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Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. SHARE: March 10, 2022 Checkmark Bankrate logo How is this page expert verified? At Bankrate, we take the accuracy of our content seriously. "Expert verified" means that our Financial Review Board thoroughly evaluated the article for accuracy and clarity. The Review Board comprises a panel of financial experts whose objective is to ensure that our content is always objective and balanced. Their reviews hold us accountable for publishing high-quality and trustworthy content. Nicole Dieker has been a full-time freelance writer since 2012—and a personal finance enthusiast since 2004, when she graduated from college and, looking for financial guidance, found a battered copy of Your Money or Your Life at the public library. In addition to writing for Bankrate, her work has appeared on CreditCards.com, Vox, Lifehacker, Popular Science, The Penny Hoarder, The Simple Dollar and NBC News. Dieker spent five years as writer and editor for The Billfold, a personal finance blog where people had honest conversations about money. Dieker also teaches writing, freelancing and publishing classes and works one-on-one with authors as a developmental editor and copyeditor. Mariah Ackary is a personal finance editor who joined the Bankrate team in 2019, excited by the opportunity to help people make good financial decisions. Send your questions to Cathleen's stories on design, travel and business have appeared in dozens of publications including the Washington Post, Town & Country, Wall Street Journal, Marie Claire, Fodor’s Travel, Departures and The Writer. Bankrate logo

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What is a credit utilization ratio

Your is the ratio of your total credit to your total debt and is usually expressed as a percentage. If your credit utilization ratio is 25 percent, it means you’re using 25 percent of the credit available to you. If you have a single credit card with a $10,000 credit limit, for example, a credit utilization ratio of 25 percent indicates you currently have a $2,500 balance. If you have more than one credit card, your credit utilization ratio generally refers to the amount of debt you are carrying on all of your credit cards. Depending on the credit scoring model being used, your credit utilization ratio might also include the credit and debts associated with a mortgage, a car loan, student loans and other types of credit. Since credit utilization makes up 30 percent of your credit score, it’s a good idea to keep your as high as possible—and your debts as low as possible. Running up high balances on your credit cards raises your credit utilization ratio and can lower your credit score.

What is a good credit utilization ratio

There isn’t a magic number, but it’s generally good to keep your credit utilization below 30 percent. There’s no need to constantly track the exact number because it will change every time you make a purchase, but trying not to exceed 30 percent is a good habit. If you make a large purchase that significantly increases your utilization ratio and don’t want to see your credit score drop, your best bet is to pay it off as quickly as possible. Don’t wait until your due date. You may be able to avoid having that high utilization reported to the credit bureaus. Keep in mind this quick action probably isn’t necessary unless you’re applying for credit soon and need to keep the best possible score.

How does your credit utilization ratio affect your credit score

Under the , there are five factors that affect your credit score. Each factor makes up a percentage of your total score, as follows: Payment history: 35 percent Credit utilization: 30 percent Credit history: 15 percent Credit mix: 10 percent Credit inquiries: 10 percent As you can see, the most important factor in your credit score is your payment history—which is why have a huge negative impact on your credit score. Your credit utilization ratio is the second-most important factor that affects your credit score. If you are trying to build or work your way up to , you’re going to want to keep your credit utilization ratio as low as possible. Most credit experts advise keeping your credit utilization below 30 percent, especially if you want to maintain a good credit score. This means if you have $10,000 in available credit, your outstanding balances should never exceed $3,000. It’s all right to occasionally make purchases that exceed 30 percent of your available credit, as long as you pay them off within your and avoid turning them into or long-term debt. The average credit utilization ratio of people with is 6 percent—so keep that in mind as you calculate your own credit utilization ratio and begin the process of lowering it.

How can you calculate your credit utilization ratio

If you want to calculate your credit utilization ratio, start by adding up all the on your credit cards. If you don’t know your credit limits, you can often find them by logging into your credit card account. Once you’ve finished adding up your credit limits, start adding up your current credit card balances. Divide your debt by your credit, then multiply that number by 100 to get the percentage of credit you’re currently using—also known as your credit utilization ratio. Balance Credit limit Credit utilization ratio Card A $250 $5,000 5% Card B $1,600 $6,000 27% Card C $150 $4,000 4% Totals $2,000 $15,000 13% If you’d rather not do the math yourself, there are many online that can help speed up this process. You could also sign up for a that will automatically calculate your credit utilization ratio for you. The , for example, recalculates your credit utilization ratio every week and lets you know if any changes to your credit utilization ratio have a negative or positive effect on your credit score. CreditWise is free and available to everyone regardless of whether you have a , so consider adding it to your credit utilization toolkit.

How can you lower your credit utilization ratio

Lowering your credit utilization ratio is relatively easy—and it’s one of the quickest ways to . Here are four ways for you to reduce your debt, increase your available credit and reap the benefits of a lower credit utilization ratio:

Pay off your balances

The best way to lower your credit utilization ratio is to pay off your credit card balances. Every dollar you pay off reduces your credit utilization ratio and your total debt, which makes it a win-win scenario. Plus, paying off your balances means no longer having to pay interest on those balances. So ask yourself how much debt you can pay off in the next few months, and see how it affects your credit utilization and your credit score.

Open a balance transfer credit card

If monthly interest charges are making it difficult to make a dent in your balances, you might want to consider a . These cards let you transfer and consolidate your outstanding balances onto a single credit card, which often makes it easier to pay down your debt. The offer an introductory zero percent APR period of 15 to 21 months to help you pay off your balances interest-free. There’s one more benefit to opening a balance transfer credit card: When you take out a new line of credit, you increase the amount of credit under your name. This can help you lower your credit utilization ratio, provided you don’t make additional purchases that take up a significant percentage of your total credit.

Request a credit limit increase

Another good way to lower your credit utilization ratio is to from your credit card issuer. By increasing your credit limit, you’ll have more available credit on your account, which will automatically lower your credit utilization ratio. Just be careful that you don’t turn your new credit into new debt!

Apply for a new credit card

is also a good way to lower your credit utilization ratio. Having associated with your account increases the amount of credit available to you, and if you don’t increase your overall spending, your credit utilization ratio should go down. Plus, getting another card gives you the opportunity to take advantage of , and other perks associated with the best credit cards on the market.

The bottom line

Your credit utilization ratio is a major factor in your credit score, so do your best to keep your credit utilization as low as possible. You can use a credit utilization calculator or credit monitoring app to determine your credit utilization rate, or you can do the math by hand. Reducing your credit utilization ratio is an excellent way to boost your credit score. If you have a lot of high balances and late payments on your record, don’t worry—it’s still possible to turn your credit score around. All you have to do is start making on-time payments every month and begin paying off those balances. As your debt gradually gets smaller, you should see the benefits reflected in your credit utilization ratio and your credit score. SHARE: Nicole Dieker has been a full-time freelance writer since 2012—and a personal finance enthusiast since 2004, when she graduated from college and, looking for financial guidance, found a battered copy of Your Money or Your Life at the public library. In addition to writing for Bankrate, her work has appeared on CreditCards.com, Vox, Lifehacker, Popular Science, The Penny Hoarder, The Simple Dollar and NBC News. Dieker spent five years as writer and editor for The Billfold, a personal finance blog where people had honest conversations about money. Dieker also teaches writing, freelancing and publishing classes and works one-on-one with authors as a developmental editor and copyeditor. Mariah Ackary is a personal finance editor who joined the Bankrate team in 2019, excited by the opportunity to help people make good financial decisions. Send your questions to Cathleen's stories on design, travel and business have appeared in dozens of publications including the Washington Post, Town & Country, Wall Street Journal, Marie Claire, Fodor’s Travel, Departures and The Writer.

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