Credit card utilization and your credit scores

Father and young daughter painting a wall, while the father teaches her about credit card utilization and how it affects your credit score Image: Father and young daughter painting a wall, while the father teaches her about credit card utilization and how it affects your credit score

In a Nutshell

How much of your available credit do you use each month? Lowering your credit card utilization rate could help to strengthen your credit scores.

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Before we dive into how using your credit card may affect your credit scores, let’s recap what we mean when we talk about “credit card utilization.”

Credit card utilization — or just credit utilization, for short — refers to how much of your available credit you use at any given time.

You can figure out your credit utilization rate by dividing your total credit card balances by your total credit card limits. The resulting percentage is a component used by most of the credit scoring models because it’s often correlated with lending risk.

Most experts recommend keeping your overall credit card utilization below 35%. Lower credit utilization rates suggest to creditors that you can use credit positively without relying too heavily on it, so a low credit utilization rate may be correlated with higher credit scores.

Now that we’ve defined our terms, let’s look more closely at how your credit utilization relates to your credit scores.


Why does my credit card utilization impact my credit scores?

As we mentioned above, your credit utilization rate is an important indicator of lending risk. In the eyes of most lenders, a person who constantly charges all the money they can — hitting or going over their credit limit on a regular basis — is more likely to have difficulty repaying that money.

Conversely, someone who charges smaller amounts may be more likely to be able to pay off their balance in full each month, and thus represents a lower risk to the lender.

How does my credit card utilization impact my credit scores?

There are different credit scoring models, so it’s difficult to calculate exactly how credit utilization will impact your credit scores.

With that said, there’s a strong correlation between a consumer’s credit card utilization rate and their credit scores. Though individual cases may vary, those who keep their utilization percentage low generally have higher scores than those who habitually max out their credit cards.

If you don’t want your credit utilization to negatively impact your credit scores, it’s important to consider your spending habits. Factors such as your credit history and the number of cards in your wallet matter, too.

High utilization on a single credit card could especially hurt your credit scores if you have a short credit history and only one card. On the other hand, you may feel the effects less if you have a long and excellent credit history and spread your utilization across multiple cards.

Although it’s an important factor in calculating your credit scores, try not to focus just on this one aspect. Keep the big picture in mind.

How can I lower my credit card utilization?

Here are three tips that may help you lower your credit utilization.

  • Make credit card payments more than once a month. This way, your balance never gets too high. As your credit card relays account activity to the bureaus, it takes about 30 to 90 days for new information to appear on your reports. If you pay down portions of what you owe periodically, you can help lower your credit utilization as that information appears on your credit reports.
  • Spread your charges across multiple cards each month. Using multiple cards will result in multiple accounts of low credit utilization rather than one account with high utilization. Keep in mind, however, that certain credit scoring models will look at your overall credit utilization and/or the utilization on individual credit cards, so this technique may not always work.
  • Increase your available credit. If your income has increased, you’ve maintained an amazing credit history, or you have little debt, it doesn’t hurt to ask for a credit limit increase. Just remember that this can sometimes result in a hard credit check. If you lack excellent credit, you may want to consider opening a secured credit card and adding to its security deposit over time.

Bottom line

You don’t have to carry a credit card balance or pay interest every month to show credit card utilization. Even if you pay your credit card balances in full every month, simply using your card is enough to show activity.

While experts recommend keeping your credit card utilization below 35%, it’s important to note that creditors also care about the total dollar amount of your available credit. This means that if you have a low credit limit, it’s not necessarily a huge deal if your credit card utilization rate is slightly higher than recommended.


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