ratio

Your credit utilization ratio is key to your credit score. It makes up 30% of your total score, second only to payment history. Keeping it under 30% is vital for good credit.

The average credit utilization in the U.S. was 28% in Q3 2022, says Experian. Experts say to keep your utilization low to avoid hurting your creditworthiness. Using more than 30% of your credit can really drop your score.

People with high credit scores often have very low credit utilization. Experian data from Q3 2022 shows that average credit utilization ratios by FICO® Score groups range from 14% for individuals with scores of 800 or higher, to 54% for those with scores below 600.

Credit scoring models like VantageScore 4.0 and FICO 10 T look at how you use credit over time. Revolving credit utilization counts for 20% to 30% of your credit score. So, keeping your credit utilization low is key for credit management and a strong credit score.

Experian says aim for a credit utilization under 30%. If you have $15,000 in credit, keep your balance under $4,500. Paying down your balances helps your credit score factors, like your payment history.

Credit Utilization Ratio and Credit Scores

Credit Utilization Ratio

Your credit utilization ratio is key in figuring out your credit scores. It shows how well you handle your current debts. Lenders look at this ratio to see if you can handle more debt.

A low credit utilization ratio means you’re using a small part of your credit. This can help you get better interest rates and loan terms. But, a high ratio might show you’re over your head, making you a higher risk to lenders.

It’s best to keep your credit utilization below 30% for a good or excellent credit score. Going over this limit can really hurt your credit scores. Credit utilization ratio is a big part of your FICO and VantageScore, after payment history.

“Using as little of your credit card limits as possible is better for your credit scores. Aiming for a credit utilization just above zero is beneficial for your credit scores.”

A lower credit utilization ratio shows you’re using credit wisely. This can make your creditworthiness look better. Fixing the damage from high credit utilization is possible once you lower your balance. Keeping a healthy credit utilization ratio can improve your credit health and open up better financing options.

Calculating Your Credit Utilization Ratio

credit utilization ratio calculation

Knowing your credit utilization ratio is key to a healthy credit score. This ratio shows how much of your available credit you’re using. It’s a big part of your credit score. To figure out your credit utilization ratio, just follow these easy steps:

Step-by-Step Calculation

First, add up the credit limits on all your credit cards. This gives you your total available credit. Then, add up the current balances on those cards. This is your total credit card debt. To find your credit utilization ratio, divide your total debt by your total credit, and multiply by 100 to get the percentage.

For example, if your total available credit is $20,000 and your total debt is $5,000, your ratio is 25% ($5,000 / $20,000 = 0.25, times 100).

Many online tools and apps can also do this for you. They give your credit utilization ratio with just a few clicks. This makes it easy to keep an eye on your credit use and keep it healthy.

“Maintaining a credit utilization ratio below 30% is generally considered a good target for optimal credit health.”

By understanding and managing your credit utilization ratio, you can improve your credit score. This shows lenders you use credit responsibly.

Strategies to Lower Credit Utilization

credit utilization management

Keeping a low credit utilization ratio is key to a good credit score. There are several ways to lower your credit utilization and boost your finances.

Pay Down Balances

Paying off your credit card balances is a simple way to lower your credit utilization. By reducing your debt, you’ll lower your utilization rate. Try to pay more than the minimum each month and focus on high-interest balances first.

Request a Credit Limit Increase

Asking for a credit limit increase can also help lower your credit utilization. With more available credit, your utilization ratio goes down. But, remember, a limit increase might lead to a hard inquiry on your credit report, which could lower your score temporarily.

Open a New Credit Account

Getting a new credit card can also expand your total credit limit, lowering your utilization ratio. But, be careful. A new application leads to a hard inquiry, which can lower your score. And, don’t increase your spending to avoid undoing the benefits of the new limit.

Using these strategies can help you manage your credit utilization and improve your credit score. Paying down balances, requesting credit limit increases, and opening new accounts are all effective ways to take control of your finances.


Your credit utilization ratio is key to your credit score, making up to 30% of it. Keeping it under 30% is vital for good credit and better loan options. Learning how to manage your credit utilization can help improve your credit score impact and financial health.

Using smart credit management strategies like paying off debts and asking for higher credit limits can lower your ratio. This can lead to a stronger credit profile. Remember, managing your credit well is important for long-term financial success.

Understanding the role of credit utilization and improving it can open up more financial opportunities. Keep an eye on your credit utilization and manage it well. This will help you reach your financial goals.


What is a credit utilization ratio?

Your credit utilization ratio is the total debt on your credit cards divided by the total credit you have. It shows how much of your available credit you’re using.

Why is a low credit utilization ratio important?

Keeping your credit utilization ratio low, below 30%, is key for good credit. It shows you’re not using much of your credit, which lenders like. This can lead to better interest rates and loan terms.

How does credit utilization ratio impact my credit score?

Your credit utilization ratio is a big part of your credit score, making up 30%. A high ratio can make lenders think you’re overusing credit, which is risky.

How do I calculate my credit utilization ratio?

First, add up the credit limits on all your cards. Then, add your current balances. Divide the total debt by the total limit, and multiply by 100 for your credit utilization ratio.

What strategies can I use to lower my credit utilization ratio?

To lower your ratio, you can pay down your balances, ask for a higher credit limit, or open a new card to increase your total limit.

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