How Credit Card Utilization Impacts Your Credit Score

How Credit Card Utilization Impacts Your Credit Score

Paying your bills on time is not the only way to maintain a good credit score. Controlling your credit utilization and ensuring it stays low is another excellent way to improve your credit score.

In a FICO score or VantageScore, you'll need to keep your credit utilization under 30% to maintain a good credit score.

What Is Credit Utilization?

Essentially, your credit utilization rate compares how much you owe on your credit cards to your total credit limit. This rate shows up as a percentage and significantly impacts your credit score.

To calculate your credit utilization rate, you'll need to do the following:

  • Add up all credit card debt.
  • Add up all your card's credit limits.
  • Divide the total debt by the total credit limit.
  • Multiply the answer by 100 to see your credit utilization rate.

For example, let's say you own two credit cards with a total credit limit of $10,000. One card carries a balance of $5,000, making your credit utilization rate 50%. The rate represents you using half of your available credit.

On the other hand, a lower credit utilization rate means you use less of your available credit. In addition, it shows that you're managing your credit accounts well by not overextending your finances. Lowering your credit utilization rate can boost your credit score by 30%.

It is also essential to keep individual credit card utilization rates low. For example, if you have two credit cards, it is better to have one card carry $3,000 and the other carries $2,000 than one having $5,000. Your overall credit utilization rate still will be 50%; however, one card will have a 60% rate while the other has a 40% rate.

Credit Utilization's Impact on Credit Score

Your credit card utilization rate plays a significant role in your credit score. The lower your rate is, the higher your score will be. On the other hand, the higher your utilization, the lower your score. To maintain a healthy credit score, you'll need to keep your expenses in check and avoid having high balances. In addition, the total number of opened credit accounts and your credit history will also matter.

For example, using only one of many cards to make purchases can adversely affect your credit score, especially if you have a short credit history. Alternatively, spreading your expenses across multiple cards with excellent credit history can improve your credit score.

Improving Credit Card Utilization
If you want to reduce your credit utilization rate to boost your credit score, try the following steps:

  • Keep your credit accounts open. You may be tempted to close unused accounts; however, doing so reduces your overall credit limit, which increases your credit utilization rate. Instead, consider destroying or storing away the card while keeping the account open to take advantage of an increased credit limit.
  • Spread your expenses across multiple cards. Even with multiple credit cards, you might only use one or two. To keep the individual card utilization rate balanced, try spreading the expenses amongst your cards, especially for larger purchases.
  • Request a credit limit increase. If you have a low credit limit, try asking the issuing company for an increase. If you have a good credit score, your issuer will likely take positive action. Otherwise, you can increase your credit limit by opening new introductory credit cards with 0% APR, even if you are unlikely to use them.
  • Pay credit card balances in full each month. Avoid carrying balances on your credit cards by paying in full each month. You can also make bi-weekly payments instead of a single monthly payment to keep your balance low throughout the month.
  • Keep your credit utilization rate under 10%. To ensure you use enough credit without harming your credit score, keep your utilization rate in the single digits.
  • Keep track of when your balance gets reported. Often, the day your card issuer reports your balance to the credit bureau and your payment's due dates are different. Ask your card company when they report balances so you can pay by that date to keep on top of your credit.


Maintaining a low credit utilization rate while paying off your monthly balances is best. Accomplishing these tasks will drastically improve your credit score while allowing you to enjoy your credit card's reward program.