is the second most important factor in your , right behind payment history. It measures how much of your available credit you're using.
The Basic Math
= (Credit used ÷ Total credit available) × 100
Example:
- You have two credit cards with $5,000 limit each = $10,000 total credit
- You currently owe $2,000 across both cards
- Your utilization = $2,000 ÷ $10,000 = 20%
Why It Matters
Lenders see high utilization as a sign of risk. If you're using most of your available credit, you might be:
- Living beyond your means
- Financially stressed
- More likely to default
Lower utilization = lower risk = better .
The Target Numbers
| Utilization | Impact |
|---|---|
| 0-10% | Excellent (optimal) |
| 10-30% | Good |
| 30-50% | Fair (starts hurting) |
| 50-75% | Poor (significant damage) |
| 75%+ | Very poor (major red flag) |
Aim for under 10% for the best scores. Under 30% is the minimum for a "good" score.
Per-Card vs. Overall
Both matter:
- Overall utilization: Total balance across all cards ÷ total credit limit
- Per-card utilization: Balance on each card ÷ that card's limit
Even if your overall utilization is low, a single maxed-out card can hurt your score.
Strategies to Lower Utilization
Pay more frequently
Instead of paying once a month, pay weekly or bi-weekly. This keeps your reported balance lower.
Request a credit limit increase
If you have good payment history, ask for a higher . This increases your denominator without changing spending.
- $2,000 balance with $5,000 limit = 40% utilization
- $2,000 balance with $10,000 limit = 20% utilization
Important: Don't increase spending just because you have more available credit.
Spread balances across cards
If you have multiple cards, spread purchases to keep per-card utilization low.
Pay before statement closes
Your balance is typically reported to credit bureaus when your statement closes. Pay down your balance before that date.
Common Misconceptions
Myth: "I should carry a small balance to show I use credit." Truth: You don't need to carry a balance or pay to build credit. Pay in full every month.
Myth: "Utilization is calculated at month-end." Truth: It's calculated whenever your statement closes, which varies by card.
Myth: "High utilization permanently damages my score." Truth: Utilization has no memory. Lower it, and your score recovers quickly (often within a month or two).
The 0% Myth
Some people think 0% utilization is best. It's not quite that simple:
- 0% might show as "not using credit"
- 1-10% is generally optimal
- Use your cards, but pay them off
Quick Action Steps
- Calculate your current utilization (check all cards)
- If over 30%, prioritize paying down balances
- Set up multiple payments per month
- Consider requesting limit increases
- Monitor your score as utilization drops
Lowering utilization is one of the fastest ways to improve your —often showing results within 30-60 days.