Credit utilization is the amount of outstanding debt relative to your credit limits. Banks, credit unions, and other financial institutions want you to have a low credit utilization because it shows lenders you do not tend to maximize your debt levels.
Reviewing your credit utilization is an essential part of debt management. You can pull the lever to improve it by decreasing your outstanding balances (e.g., paying off credit cards) or increasing your available credit (e.g., applying for a credit card with a high credit limit). More on this below.
Many lenders consider a good credit utilization ratio to be below 30%, but 30% and above is considered too high. Check out Smart Money’s credit utilization calculator to see where you stand today.
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Calculate Your Credit Utilization
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Credit Utilization Calculator
Credit Card Balance & Limits
Your Credit Usage
Overall Credit Utilization
Great work! Your credit utlization is less than 30%. Keep your utilization low by making ontime payments.
Wait! A credit utlization over 30% can damage your credit score. Keep your utilization low by making ontime payments or increase your limits.
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Why Credit Utilization Matters
Lenders place a super high emphasis on your credit utilization, which is why you need to understand how it impacts various areas of your credit life. Here’s how credit utilization can impact your finances:
- Impacts Credit Score: Your credit utilization is one of the most heavily weighted variables affecting your credit score. It makes up 30% of your overall FICO score and 20% of your VantageScore. Read more about how to lower your credit utilization.
- Affects Credit Report: When you apply for a new line of credit, lenders will request your credit report to analyze your eligibility for different credit products. A credit report is a summary of your credit history. It shows detailed account history from revolving credit accounts, such as credit cards, listing balances, available credit, scheduled payments, and corresponding payment history. Read more about how to get your free credit report.
- Alters Borrowing Costs: High credit utilization ratios can spook lenders. Borrowers with a high debt load frequently have trouble paying off their debt and are considered higher-risk accounts. Lenders often charge higher annual percentage rates (APR) to customers with a high credit utilization. Read about how to increase your credit limit, which can decrease your credit utilization.
- Influences Credit Products: Credit utilization flows through all aspects of your personal finances. While it most frequently affects credit cards, it impacts many other credit products. Here are some products your credit utilization directly influences:
Frequently Asked Questions
Lenders generally want to see a credit utilization below 30%. If you have a credit utilization north of 30%, lenders worry about your ability to effectively make on-time minimum monthly payments. This increases your risk to lenders. The most straightforward approach to improving your ratio is to pay off your credit cards quickly.
There are two main philosophies on the best way to pay off debt: the snowball method and the avalanche method. The snowball method focuses on paying off debts with the lowest balance first and progressing to paying off higher balances. In contrast, the avalanche method emphasizes paying off debt with the highest interest rate first
The best credit cards allow you to request credit limit increases online. The best time to request a credit limit increase is when you have recently paid off a tranche of debt. Read our Ultimate Guide on Increasing Your Credit Limit.
