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What is Your Credit Utilization Ratio?

6 min read

Last Updated: January 30, 2025

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Key Takeaways

Your credit utilization ratio is the amount of available credit you’re using.
Calculate your credit usage by dividing the total of your balances by the total of your revolving credit.
When your credit utilization is high it might signal you’re having trouble paying your balances and can lower your credit score.

Your credit utilization ratio (also known as a credit utilization rate) represents the percentage of your total available credit you’re using. Only revolving credit accounts, such as credit cards or personal lines of credit, apply to your utilization ratio.

You can manage your credit utilization by calculating your ratio and keeping it low. This could improve your credit score and open you to more credit opportunities.

How do you calculate your credit utilization ratio?

Remember, when it comes to your credit score, your credit utilization ratio only involves your revolving credit accounts.

Revolving credit is the type of credit that you can borrow against, repay, and borrow from again.

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You can follow these steps to determine your credit utilization ratio:

Add up the outstanding balances on all your revolving credit accounts (your total revolving debt).
Add up the credit limits on all your revolving credit accounts (your total revolving credit).
Divide your total debt by your total credit limit.
Multiply the remainder by 100 to arrive at your credit utilization ratio percentage.

For example, suppose you have two credit cards with credit limits of $1,000 and $2,000, making your total credit $3,000. The first card has a balance of $500 and the second a balance of $700, so your total debt is $1,200. Divide 1,200 by 3,000 to get 0.4. Finally, multiply 0.4 by 100 to get your credit utilization ratio of 40%.

You can also calculate a single account using the same method.

Can a high credit utilization ratio hurt your credit score?

Credit utilization is one of the factors that can significantly impact credit scores. Using a large portion of your available credit can lower your score because it signals you might be over extended and at risk of not being able to make your payments. A low credit utilization rate points to better borrowing habits.

So how does it factor in your credit score? Credit bureaus use credit scoring models (or mathematical algorithms) to arrive at your credit score. They base the calculation on the information in your credit report (a record of your borrowing and repayment activity).

Credit utilization typically accounts for 30% of your credit score, depending on which credit scoring model is used. So, the amount you owe when lenders report your credit information to the credit bureaus can affect your score.

Lenders usually report your account balances to credit bureaus at the end of your billing cycle, about every 30 to 45 days. That means a credit bureau can’t see your daily credit card balances; they only know the amount you owe on your monthly billing statements, which is the amount reflected on your credit report and score as amounts owed.

Say you make a large purchase on one of your credit cards and don’t make a payment towards it before the credit card company issues your monthly statement. In that case, the credit utilization on your credit report will reflect the large purchase. This could increase your utilization and potentially lower your credit score. However, your credit score should bounce back once you pay off the balance.

Did you know?

A mobile banking app can help you manage your credit card account. Among other features, the Discover^® mobile app lets you check your current balance, make payments, and set spending alerts to help you maintain a low balance.

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What is a good credit utilization ratio?

We’ve established that it’s best to keep your credit utilization low, but how low is low enough? Experts like the Office of Financial Readiness suggest a credit utilization ratio of 1-10%.

But you may not want to go too low; a 0% credit ratio can help your credit score if you’re actively using your card, but a 0% ratio from inactive use may not. Part of building a good credit history is showing you can borrow and repay your debt. That means using your credit and managing it responsibly.

How can you improve your credit utilization ratio?

If your credit utilization ratio is hurting your credit score, there are steps you can take to help lower it. Take note of these options:

Pay down debt: Paying your debt is one of the best ways to lower your credit utilization ratio. But because your lenders report your balances at the end of your billing cycle, the timing of your payments can impact how quickly you see improvement to your credit score. Consider making payments to your balances before the close of your billing cycle. And if you make payments after receiving your statements, try to pay more than the minimum required. Once you pay down your debt, you’ll need to maintain low balances to sustain your ratio.
Monitor spending: Keeping tabs on how much you’re charging can go a long way in helping you lower your credit utilization. If your credit card company has a mobile app, you may be able to set spending alerts that notify you when you’ve reached a certain credit card balance. And managing your spending may help you manage payments, too.
Request a credit limit increase: Increasing your total available credit can help lower your utilization ratio. So it may help to ask your credit card issuer to raise your credit limit. They’ll look at your:
- Monthly income and expenses
- Length of credit history
- Payment history
- Current credit utilization percentage

However, your request might not get approved, and a credit limit increase only works if you keep your balance proportionately low.

Open a new revolving credit account: Another way to increase your available credit is by opening a new credit card or personal line of credit. But you’ll still need to keep your balances low to manage your debt compared to your total available credit. And while opening a new account can increase your total credit, applying for too many new accounts within a short time may hurt your credit score.
Make a balance transfer: You can raise your total credit limit by moving your debt to a new card. If you move high-interest balances to a single card, you can free up the available credit on your other accounts (as long as you don’t close them). It will also provide a new line of credit. Additionally, some new credit cards offer a low to 0% introductory interest rate on balance transfers, which can help you pay your debt more quickly by avoiding costly interest charges.
Monitor your credit report: Federal law allows you to receive one free credit report every 12 months from each of the three major credit reporting agencies. However, the Federal Trade Commission (FTC) reports that the three credit bureaus have permanently extended the program to include one free report per week.

You can request your free credit report at AnnualCreditReport.com (the only website authorized by the federal government). Additionally, you can ask for a free credit report within 60 days of being denied credit.

Credit utilization ratio is one major component for calculating credit scores. Understanding how credit utilization works, including how to calculate your rate, can help you manage your score.

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