What Is Credit Utilization & Why It Matters for Your Credit Score
Posted on May 15, 2018
Updated August 30, 2025
By Michelle Lambright Black
If you want to earn great credit scores, paying your bills on time is essential.
But here’s the catch: payment history only makes up 35% of your FICO® Score. Sure, that’s important—the most important part of your credit score to be clear. The other 65% of your FICO Score, however, has nothing to do with home timely you pay your bills.
One of the biggest factors in that remaining 65% of your FICO Score is your credit utilization. Your credit utilization ratio (or the percentage of your credit limits you’re using) has a meaningful influence over 30% of your FICO Score. And it plays a big role in the calculation of your VantageScore credit score, too.
The guide below will dive deep into how credit utilization works and why it matters so much when it comes to your credit scores. But here’s a quick spoiler: how you manage your credit cards can have a big influence on your overall credit health.
CreditWriter Tip:
Paying on time is critical, but keeping your credit card balances low (relative to your credit limits) is just as important if you want to earn and maintain good credit scores.
What Is Credit Utilization?
Credit utilization (also called revolving utilization or debt-to-limit ratio) is a term that describes the percentage of your credit card limits you’re using. This measurement is important because it helps credit scoring models, like FICO and VantageScore, predict your level of credit risk.
Credit Utilization Ratio Example: Single Account
- Credit Limit: $5,000
- Account Balance: $3,500
- Credit Utilization Ratio: $3,500 (Balance) ÷ $5,000 (Limit) X 100 = 70%
The higher your credit utilization ratio climbs, the more it can hurt your credit score.
Two Types of Credit Card Utilization
While we’re talking about what a credit card utilization is, there’s another fact you should know. There are two types of credit utilization — aggregate (or overall) and per-card utilization.
- Per-card credit card utilization rate measures the percentage of your credit limit you’re using on a single account.
- Aggregate credit card utilization ratio looks at your overall credit utilization behavior or the percentage of your total credit card limits in use.
You saw an example of single-account utilization above. Here’s how a scoring model calculates overall credit utilization rates.
Example: Overall Credit Utilization
- Total Credit Limits: $20,000
$5,000 (Card #1) + $5,000 (Card #2) + $10,000 (Card #3) - Account Balances: $5,000
$3,500 (Card #1) + $1,500 (Card #2) + $0 (Card #3) = $5,000 Overall Balance - Aggregate Credit Utilization Ratio: $5,000 (Total Balances) ÷ $20,000 (Total Limits) X 100 = 25%
Why Credit Utilization Impacts Your Credit Score
The purpose of a credit score is to predict risk. And people with higher utilization rates are statistically more likely to fall behind on payments.
Think about it: if you’re using most of your available credit, it could be a red flag to lenders that you’re financially stretched. As a result, scoring models like FICO and VantageScore typically reward you when you keep your credit utilization rates low. It’s also why even if you never miss a payment, carrying high credit card balances could still lower your credit score.
Understanding Credit:
FICO Scores and VantageScore credit scores predict the likelihood that you’ll pay a credit obligation 90+ days late in the next 24 months.
Revolving Accounts vs. Installment Accounts
Of course, all debt is not created equal—at least not where credit scores are concerned.
- Revolving debt (credit cards): These types of accounts are typically riskier because they’re often unsecured. High utilization on these accounts can signal overspending.
- Installment debt (mortgages, auto loans, student loans, etc.): These types of debts are usually less risky. Payments tend to be fixed and predictable. Plus, financing is often secured by collateral.
Due to the nature of revolving credit card debt, carrying a balance on these accounts can be much more damaging to your credit score. By comparison, carrying a high balance on a mortgage or auto loan doesn’t usually have the same negative impact.
How to Lower Your Credit Utilization Rate
If you want to earn and keep good credit, it’s important to manage your credit card utilization rates. Here are five tips that could help.
1. Pay balances in full every month
One of the best ways to protect your credit score and your finances is to pay your credit card balances in full every month. This good habit can help you avoid interest and maintain a lower credit utilization ratio.
Pro tip: Pay before your statement closing date to keep reported balances low on your credit report.
Understanding Credit:
Your statement closing date is when your credit card company sends new account information to each credit bureau—Equifax, TransUnion, and Experian.
So, the timing of your payment matters. Always pay on or before the due date. But if you want a low credit utilization rate on your credit report, aim to pay your balance before the statement closing date arrives.
2. Ask for a credit limit increase
If you can’t afford to knock out all of your credit card debt at once, asking your card issuer for a credit limit increase might help in the short term. A credit limit increase has the potential to lower your credit utilization ratio.
Here’s an example.
- Original Credit Limit: $2,500
- Credit Card Balance: $2,500
- Credit Utilization Rate: 100%
Now, imagine your credit card company approved your request for a credit limit increase.
- New Credit Limit: $5,000
- Credit Card Balance: $2,500
- New Credit Utilization Rate: 50%
Just be careful with this approach. Your ultimate goal should be to pay off your high-interest debt to avoid interest charges and maximize your credit score.
3. Consider a new credit card
Remember, credit scores look at your overall credit utilization and not just individual cards. Because this is true, opening a new credit card could lower your credit utilization rate and possibly help your credit score. And if your new card offers a balance transfer promotion, even better. (More on balance transfers below.)
Of course, you should also be cautious with this strategy. Trying to lower credit utilization without paying down credit card debt can be a slippery slope. Be honest with yourself, and don’t open another credit card if you think you’ll be tempted keep overspending.
4. Think about debt consolidation
Consolidating credit card debt could be another smart way to lower your credit utilization. This move might be good for your finances, too.
When you consolidate debt, you move your existing balances to a new account—usually a personal loan or a balance transfer credit card. It is important to note that debt consolidation doesn’t actually reduce your debt (at least not at first). So, it’s up to you to be smart about your debt payoff plan.
Before you consolidate credit card debt, you should make two commitments to yourself.
- Create a plan to down consolidated debt. Your best bet is usually to pay down debt as aggressively as possible. But even if you can only afford to pay a little extra right now, do what you can—with consistency.
- Avoid new credit card debt. The last thing you want to do is open a new personal loan or credit card and continue to overspend. That particular money mistake can be a recipe for financial and credit disaster.
5. Become an authorized user.
Becoming an authorized user on a spouse, family member, or friend’s credit card is one more way to boost your available credit. With this approach, you start by asking a loved one to add your name to an existing, well-managed credit card account.
When your loved one adds you onto the account as an authorized user, the card issuer may report the card to the credit bureaus under your name, too. If the account shows up on your credit report, it could increase your total available credit.
What’s the potential result here? Every credit situation is different. But in some scenarios your aggregate credit utilization ratio could go down, and your credit score might increase in response.
Moving Forward
Revolving unpaid credit card debt on your credit reports from month to month will almost certainly lower your credit scores. And carrying outstanding credit card balances is also expensive (unless you’re taking advantage of a 0% APR offer).
But there’s good news, too. As you pay down your credit card debt (even slowly), your utilization improves. From there, your credit scores usually follow.
With credit card debt, it doesn’t have to be “all or nothing.” Every payment that lowers your balance is a step in the right direction. So, even if takes you months or years to finally wipe out all of the credit card debt you owe, you may still be able to celebrate a lot of little credit score improvements along the way.
Michelle Lambright Black is a credit, money, and travel expert with 20+ years of experience helping real people make smart, informed decisions about their finances. She’s a nationally published writer, speaker, and credit expert witness with deep expertise in credit reporting, scoring, credit cards, loans, identity theft, budgeting, and debt elimination. Her work appears regularly in top outlets including Forbes Advisor, Reader’s Digest, USA Today Blueprint, Newsweek Vault, Yahoo! Finance, The Points Guy, Fortune Recommends, Buy Side from The Wall Street Journal, FICO, Experian, and more. Michelle also enjoys sharing practical shopping tips and smart travel strategies for families—especially when it comes to maximizing credit card rewards, points, and miles. Connect with Michelle on Instagram (@CreditWriter) and TikTok (@Credit.Writer).
2 Comments
I have had to put legal fees from a very ugly divorce on credit cards (mostly 5% fee 0% interest deals). My credit score has fallen from 700 to 600 as a result of this ratio issue. Would it be wise to ask for a raise on my limit or to get a new card to create more unused credit and thus bring that percentage of credit utilization down? Or should I just chug along paying it down slowly each month?
If you’re able to qualify for a credit limit increase, that action might trigger a drop in your credit utilization ratio (depending on the rest of your credit report). So, there could potentially be some benefit from making the request.
However, it’s still important to continue chipping away at the debt as quickly as possible. That’s going to be the best long-term solution for your credit score and your finances. Ideally, you want to to pay off the debt before the 0% APR promo expires. But that’s probably already something you’re working toward. Good luck on your continued credit card pay off journey!