At a Glance

Improving your credit utilization ratio is essential to maintaining a healthy credit score. Fortunately, there are several steps you can take to do so efficiently. The most crucial measure to take is to pay off debts as quickly as possible, which will reduce your balance and lower the percentage of credit utilized. You should also consider requesting a higher limit on current accounts, enabling you to charge higher amounts without affecting the utilization rate. Additionally, try limiting the number of new accounts you open. Continuously monitor your credit report card so that discrepancies or mistakes don’t mess up your ratio.

In this article, you’ll learn:

What is a credit utilization ratio?

A credit utilization ratio measures how much of your available credit you are currently using. Lenders and credit bureaus use your credit utilization ratio as one of the factors to determine your creditworthiness. A high credit utilization ratio can indicate that you are using too much of your available credit and may be at risk of defaulting on your debts. On the other hand, a low credit utilization ratio can indicate that you are using credit responsibly and may be a good candidate for credit increases or other lending opportunities.

How does it work?

It works by dividing the total balance carried on all revolving credit accounts, such as credit cards and lines of credit, by the total available balance. A good rule of thumb for keeping your credit utilization ratio low is to keep balances below 30% of their available limit. The lower your credit utilization ratio, the more positively it will reflect on your credit scores, so it’s important to pay down existing balances and be mindful of spending on new accounts.

How is the credit utilization ratio calculated?

Your credit utilization ratio is calculated based on the amount of credit you have available and the amount of credit you currently use.

To calculate your credit utilization ratio, you’ll need to know the total amount of credit available to you and your current credit card balance. Once you have those numbers, divide your current balance by your total credit limit to get your ratio. For example, if you have a credit limit of $10,000 and your current balance is $2,000, your credit utilization ratio would be 20% (2,000 / 10,000 = 0.2 or 20%)

How does credit utilization affect credit score?

Credit utilization is one of the most critical factors that affect your credit score. Your credit score is calculated based on various factors, including your payment history, the length of your credit history, the types of credit you have, and the amount of credit you currently use.

When it comes to credit utilization, your credit score is negatively affected if your utilization ratio is too high. A high credit utilization ratio can indicate that you are using too much of your available credit and may be at risk of defaulting on your debts. This can make you appear as a higher-risk borrower and can lead to a lower credit score.

On the other hand, a low credit utilization ratio can positively impact your credit score. Using only a tiny portion of your available credit can show lenders that you are responsible for your credit and can manage your finances well. This can lead to a higher credit score.

What is a good credit utilization rate?

Generally, a credit utilization ratio of 30% or less is considered good, while a ratio above 30% can be a warning sign to lenders that you are overextended.


is the average credit utilization ratio for people with perfect credit scores.

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How to improve credit utilization ratio?

There are several steps you can take to improve your credit utilization ratio. Here are five of the most doable actions.

1. Pay down your debt

Paying down your debt is crucial to maintaining a good credit utilization rate. When you pay off your debts sooner than expected, you essentially open up more available credit, lowering the ratio between what you could use and what has already been used. This ratio is an important factor that lenders consider when evaluating your creditworthiness and setting loan terms. Additionally, having a low debt-to-credit ratio can help boost your credit score because it suggests you have a history of responsibly using credit. Ultimately, when you can pay down all or most of your existing debt quickly, and then stay out of debt by making smart decisions about how much money you borrow, your credit utilization rate will remain low, positively reflecting your overall financial picture.

Related: How to Pay Off Debt Fast?

2. Consolidate debt with a personal loan

Another way of improving your credit utilization rate is to consolidate any outstanding debt with a personal loan. Not only does consolidating your debt help manage both monthly payments and interest rates, but it can also help you increase your credit score in the long run. A personal loan’s fixed payment schedule, often shorter than the term associated with a traditional loan or credit card, will minimize your risk of paying late fees or having the account go into default. As such, this type of financing can significantly reduce the time required to pay off multiple sources of debt without hurting your overall credit score. Furthermore, you may benefit from negotiating lower rates if you have an excellent credit history and other lenders are willing to compete for your business.

Learn more: Personal Loans for Debt Consolidation

3. Keep your accounts open

Having multiple accounts with available balances helps increase the amount of available credit you have compared to what you use. For example, let’s say you have two cards with $500 maximums each. You put $250 on one card and leave the other completely untouched, giving an overall utilization rate of 50%. Now, if both cards are maxed out at those limits, and you decide to open another account with the same limit, your overall utilization rate will lower to 33%, positively affecting your credit standing.

4. Ask for a higher credit limit

Asking for a higher credit limit can be a great way to improve your credit utilization rate. Your credit utilization rate is the ratio of the debt you owe divided by your available credit and is an essential factor in determining your credit score. Increasing your total available credit can help improve this ratio, thus improving your overall score on the report. Remember to use any increase responsibly, and don’t max out your new limits. Planning and setting aside money for upcoming expenses before they happen can keep you from relying too much on your credit cards. Credit management tools such as spending trackers or alerts can also make it easy to know where you’re at regarding debt and keep track of payment due dates so you avoid late fees.

Related: Credit Score vs. Credit Limit

5. Consider using multiple credit cards

Using multiple credit cards can be an effective way to improve your credit utilization rate. When done responsibly, this strategy allows you to spread a larger amount of credit over several accounts, reducing the overall debt owed on a single card. For instance, if you were to purchase something for $100 and had two cards with an available limit of $500 each and no other existing debts, then you would only have used 20% of that $1000 total limit across both cards. This leads to lower credit report debt utilization rates on your credit report, which can improve your score in the long run. However, it’s important to remember that with multiple cards comes greater temptation – so always be sure to practice disciplined budgeting and pay off any debt as quickly as possible!


Generally speaking, it may take anywhere from six months to a year to begin to see a noticeable improvement in the utilization rate. Still, this duration can change depending on your starting score and other financial habits. It can be helpful to set reminders for yourself so that you prioritize paying all of your bills on time and keeping monthly balances low. Taking these steps towards better financial habits are key to fixing your credit utilization rate.

While experts recommend keeping your credit utilization for any given card below 30%, having a 0% might not be the best thing. Although it is certainly not as bad as having a high credit utilization, you should have some utilization to demonstrate responsibility when it comes to your finances. Aim for a ratio in the single digits to get the best credit score possible.

It is commonly believed that having a credit utilization ratio below 30%, meaning your total balance is not more than 30% of your total credit limit, will help you maintain an optimal credit score. It is also important to keep in mind that how much you owe on each credit card individually matters as well. Paying off balances once they have exceeded 10-20% of the card’s credit limit will help you maintain a healthy amount of utilization and a good score. If you find yourself with too high of a utilization rate, paying off small amounts on multiple cards or transferring your debt to one card can quickly and easily improve your credit situation.