Credit utilization

Also called Utilization ratio, Credit utilization ratio

The share of your available revolving credit you are using, a major factor in credit scores, figured per card and across all cards.

What it means

Credit utilization compares your revolving balances, mainly credit cards, with your credit limits. Scoring models look at both overall utilization and the ratio on each card. Lower utilization generally signals less risk and supports a higher score.

There is no single magic number, but many people aim to stay below 30%, and those with the highest scores often use under 10%. The balance that counts is usually the one on your statement, so a large charge can raise utilization even if you pay in full each month. Because most scoring models look only at the current snapshot, a high ratio stops hurting once balances are paid down and reported.

Formula

Utilization = (total revolving balances ÷ total credit limits) × 100

Total revolving balances = amounts owed on credit cards and other revolving lines
Total credit limits = combined limits on those accounts

Example

Suppose one card has a $500 balance on a $2,000 limit and another has $1,000 on a $3,000 limit. Overall utilization is $1,500 ÷ $5,000 = 30%, while the individual cards sit at 25% and about 33%.

How it’s used

Preparing to apply for a mortgage or other loan
Understanding a sudden score drop after a large purchase
Deciding whether to close an unused card

Good to know

Paying part of a balance before the statement closes can lower reported utilization.
Closing a card reduces total available credit, which can raise utilization.

Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.