What It Means
Credit utilization, also known as the credit utilization ratio, measures how much of your available revolving credit you are using. It is calculated by dividing your total credit card balances by your total credit limits. For example, if you have $3,000 in balances across cards with $10,000 in total limits, your utilization is 30%. Utilization is the second most important factor in your credit score (30% of FICO). Experts recommend keeping overall utilization below 30%, with the best scores achieved at 1-9%. Both per-card and overall utilization matter. Utilization resets monthly when your statement closes, so the timing of payments can significantly impact your reported utilization.
Frequently Asked Questions
What is the ideal credit utilization ratio?
While the common advice is to stay below 30%, research shows the best credit scores belong to people with 1-9% utilization. Keeping utilization in single digits optimizes your score.
Does paying off your card before the statement date help?
Yes. Your utilization is typically reported based on your statement balance. Paying down your balance before the statement closing date can lower your reported utilization.