Credit Utilization: What’s the Ideal Ratio for Your Credit Score?

Credit utilization is an important factor credit bureaus use to calculate your credit score. Get more control over your creditworthiness by learning about this key credit score metric.

What is credit utilization?

Simply put, your credit utilization is how much of your overall revolving credit you’re using versus how much you have available at any one time. Revolving credit includes things like credit cards and lines of credit, generally, any kind of credit where you can borrow, repay and then borrow more funds, up to the permitted credit limit.

How to calculate your credit utilization ratio

To calculate your credit utilization ratio (also known as debt to credit ratio), start by adding up all the revolving debt you’re currently carrying — in other words, the total unpaid balances on all your credit cards and lines of credit. Next, divide that number by the sum of all your credit limits (i.e., the total amount of revolving credit available to you). Then multiply that number by 100 to get a percentage.

So, for example, if your total outstanding balances equal $30,000, and your total credit limits add up to $100,000, your credit utilization ratio is 30% ($30,000 ÷ $100,000 x 100).

While the above example provides the overall credit utilization ratio for all your accounts, you can also calculate the ratio for every individual revolving credit account you have by following the same formula.

Whether you do a per-card or overall calculation, you want to keep your ratio as low as possible — but not as low as 0%. Creditors prefer to see that you can manage credit responsibly and make payments on time. If you have a credit utilization ratio of 0%, credit bureaus have no way to fully gauge whether you’re a good credit risk.

How credit utilization affects your credit score

If you’re wondering why you should even bother to calculate your credit utilization ratio, it’s because this metric has a huge impact on your credit score.

Credit scores are based on five main factors: your payment history, credit utilization ratio, credit history, credit mix and/or credit data from public records and account inquiries. Credit utilization is the second most important factor, accounting for about 30% of your score.

Why is credit utilization so important to potential creditors? In short, if you’re using too much of your available credit, it’s taken as a sign that you could be having financial difficulties and can’t pay off your balances. As such, financial experts recommend that you try not to exceed a credit utilization ratio of about 35%. Overall, the lower your credit utilization ratio the better, because it shows potential creditors that you’re likely a good credit risk who’s not overextended.

» MORE: How to check your credit score

How to manage your credit utilization

Since credit utilization accounts for about 30% of your credit score, you want to do what you can to manage your ratio and keep it as far below 35% as possible (without going to 0%). Luckily, there are some things you can do to ensure your credit utilization stays at a healthy ratio and doesn’t lower your credit score.

Monitor credit limits. Pay attention to each account’s credit limit to make sure you don’t go above a ratio of 35% for any individual credit card or credit account.
Pay off balances in full. Paying off your balances each month, and not just the minimum payment, will not only ensure that you don’t increase your debt load through high interest rates, but it will also guarantee you’re not eating into too much of your available credit limits. The closer you get to your credit limits, the more likely you are to increase your credit utilization ratio.
Increase your credit limit. If you have only a couple of credit accounts and each has a low credit limit, it can be hard to keep your credit utilization number below 35%. Asking for a credit limit increase will give you more breathing room and will make it easier to stay below 35%. Just be careful not to let those higher limits compel you to spend more, as that would cancel out the benefits.
Apply for a new credit product. Another way to increase your available credit is to apply for a new credit card. But take care not to apply for too many new credit products, because frequent credit inquiries can negatively affect your credit score.