Takeaways
- Financial experts recommend having a credit utilization rate below 30%.
- According to Experian, the average credit utilization ratio in the US is 28%.
- The best credit scores have credit utilization ratios in the low single digits.
- Credit utilization is your total debt divided by your total available credit.
- Increasing your credit limit and decreasing your debt balances improves your credit utilization and boosts your credit score
Credit card experts advocate for keeping a low credit utilization ratio. Your credit utilization is the percentage of your total available credit you use. Finance professionals suggest keeping your credit utilization well below 30%, known as the 30% rule, to maintain an excellent credit score.
If you don’t manage your credit card spending, you can quickly use more than the recommended amount, especially if you only have one credit card. This is one reason many consumers consider having many different types of credit cards. Additionally, you can take advantage of elite reward programs, like travel points and cash back, by having multiple credit cards. But it would help if you kept an eye on your credit utilization.
Smart Tip:
The average credit card utilization ratio is 28%. The average credit utilization ratio of FICO scores between 800-850 was 6.5%.[1]
What Is the 30% Rule?
The 30% rule states that your credit card balance should never exceed 30% of your limit. For example, if you have a single credit card with a balance of $10,000, you should not spend more than $3,000.
The best credit utilization ratio is one within the low single digits. You can lower your credit utilization by paying off credit card debt or increasing your credit limit.
Maintaining a low credit utilization ratio can increase your credit score over time. Plug and play with Smart Money's credit utilization calculator below:
Calculator
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.
How Credit Utilization Impacts Credit Score
Credit utilization plays a significant role in calculating your credit score for both the major credit scoring models. Let's take a look at how each model weights credit utilization.
- FICO Score: 30% of your score comprises the amount of credit you owe.[2] The more you own relative to your credit limit, the lower your score.
- VantageScore: 20% of your score is made up of your credit utilization.[3] Credit card holders with high credit utilization ratios are penalized in this scoring model.
Best Amount of Credit Card Debt
Let's face it: you signed up for a credit card for daily purchases. The question becomes, how much debt is too much?
That's where the 30% rule comes in because having a low credit utilization percentage can pay dividends for your credit score. Lenders want to know that you will not overextend yourself and get caught in a debt spiral. While this means more interest payments for them, there is a chance you end up defaulting on your debt, which banks, credit unions, and credit card providers want to avoid.
Control your debt with a secured credit card while building credit.
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Smart Summary
Highly effective credit card users manage their credit profile by keeping a pulse on their credit usage, which is essential to your financial health. You should do this, too, as part of good financial hygiene. The 30% rule gives you a tangible benchmark for keeping your credit utilization low, keeping credit balances manageable, and avoiding damaging your credit score. Having too much debt puts a strain on your personal finances. Make the smart money move and actively manage your credit utilization before the 30% threshold.
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(1) Experian. What is a Credit Utilization Rate? Last Accessed January 14, 2025.
(2) MyFico. What’s in my FICO® Scores? Last Accessed January 14, 2025.
(3) VantageScore. The Complete Guide to Your Vantagescore. Last Accessed January 14, 2025.
