Credit Utilization Ratio: How It Is Calculated and What to Aim For

Your credit utilization ratio is the share of your available revolving credit that you are using, calculated by dividing your card balances by your credit limits. It is part of the amounts-owed factor, which makes up 30 percent of a FICO Score. Under 30 percent is generally fine, and the highest scorers tend to stay in single digits. The number that counts is the balance your issuer reports, which is usually your statement balance, so you can often lower it just by changing when you pay.

How do you calculate your credit utilization ratio?

Divide your total credit card balances by your total credit limits and multiply by 100. Experian describes two versions of the number, and both can affect your scores: your overall utilization across every revolving account, and the utilization on each individual card. A low overall ratio can still hide one card that is close to its limit.

Here is a worked example with three cards. The balances are the amounts the issuers reported, not what you owe today.

Overall, 27 percent looks moderate, but Card C sits at 60 percent. If you paid $800 off Card C before its statement closed, its reported balance would drop to $400, or 20 percent, and your overall ratio would fall to $1,900 / $10,000, or 19 percent. You would owe the same money in total; only the reported snapshot changes.

What is a good credit utilization ratio?

There is no single cutoff, but under 30 percent is generally acceptable and under 10 percent is where people with the best scores tend to be. Experian's analysis puts people in the highest score range in the single digits, and it notes that while 30 percent is roughly where utilization starts to weigh more heavily, the data does not show a sudden drop the moment you cross it. Treat 30 percent as a ceiling and 10 percent as a target rather than as hard lines.

Zero is not automatically best. myFICO says a low utilization ratio can sometimes help your FICO Scores more than using none of your available credit at all. In practice, letting a small balance report on one card and paying it in full by the due date gives the scoring models some recent activity to see without costing you any interest.

When do credit card issuers report your balance?

Most issuers report your balance around the end of each billing cycle, so the statement balance is usually the number the credit bureaus see. That is a few weeks before your payment is due, which creates a common surprise: you can pay in full every month and still show high utilization.

Take a card with a $2,500 limit that you use for $2,000 of spending each month and pay in full after every statement. You never pay interest, but the bureaus see an 80 percent balance every month. If you instead pay $1,800 a few days before the statement closing date, the reported balance drops to $200, or 8 percent, and you pay off the last $200 by the due date. Your total spending and payments are identical; only the timing moved.

How quickly does credit utilization change your score?

Quickly, in both directions. Experian notes that many credit scoring models look only at the most recently reported balances and limits, so a high month does not follow you once a lower balance is reported. That is different from a late payment, which stays on your report for seven years.

This makes utilization the most useful lever before a big application. If you plan to apply for a mortgage, auto loan or new card, paying balances down one or two statement cycles ahead gives the lower numbers time to reach your report. Pull your reports for free at AnnualCreditReport.com to confirm the new balances show up before you apply. Our guide to understanding your credit score covers the other factors lenders see.

Here is how the timing works in practice. Say your statements close on the 5th of each month and you plan to apply for a car loan in mid-March. Paying your balances down before the February 5 closing date means the lower balances are reported in February, and a March 5 statement with similarly low balances confirms them. If you wait until the week you apply, the lender may still see January's higher numbers. Keep new spending on the cards light during that stretch so the reported balances stay low, and avoid opening or closing accounts while you wait.

How can you lower your credit utilization ratio?

Pay down balances before your statement closes, and increase or keep your available credit. These steps work from the quickest to the slowest.

1. Find each card's statement closing date. It is printed on your statement and shown in your issuer's app, and it is usually different from the due date.
2. Pay before the closing date, not just by the due date. A payment a few days before the statement closes lowers the balance that gets reported.
3. Make two payments a month. Paying mid-cycle and again at the due date keeps the running balance low all month.
4. Pay down the card with the highest individual ratio first. Because per-card utilization also counts, bringing one maxed-out card down can help even when the overall ratio barely moves.
5. Ask for a higher credit limit. A larger limit with the same balance means a lower ratio. Some issuers check your credit with a hard inquiry for this, so ask first. See how credit limits are decided.
6. Keep old no-fee cards open. Closing a card removes its limit from your total. A card with no annual fee costs nothing to keep; our no annual fee credit card guide covers good long-term keepers.
7. Be careful with balance transfers. A new card adds to your total limit, but a transfer that fills most of the new card's line creates a high per-card ratio. The real benefit is paying less interest; see balance transfer credit cards.

Does closing a credit card hurt your credit utilization?

It can, because closing a card removes its limit from your total available credit while your balances stay the same. In the example above, closing Card B, which has a $3,000 limit and no balance, would shrink your total limit to $7,000. With the same $2,700 in balances, your overall utilization would jump from 27 percent to $2,700 / $7,000, or about 39 percent.

That does not mean you should never close a card. If a card charges an annual fee you no longer want to pay, ask the issuer whether you can switch to a no-fee version on the same account first, which keeps the limit and account history. If you do close one, pay down other balances beforehand so the lost limit matters less.

Which accounts count toward credit utilization?

Revolving accounts, mainly credit cards, are what count toward the utilization ratio. Installment loans such as auto loans, student loans and mortgages are handled differently: myFICO says FICO Scores consider the amounts you owe on different types of accounts, so a mortgage balance is not treated like a maxed-out card.

Authorized user cards can count too. If you are an authorized user on someone else's card and the issuer reports that account to your file, Experian notes that a high balance on it can appear on your report and hurt your credit. If that happens, you can ask to be removed from the card.

What are the common myths about credit utilization?

The most expensive myth is that you need to carry a balance to build credit. You do not.

• "You need to carry a balance from month to month." False. Your statement balance is reported whether or not you pay it in full, so paying in full builds the same history without any interest. Our guide to building credit with a credit card covers the habits that do matter.
• "Crossing 30 percent drops your score by a set amount." Experian says the data does not support a sudden dip at 30 percent. Utilization works on a sliding scale.
• "Zero percent is always best." myFICO says a low ratio can help more than no usage at all.
• "A high month hurts you for years." In many scoring models, only the latest reported balances count, so a lower balance next month helps right away.