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Credit utilization ratio: What it is and how to calculate it

Learn how to maximize the impact of your credit utilization, which makes up 30% of your credit score.

Your credit utilization ratio is the amount of debt you’re carrying divided by your credit limit across all your revolving credit accounts. The lower your ratio, the better, as this is one of the factors that determine your score and helps lenders get an idea of your creditworthiness.

What is credit utilization?

Your credit utilization rate, or ratio, represents the amount of credit you’re currently using compared to your total credit limits. Your credit utilization ratio falls in the amounts owed category for your FICO credit score, which makes up 30% of your credit score and is the second most important factor behind your payment history.

It’s sometimes called your revolving credit utilization because it only calculates your revolving credit. Revolving credit includes credit cards, personal lines of credit and home equity lines of credit. Installment loans, like a mortgage or car loan, aren’t considered in your credit utilization ratio, but they are considered in other ways in the amounts owed category of your FICO credit score.

Both FICO score and VantageScore — two credit scoring models used to determine your credit score — consider your credit utilization a top factor in calculating your credit score.

Lenders use your credit utilization, among other factors, to evaluate how well you manage your debt. They typically prefer a credit utilization ratio of 30% or lower. Carrying more debt than 30% of your total limit may indicate you have trouble repaying what you borrow.

How to calculate your credit utilization ratio

To calculate your credit utilization ratio, add up your outstanding debt across all revolving credit accounts. Remember, installment accounts with regular payments, like student loans, don’t count in your credit utilization and shouldn’t be added.

Then, tally your total credit limits across all your credit accounts. The total credit limit is the maximum amount you can charge to the account. Once you have both numbers, divide your debt by your total credit limit and times by 100 to convert it to a percentage. This is your credit utilization ratio.

Credit utilization ratio example

If you owe $500 on a credit card and $1,000 on a personal line of credit, your total debt is $1,500.

If the total credit limit is $2,000 on your credit card and $5,000 on your personal line of credit, you have a total credit limit of $7,000.

Divide those numbers, $1,500 by $7,000, and you get a credit utilization of 21%.

4 tips to improve your credit utilization

Paying down your revolving debt and limiting your spending is the best way to lower your credit utilization ratio. But there are other things you can do to help:

  • Report your income. Cards providers are more likely to increase your total credit limit if your income goes up, so be sure to report if it does. Most institutions allow you to do this via their online portals or in-app.
  • Ask for an increase. Once you’ve reported your income and your details are up-to-date, request a credit increase from your provider. Most providers allow an increase once every six months. Again, you can usually do this online, but you can also call the number on the back of your card.
  • Keep old cards open. You might be tempted to close old cards you no longer use, but this lowers your total credit limit, and increases your credit utilization ratio because you’re reducing your overall credit limit.
  • Consider an installment loan. If you have lots of revolving debt with high interest rates, consider consolidating your debt with a low-interest personal loan. This shifts your revolving debt to installment debt, which isn’t counted in your credit utilization.

While important, your credit utilization is only one factor in the amounts owed category. If you’re looking to increase yours, there are many ways to improve your credit score.

A higher credit limit could decrease your credit score

Increasing your total credit limit can lower your credit utilization and have a positive impact on your credit score — but only if you use it wisely. You still need to keep your spending habits the same for your credit utilization to go down.

If you raise your limits and also raise your spending, your credit score may remain the same or decline. If a higher credit limit would be too tempting to overspend, it may be best to focus on paying down existing debt instead.

Also, if you increase your total credit by taking out several new credit cards, your credit score could get dinged with multiple hard credit checks and future lenders may think you’re too desperate for credit.

How long does it take to improve your credit utilization?

It depends. If you increase your credit utilization by paying down debt, your credit score should go up after your next billing cycle. Credit reports usually update once a month or at least every 45 days, according to TransUnion(2).

On your credit report, you might see a Last Updated date next to your credit account. If you made the payment before that date, you should see an increase in your score. If not, you may need to wait another month.

Also, if you increase your credit utilization by increasing your total credit limit, it can take a few billing cycles for your new limits to appear on your credit report.

However, your credit score will only increase if your other financial habits remain healthy. If your score went down even though you improved your credit utilization, consider other reasons your credit score may have dropped.

Bottom line

Your credit utilization ratio is one of the most important factors in determining your credit score. A credit utilization under 30% can increase your credit score over time and show lenders that you’re a responsible borrower. However, if you’re still struggling to get your credit score up even after lowering your credit utilization, learn other ways you can build your credit.

Written by

Holly Jennings

Holly Jennings is an editor and updates writer at Finder, working with writers across all niches to deliver quality content to readers. She’s edited hundreds of financial articles ranging from credit cards to investments. With empathy at heart, she especially enjoys content that breaks down complex financial situations into easy-to-understand information. Prior to her role at Finder, she collaborated with dozens of small businesses to maximize the reach and impact of their blog posts, website copy and other content. In her spare time, she is an award-winning author for Penguin Random House, writing about virtual reality worlds, magical girls and lasers that go pew-pew. See full profile

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6 Responses

    Default Gravatar
    SarahMarch 12, 2019

    I’m very disappointed in Equifax Scoring System. I have four credit cards I usually pay off entire balance at end of each month. Equifax knocked off 7 points of my credit score. The other two Credit Bureaus did not do that. And yes this card is listed on all three agencies. What can I do about it?

      AvatarFinder
      JoshuaMarch 17, 2019Finder

      Hi Sarah,

      Thanks for getting in touch with Finder. I’m sorry to hear about your situation. I know how frustrating when your score gets lower.

      It is true that credit bureaus gather almost the same type of information about your financial history, there is a slight difference in how they come up with your score. It is a matter of how they interpret your data. Each bureau has its way of collecting and ranking data and determine your creditworthiness. Because of this, a slight difference is expected.

      What you can do is directly get in touch with Equifax. I’m sure that they are more than willing to address your concern.

      I hope this helps. Should you have further questions, please don’t hesitate to reach us out again.

      Have a wonderful day!

      Cheers,
      Joshua

    Default Gravatar
    LauraApril 16, 2018

    Hi.

    Im trying to improve my credit score. Have a capital one card with £200 limit.
    Ive just been accepted for a platinum card with £3,000 limit and low apr.
    Is it better to close the capital one card or keep it to improve my score? Thanks

      AvatarFinder
      JoanneApril 16, 2018Finder

      Hi Laura,

      Thanks for reaching out.

      Using your credit utilization ratio is one of the ways to improve your credit score. The thing to do is to keep an eye on your balances, ensuring that they are under 30% of your limit.

      Meantime, when you close a credit card, the amount of credit available to you goes down — causing your credit utilization to go up. Closing an old credit card can make your credit history seem shorter than it actually is, lowering your credit score slightly.

      Hope this helps,
      Joanne

    Default Gravatar
    ChristinaMarch 10, 2018

    Two questions

    1. Let’s say I use my credit card for a $300 couch on day 1, pay it off on day 2. Then on day 5 I use my credit card for a $300 fridge. The rest of the month I don’t purchase anything using my credit card. Let’s say I have a Max credit limit of $1000. Does this mean my credit utilization is 30% or 60%?

    2. Let’s say I use my credit card for 1 month and spend $500. If I pay off the $500 on the last day of the month, is this good or bad? Do you need some of the credit you owe to roll over to the next month to establish a credit history? Would I have better credit if I rolled over $100 compared to $1 I would owe?

      AvatarFinder
      MayMarch 19, 2018Finder

      Hi Christina,

      Thanks for your questions.

      For your first question:
      Essentially, your credit utilization rate is determined by how much debt you are carrying against your credit limit. So if you’ve paid off the first $300 in your account as early as the next day and your card issuer will roll that $300 back to the $1000 limit you have, your utilization will only be 30% if you charged another $300 (with no other purchases) and have not paid that back until your due date.

      For your second question:
      1. Let’s say I use my credit card for 1 month and spend $500. If I pay off the $500 on the last day of the month, is this good or bad?
      When you are paying off all your balance before your statement closing date, that can benefit well to your history and credit score.

      2. Do you need some of the credit you owe to roll over to the next month to establish a credit history? Would I have better credit if I rolled over $100 compared to $1 I would owe?
      Basically what affect your credit history/score are the negative behaviors such as not paying your bills and debts on time and applying for so many other forms of credits in just a short period of time. Moreover, owing more than 30% of your credit card limit could also result to a lower rating even if you pay off your balances each month.

      Please note though that credit card companies generally report to the credit agencies once a month. They’ll will report to the bureaus whether your account is in good standing and whatever balance you have on the card. So generally, your score is calculated based on the information you have in your file.

      Cheers,
      May

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