How credit utilization affects your credit score
Quick insights
- Credit utilization is the percentage of your total available credit that you're currently using.
- Maintaining credit utilization below 30% may be beneficial for your credit score.
- Paying down balances and increasing credit limits are two potential ways to lower your utilization rate.
Credit utilization is a major factor in determining your credit score. Financial experts often suggest that while keeping your credit utilization under 30% can be a great start, those with the highest scores tend to have utilization rates lower than 10%Opens overlay. By keeping your revolving balances low relative to your credit limits, you may be able to help improve your credit standing over time.
Let’s explore how credit utilization could impact your credit score and what you may be able to do to keep it in a healthy range.
How credit utilization works
The term credit utilization refers to the amount of revolving credit you're using compared to your total available credit limits. Revolving credit typically includes accounts like credit cards and lines of credit where you can borrow, pay back and borrow again. So, fixed installment loans, such as mortgages, don't typically count toward your credit utilization.
Your credit utilization rate, also known as a ratio, is expressed as a percentage. For example, if you've got a credit card with a $1,000 limit and a $300 balance, your utilization rate for that card is 30%. Scoring models may look at both your individual card usage and your total usage across all your accounts.
Lenders may view individuals who consistently use a large portion of their available credit as higher risk. This is because high usage may suggest you’re overextended or having difficulty managing your monthly expenses. Keeping this number low might indicate to lenders that you can use credit responsibly without relying on it too heavily.
The connection between utilization and your score
Credit utilization is one of the most important factors in your credit report. It accounts for about 30% of a FICO® score and 20% of a VantageScore®, two widely used scoring models.
Because it makes up such a large portion of your score, changes in your balances can cause your score to fluctuate. If you pay off a large balance, you might notice an impact on your score over time. Conversely, your score could dip if your balances increase toward your limits.
Common ways to manage your credit utilization rate
Managing your credit card usage and its impact on your score doesn't have to be difficult. There are several strategies you can consider to help keep your ratio in a favorable range.
- Paying balances early: Making multiple payments throughout the month may help keep your reported balance low even if you use your card frequently.
- Requesting a limit increase: If you're eligible to apply for a higher limit and don't increase your spending, your utilization rate can drop. However, this request might result in a hard credit check.
- Keeping accounts open: Closing an unused credit card reduces your total available credit. This could cause your overall utilization rate to rise.
- Monitoring your progress: Using tools like Chase Credit Journey® can help you check your Experian™ credit report and spot high balances that might be affecting your score. This free tool is available to anyone 18 or older with a valid U.S. address and Social Security number (SSN), offering access to your credit score and personalized score improvement plans provided by Experian—no Chase account required.
How much credit usage is considered good
While there’s no single perfect number, a general rule of thumb is to stay below 30% credit utilization across all accounts. If your utilization is currently above 50%, it may signal to lenders that you're having trouble paying off debt.
Focusing on the card with the highest ratio first may be one way to help raise your score. Maintaining lower balances can be one factor that lenders may consider when evaluating credit habits.
The bottom line
Managing your credit utilization is one way to help build your credit score. Since a lower rate is typically more beneficial, aiming for that 10% sweet spot could potentially help you reach your next financial milestone. Keeping your balances low relative to your limits may help demonstrate creditworthiness to future lenders.
