What Is Credit Utilization?
Credit utilization, also called the credit utilization ratio, is the percentage of your available revolving credit that you are currently using. It is mainly calculated for credit cards and lines of credit, and it is one of the factors that influence credit scores in systems such as those used in the United States, Canada and the UK.
How to calculate it
Utilization = total balances divided by total credit limits, multiplied by 100.
Example: you have two cards with limits of 1,500 and 2,500, giving a total of 4,000. Your balances are 400 and 800, a total of 1,200. Utilization is 1,200 divided by 4,000, or 30 percent. Lenders and scoring models may also look at utilization on each card as well as overall.
Why it matters
A high ratio can suggest that a borrower is stretched and may be higher risk, which can lower a credit score. A lower ratio suggests careful use. Scores affect your ability to get credit cards, loans, rentals, some insurance and sometimes jobs, depending on the country and rules.
Keeping it low
- Pay balances early, ideally before the statement closing date.
- Pay in full each month, if possible, to avoid interest.
- Spread spending across cards if you have more than one.
- Ask for a limit increase, if you can avoid extra spending.
- Keep old accounts open when they have no fees, since they add to your total limit.
- Avoid maxing out cards, even if you pay them off later.
Tips for students
- Start small: a student or secured card with a modest limit can build a credit history.
- Use the card for planned purchases and pay them off.
- Set up alerts and autopay for at least the minimum.
- Never skip payments, since payment history is a major factor.
- Check your credit report for errors, using official free reports where available.
- Avoid unnecessary new accounts, which can create many inquiries.
Other credit factors
Credit scores usually consider payment history, utilization, length of credit history, types of credit and recent applications. Methods vary by country and scoring company.
Related terms
See APR, cosigner, compound interest, direct deposit and inflation.
Frequently asked questions
How do I calculate credit utilization?
Divide your total credit card balances by your total credit limits and multiply by 100. A 500 balance on a 2,000 limit is 25 percent.
What is a good credit utilization ratio?
Many guides suggest keeping it below about 30 percent, and lower is generally better. Exact scoring methods are not public.
Does paying in full each month help?
Paying in full avoids interest. Your utilization is often measured from the balance reported on your statement date, so paying before the statement closes can lower the reported figure.