At a Glance

Credit card utilization refers to the amount of available credit you are using at any given time. It is expressed as a percentage and is calculated by dividing your credit card balances by your total available credit limit. This ratio plays a crucial role in determining your creditworthiness since lenders and creditors view lower utilization ratios as less risky to offer loans or credit cards to.

Your credit card utilization is one of the most significant factors affecting your credit score. If you’re ready to work on your credit history, understanding your utilization ratio will go a long way toward ensuring you’re able to quickly raise your score. Let’s discuss how credit card utilization works, how to calculate it, and how you can use the factors that affect it to optimize your score.

In this article, you’ll learn:

How is credit card utilization calculated? 

Credit card utilization is calculated by dividing the total amount of credit you are currently using by the total amount of credit available to you. 

How to calculate your credit card utilization ratio?

To calculate your credit card utilization rate, follow these steps:

  1. Add up the balances on all your credit cards. This is the total amount of credit you are currently using.
  2. Add up the credit limits on all your credit cards. This is the total amount of credit available to you.
  3. Divide the total amount of credit you are currently using by the total amount of credit available to you.
  4. Multiply the result by 100 to get your credit card utilization rate as a percentage.

For example, if you have a total balance of $2,000 on your credit cards and a total credit limit of $10,000, your credit card utilization rate would be 20% (2,000 / 10,000 * 100 = 20%).

What is the ideal credit utilization ratio?

There are a few “ideals” for credit utilization, as it depends on your financial situation and what you’re trying to achieve:

  • The best credit scores that receive the most competitive credit card offers and high approval rates will have a ratio lower than 10%. This is a hard number to reach if you’re struggling to pay off debt, so don’t worry if that seems unrealistic right now.
  • “Good” credit scores maintain a utilization of 20% or under. These are scores that typically range in the high 700’s. They’ll receive competitive offers but may not have access to preferred rates or terms.
  • The “maximum” utilization rate a lender will be okay with, typically, is 30%. If you’re someone who’s working on building your credit, this is the number to shoot for before applying for any new loans or credit cards. 

Keep in mind, though, that individual lenders may have different criteria for what they consider to be an ideal credit utilization ratio.

What makes a credit utilization ratio change?

Your credit utilization ratio can change for several reasons, including:

  1. Increased or decreased balances: If you pay off a credit card balance or make a large purchase on a credit card, your utilization ratio will change accordingly.
  2. Changes in credit limits: If your credit card issuer increases your credit limit, your utilization ratio will decrease, assuming your balances remain the same. Conversely, if your credit limit is reduced, your utilization ratio will increase.
  3. Opening or closing credit card accounts: Opening a new credit card account will increase your total available credit, which can lower your utilization ratio. Conversely, closing a credit card account will decrease your available credit and potentially increase your ratio.
  4. Balance transfers: If you transfer a balance from one credit card to another, your utilization ratio on each card involved may change.
  5. Paying off debt: As you pay down your credit card debt, your utilization ratio will decrease.

How does credit utilization affect your credit score?

Credit card utilization plays a significant role in determining your credit score. Your credit utilization ratio is one of the key factors that credit bureaus use to assess your creditworthiness. A high credit utilization ratio, meaning you are using a large portion of your available credit, can hurt your credit score.

Lenders typically view a high credit utilization ratio as a sign of financial risk. It suggests that you may be relying too heavily on credit and may have difficulty managing your debt. On the other hand, a low credit utilization ratio indicates responsible credit management and can positively impact your credit score.

To learn more about how credit utilization affects your credit score and to explore strategies for improving your credit utilization ratio, check out our extensive guide on credit card utilization and credit scores

Factors that might influence your credit utilization rate

  1. How much of a balance you carry every month: The amount of balance you carry on your credit cards each month is one of the factors that can influence your credit card utilization rate. If you consistently carry a high balance, it will increase your utilization ratio and potentially hurt your credit score. On the other hand, if you pay off your balances in full each month, your utilization ratio will be lower and can positively affect your credit score. It’s important to keep in mind that carrying a high balance can also lead to higher interest charges, so it’s advisable to try and pay off as much as possible to maintain a healthy credit utilization ratio.
  2. Whether you’ve just opened or closed a new card: Opening or closing a new credit card can also impact your credit utilization rate. When you open a new card, it increases your total available credit, which can lower your utilization ratio. Conversely, closing a card reduces your available credit and may increase your ratio. It’s important to carefully consider the potential effects on your utilization before opening or closing any credit card accounts.
  3. If you’ve transferred a balance: Additionally, balance transfers from one card to another can also affect your utilization ratio on each involved card. You may even see a temporary rise in your utilization if you’re still in the process of the transfer, but things should even out once your credit issuers report your new balances.
  4. If you’ve had a change in your credit limits: If your credit card issuer increases your credit limit, it will decrease your utilization ratio as long as your balances remain the same. The same rule applies if your credit limit is reduced; it will increase your utilization ratio. 

How to lower or improve your credit utilization ratio?

1. Pay your credit cards early

If you know that your credit card issuer reports your balances to the credit bureaus on a specific date, try to pay off your balances or keep them low right before that date. This way, your utilization ratio will appear lower when your credit report is generated.

2. Lower your credit usage

Paying down your balances is the easiest way to improve your utilization ratio. Even making an additional $10 payment can make a difference because it will lower the debt you carry every month, which can accrue interest. And as you’ve probably guessed, accruing interest raises your balances, which will raise your utilization.

3. Open a new card 

Opening a new credit card can increase your total available credit, which can lower your utilization ratio. However, it’s important to be cautious when opening new credit cards, as it can also lead to additional debt and potential financial risks if not managed responsibly. Before opening a new card, consider your current financial situation and whether it aligns with your long-term financial goals.

Compare: Best Credit Cards 

4. Consider a personal loan to consolidate debt 

If you have a high utilization ratio on one credit card, you may want to consider consolidating it into a personal loan. This can help distribute your debt and potentially improve your overall utilization ratio.

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5. Increase your credit limit 

Contact your credit card issuer and ask for a credit limit increase. This will increase your available credit and lower your utilization ratio, as long as you don’t increase your spending.

6. Set up balance alerts

Setting up balance alerts can help you stay on top of your credit utilization and prevent it from getting too high. Many credit card issuers offer the option to receive alerts when your balance reaches a certain threshold. This can help you monitor your spending and make adjustments if needed to keep your credit utilization ratio in check.

Learn more: How to Lower Your Credit Utilization Ratio?


To calculate 30 percent usage on a credit card, you need to determine the percentage of your credit limit that you are using. For example, if your credit limit is $10,000, you would want to keep your balance below $3,000 (30 percent of $10,000) to maintain a utilization ratio of 30 percent or lower.

Yes, credit card utilization is typically calculated monthly. Credit card issuers report your credit card balances to the credit bureaus once a month, usually at the end of your billing cycle. The reported balance is then used to calculate your credit card utilization ratio. It’s important to note that your utilization ratio can fluctuate each month based on your credit card balances and credit limits at the time of reporting.

Disputing a credit utilization ratio itself may not be possible, as it is a calculation based on the information reported by your credit card issuers. However, if you believe there is an error in the reporting of your credit card balances or credit limits, you can dispute the inaccurate information with the credit bureaus.

To dispute a credit utilization ratio, follow these steps:

  1. Review your credit report: Obtain a copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion). Review the information related to your credit card balances and credit limits.
  2. Identify inaccuracies: If you find any errors or discrepancies in the reported credit card balances or credit limits, make note of them. Common errors may include outdated information or incorrect reporting of balances or limits.
  3. Gather supporting documentation: Collect any supporting documentation that proves the inaccuracies in the reported information. This can include credit card statements, letters or emails from your credit card issuer, or any other relevant documents.
  4. Dispute with the credit bureaus: File a dispute with each of the credit bureaus reporting the inaccuracies. You can do this online, by mail, or by phone. Provide a clear and detailed explanation of the inaccuracies and include copies of the supporting documentation.
  5. Follow up: The credit bureaus are required to investigate your dispute within a certain timeframe (usually 30 days). Monitor your credit report for any updates or changes related to the disputed information. If the inaccuracies are corrected, your credit utilization ratio should reflect the accurate information.

Having zero credit utilization is not necessarily a bad thing, but it may not be the most advantageous for building a strong credit history. Credit utilization is an important factor in determining credit scores, and lenders generally like to see some level of credit utilization to show responsible credit management.

Having a low but nonzero credit utilization, such as keeping your balances below 30 percent of your credit limit, is generally considered ideal for maintaining a good credit score. This shows that you are using credit responsibly and not maxing out your available credit.

However, if you have zero credit utilization because you don’t have any credit cards or loans, it may be more difficult to establish a credit history or have a credit score. In this case, it may be beneficial to open a credit card or take on some form of credit to start building a credit profile.

Ultimately, it’s important to find a balance that works for your financial situation and goals. Responsible credit utilization, along with timely payments and other positive credit habits, can help you build a strong credit history.