Help With Credit Utilization

Paying your bills on time is the biggest factor in your credit score. The second biggest factor is your credit utilization ratio, which FICO calls your Amount of Debt factor. Let’s look at what that ratio actually measures and a few ways to keep it low.

What Is Credit Utilization?

Your credit utilization ratio compares your total balances across all your credit cards to your total credit limit. The lower this number, the better it usually looks to your score.

Utilization Goal

Aim to keep your ratio below 30%. Lower is even better. FICO’s own data shows that people with the strongest scores in this factor typically carry balances around 6% of their available credit, so 30% is a starting target, not a finish line.

Utilization Example

Say you have three credit cards with a $3,000 limit each, for a total limit of $9,000. Your balances add up to $1,500 across those three cards, or $500 per card. Your ratio comes out to 16.67%.

Here’s the math: $1,500 owed divided by $9,000 in total limit equals 16.67%.

How to Improve Your Ratio

• Pay more than once a month. Your card issuer reports your balance to the credit bureaus (the companies that track your credit history) on one specific day each cycle. Making a payment before that date lowers the balance that actually gets reported.
• Keep your cards open. Your total credit limit is part of this calculation. Closing a card lowers your total limit, which raises your ratio even if your spending hasn’t changed.
• Ask for a credit limit increase. A higher limit on the same balance lowers your ratio right away, with no extra payment required.

Do One Thing: Call one of your credit card issuers and ask for a credit limit increase.