Credit utilization explained: what it is and how to lower it
Credit utilization is one of the factors credit scoring models look at, and it is also one of the easier ones to influence. It compares how much of your available credit you are using with your total limit.
This guide shows how to calculate it, what the common targets mean and the practical steps that lower it. It does not predict your score: every scoring model weighs things differently.
How to calculate it
Utilization = total balances ÷ total credit limits × 100.
Example: three cards with a combined limit of $10,000 and combined balances of $3,500. Utilization is 3,500 ÷ 10,000 = 35%.
Scoring models usually also look at each card on its own, so a single card near its limit can matter even when your overall number is moderate.
What is a good target?
You will often see "stay under 30%". That is a rule of thumb, not an official cutoff, and lower generally looks better. Amounts owed is one of the main categories in the FICO model, so it matters, but it is only one piece of the score alongside payment history, length of credit history, new credit and credit mix.
Three ways to lower it
- Pay the balance down. In our example, paying $1,000 takes you from 35% to 25%.
- Pay before the statement closes. Issuers usually report the balance on your statement date, not your due date. Paying earlier in the cycle can lower the number that gets reported.
- Ask for a higher limit. A higher limit with the same balance lowers the percentage, but only if you don't spend more. Some issuers check your credit to decide, so ask what kind of inquiry it is first.
Closing an old card can raise your utilization, because your total limit drops. Think twice before closing a card you've paid off.
Paying down is the lasting fix
The quick tricks help, but the steady way to lower utilization is to pay the debt. Start with a payoff plan with a real example, and if you have several cards, choose an order to pay them.
Frequently asked questions
What is credit utilization?
The percentage of your total credit limit that you are using, calculated as total balances divided by total limits.
Is 30% utilization good?
It is a common rule of thumb, but lower is generally better. There is no official cutoff.
Does paying before the due date help?
Paying before your statement closes can lower the balance that gets reported, which lowers your reported utilization.
Does closing a credit card lower my score?
It can raise your utilization, because your total available credit drops, and it can shorten your average account age.
Calculate your utilization
Illustrative example, not financial advice. Figures use a simple monthly-interest model (APR ÷ 12 on the remaining balance). Your card issuer's statement may differ by a few dollars. Firchain AI is not a lender or a financial advisor.