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There are a few very important guidelines to follow when trying to build a great credit score, such as always pay on time, don’t open multiple lines of credit at once and don’t max out your card’s credit line.
That last point – maxing out your credit card – has a more formal name: credit utilization. And if you consistently bump your balance against your allowable credit limit, you’ll find that your credit score will negatively respond.
Quite simply, credit utilization is how much of your credit line you’re using at a given time and accounts for 30% of your FICO Score.
- How utilization affects your credit score
- How to calculate your credit utilization
- Tips to keep your credit utilization low
- Credit card utilization FAQs
Utilization is usually written as a percentage — and a rule of thumb is to keep utilization well below 30% across not just one card, but across all your credit cards added together. As your utilization ratio increases, the riskier you look to lenders.
We’ll walk through how credit utilization works, how it impacts credit scores and some ways to keep credit card utilization low.
How credit utilization affects your credit score
The FICO Score — the main scoring model lenders use when checking your credit score — weighs “amounts owed” as almost one-third of your credit score. There are two ways FICO calculates your credit utilization ratio:
- What you owe on an individual card account.
- What you owe across multiple card accounts.
The only other credit scoring factor that carries more weight than credit utilization is payment history, which accounts for 35% of your FICO Score.
Another common credit scoring model is VantageScore. According to VantageScore 4.0 (the latest version), your total credit usage, balance and available credit are considered “extremely influential.” In other words, this is the most important factor affecting your VantageScore.
Read our article explaining how FICO Score and VantageScore work.
How to calculate your credit utilization
To calculate your overall credit card utilization, follow these steps:
- Add up your balances to get your total credit card debt.
- Add up the credit limits on all of your credit cards.
- Divide your overall credit card debt by your combined credit limit.
- Multiple that number by 100.
At the end of this process, you’ll have your utilization as a percentage. It’s important to note this process is for calculating your utilization across all credit cards. You’ll also want to calculate your utilization for your individual cards as well by just dividing the balance on your card by the credit limit on that card, then multiply that number by 100.
Both your utilization per card and across all cards will affect your credit score.
Tips to keep your credit utilization low
Make frequent credit card payments
It’s wise to pay off your card in full every month so as to avoid incurring interest charges. However, if keeping utilization low and your credit score high is your goal, paying more frequently is better. For instance:
- Pay off a big purchase immediately after it posts to your card.
- Pay the balance off in full on a weekly or biweekly basis.
Just make sure you’re aware of whether or not your issuer imposes any limitations on payments. For example, when paying a Wells Fargo credit card from a non-Wells Fargo bank account, there’s a limited number of payments you can make per day and per month.
Ask your issuer for a credit limit increase
Having a higher credit limit can help reduce your credit utilization ratio as the proportion of debt-to-credit-limit will increase. For example, if you have a credit card with a $500 limit that you charge $200 to every month, your credit utilization ratio is 40%. But, if your credit limit is increased to $1,000, then that $200 balance becomes a 20% credit utilization ratio.
Less than half of credit card users have asked for an increase in a credit limit on an existing card, according to a 2018 CompareCards.com survey, but 64% of those who did ask for a higher credit limit received one.
If you’ve had a card for at least six months to a year and demonstrated responsible behavior by paying on time and keeping balances low, then it’s worth a phone call.
Before making that request, consider the following factors:
- Payment history. You shouldn’t have missed any payments.
- Utilization. Your request is less likely to be approved if your card is maxed out.
- Recent inquiries. If you’ve applied for too many cards recently, requesting a credit limit increase could make it appear to an issuer that you’re desperate for credit.
If the above is all in order, check out how to request a credit limit increase.
Keep old credit cards open
Length of credit history accounts for 15% of your FICO Score. Plus, if you close that card, you lose that available credit line, which can help your overall credit utilization ratio if you tend to carry balances on other cards.
For those reasons, if you have a card that you’re not using, it can be worthwhile to keep it open and active (by making a small charge on it every month) — as long as you’re not paying an annual fee. If there is an annual fee, you might be able to request a product change to a different no-annual-fee card from the same issuer.
Open a new credit card
Know that opening a new card is not entirely a positive thing for your credit score. When you apply for a new credit card, the lender will initiate a hard inquiry of your credit score, which will knock about five points off your credit score for a year. And you’ll lower the average age of your accounts by adding a fresh one.
However, over time, having a higher total credit limit could have a major positive impact on your credit score. But it’s crucial to make a budget and use your cards only for what you can afford to pay off in full. If you increase your spending after getting the new card, it won’t help lower your utilization and could result instead in expensive credit card debt piling up.
While there’s no “best” card for consumers looking to increase their total credit limit and lower utilization, choosing a card carefully can increase the chances of getting approved. For example, applicants who are new to credit or have bad credit should look at different cards than someone who already has good credit. Here are recommendations worth considering:
- Best Credit Cards for Beginners
- Best Credit Cards for Bad Credit
- Best Store Credit Cards
- Best Credit Cards for Good Credit
If you’re carrying debt on a card with a high APR, doing a balance transfer to a card offering intro 0% APR can be a way to save money on interest charges, pay down debt, and increase your overall credit limit all in one move. Know that balance transfer cards typically require good to excellent credit, and you can’t transfer a balance between cards from the same issuer.
Credit card utilization FAQs
How much of your credit should you use? You should never spend more on a credit card than you can repay or at least adhere to a strict repayment plan when trying to finance a large purchase over time. In most cases, you want to be able to pay off what you charge to the card in full each month. If you’re using a card with intro 0% APR on purchases to finance a big expense, you should budget accordingly to pay off the purchase before the intro APR expires.
What is available credit vs. a credit limit? Your credit limit is the maximum amount you will be allowed to spend on your card, which is determined by your card issuer once you are approved. Your available credit limit is how much of your credit line is left to use once you’ve subtracted any balance currently on the card.
Where can you find high credit line credit cards? When an issuer approves your application for a credit card, many factors are considered in setting your credit limit — income, length of credit history, etc. However, here’s a list of cards that might offer high credit limits.