The Relationship Between Your Credit Score and Credit Card Utilization Rate

The Relationship Between Your Credit Score and Credit Card Utilization Rate

Credit card utilization is one of the most important factors credit scoring models use to calculate your credit score. You can figure out your utilization rate by dividing your total credit card balances by your total credit card limits.

To illustrate how important this factor is, Credit Karma sampled approximately 15 million Credit Karma members who visited the site in 2014 and compared their credit scores and corresponding credit card utilization rates.

Credit Score Chart


The graph above suggests that there is a strong correlation between credit card utilization rates and credit scores. Generally, those who had a lower utilization rate had a higher score and vice versa - with an exception for those with 0% utilization. The average credit score of those who had a utilization rate of 0% was actually lower than the average score of those who had a utilization rate of 1-20%.

What Does This Mean?

Lenders don't like high utilization rates because it tends to indicate there's a higher chance of you not being able to repay your debts. Keeping your credit card utilization low, preferably under 30%, is a good goal to aim for. Our data suggests an even better goal is to use your credit some, but keep the utilization rate under 20%. Creditors want to see proof that you can manage credit wisely--something you can't do without using the credit you're granted.

If you're uncomfortable with the idea of using your card for large purchases, you can still show an active credit profile by paying for small items with your card. It's important that you practice good habits when managing your credit cards. Charge what you can pay back and make sure your payments are on time. In order to keep your utilization rate greater than 0%, you'll need to let your charges show up on your billing statement, and then you can pay it off in full. This does not mean you need to carry a balance from one month to the next--doing so may just cost you money in the form of interest.

One of Many Potential Factors

Your credit card utilization rate is an important part of your credit profile and will likely have a significant effect on your credit score, but it's not the only factor lenders care about. The data and graph above represent the average, meaning it is possible for a person with high credit card utilization to still have a good credit score if other factors are positive-- it's just not as likely to happen. You can monitor your credit card utilization rate (and more!) for free at Credit Karma.

Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.

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146 People Helped

Helpful to 110 out of 133 people

I believe I'm the odd man out for I have a C for my total credit utilization yet have a score of 790 on Credit Karma, the other 2 companies have me in the 800+range which says the system is flawed. If I won 10M from the powerball my score wouldn't change, even though I would be better off, I'm better off now because I have no debt, yet partially penalized, but I don't worry about my FICO score, because I'm able to use cash.

i think credit karma is 100% fantastic I live it and recommend to my friends because it can help a credit challenged person

Credit Karma Team
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Thanks for your kind words!

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130 People Helped

Helpful to 130 out of 152 people

You failed to mention that, even as you pay down your balance, credit card companies like to reduce your credit limit at times - keeping your utilization rate high, your credit score low, and subsequent interest rates high.  A win for them at your expense with this stupid credit score game.

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I also feel that some of these "Important/Critical" rating factors do not make sense.  Lets' use my current situation as an example.  My overal card utilization is 5%, we owe less than 30$K on our 160$K house, have 86$K in our pass book savings and money market accounts, not to mention long term savings, investments and "hard currency" gold and silver and diamond caches, and yet my score dropped from 736 to 716 because my credit limit at Kohls is $800 and I used $736 to go Cmas shopping-inspite of the fact that my history at Kohls will verify I never run a balance for more than four months!  The LOWEST bank card credit limit we have is $14K (!) with our largest limit being $25K!!  The only reason we dont' have a larger limit with Kohls is that we have never asked for a limit increase in the four years we have had the account.

Absolute rampant stupidity in my opinion.

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That is exactly what happened to me also.  My limits were reduced to nearly the amounts existing on my accounts.  This also caused my interest rates to increase.

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that's exactly what Wells Fargo just did to me... i have joint checking, joint savings, a mortgage, an unsecured personal loan (which has auto pay out of checking), and a Visa... they just cut my credit line on the cc by $1250! For NO reason... i am NEVER late on any payments, always pay more than the minimum... i just disputed a car lease which i do not have, since i traded my car in for a hybrid purchase... reports still showed i had BOTH the loan and the lease (didn't know for 3 months)... my utilization dipped from 30% to 30.667% (which they rounded up to 31%) and triggered WF to reduce my credit limit, putting my Visa at like 99% utilization! i called, and the credit rep told me that they would have to do a hard inquiry to restore (which of course will also count against me), so i should wait until i'm sure the lease is off all reports (a month to 45 days) - in the meantime, my score continues to drop and the other cc/banks will probably flag me as more of a risk... this is the kind of BS that they play at your expense, most definitely

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I read a gazillion articles about credit, utilization, improving credit etc. I will give you my take on my personal experience. I believe yes, there is an algorithm but I believe that it differs from person to person and your credit habits, problems, financial situation, etc. So each credit report is unique to a person and what you do in terms to increasing your score is up to those "components" from what I researched and found out that there are over 200 different things are being looked at job, residence, payment history, accounts, etc. They all will differ from person to person.

6 years ago I fell into the credit slump the entire country was in, 2 cars repo'd, collections, etc. My credit was shot to a like 510 or something. So the last 4 years I started picking up the pieces to rebuild my credit.

To start I took out a loan at a buy here / pay here lot that reported to Equifax at 22.9% APR. Orchard Bank was kind enough to get me an unsecured card for $300. I then was approved for a BofA secured, then went to Wells Fargo secured and Fidelity. So now I had a car loan 3 secured and 1 unsecured card with hardly any limits.

I did the whole 10% utilization game by paying multiple times a month and always PIF before statement date. Did this for about 12 - 15 months. I got BofA to unsecure my card, change to a rewards card. I got a Cap 1 blank check pre approved auto loan for $30,000 but when I went to the dealer they beat that rate with GM Financial for 2% lower APR and less money down. So I took it, then bought a second car with the Cap 1 blank check.

Now I paid about 8 months. I then went on a app spree applying to as much cc as I could to see what I could get, yes I was a little methodical about it but I got approved to about 10 CC's

Barclay, Cap 1 Quicksilver one, Cap 1 Spark, Nordstrom, Macy's, Amazon Store, Fingerhut, and now Walmart and Target Red credit card. My Fidelity unsecured after 10 months (their policy is to review after 15 months) and they added $250 plus removed annual fee.

When I got approved for my Target, Walmart card I had 23 inquires on my report on Equifax, about 10 on TU and about 16 Experian. My current score are about 646, 648 and 656 between the 3.

What I found out for myself that banks look a lot at your credit management, payment history is one part of it but how you used the cards. Does your spending pattern indicated that you are desparate for money or if you have a lot but the limits are just too low. What I mean by that. I let my utilization go up on several cards to about 70% and let it report to the CRA. Then paid most of them to 0 and the other down considerably. I did this with all my cards and in different patterns.

This is where I found my biggest jump in credit score at one time +10 at once.

My fingerhut account I have a CL of 1200 carry a balance of 700 (min payment $46 but I pay $100)

Most of my CC have a $1000 CL so on a few I reported a $700 balance, $500 balance, on my $500 CL card I reported a $280 balance, Amazon $400 reported $248 and so on.

yes my credit score tanked by like 3 - 6 points but the next month it shot up when I made the big payments on all of them.

So my moral to the story is that everyones credit and financial situation is unique dependent on countless factors but what I gathered is that if you use your credit in a pattern that demonstrates that you use it only to avoid to pay cash but you actually have it. They will extend you credit. You can show it by making multiple payments per month but charging frequently. It will show a pattern that you know exactly what you are doing.

Utilization, Inquiries, all of it matter in a the grand scheme of things but I think what really matters is the big picture because ulitmately that is what the credit report is suppose to give a lender - the big picture - are you a responsible borrower and do you know how to manage your money. If you only pay a little bit and charge a lot shows the bank you over extent yourself, if spend frequently and make lots of payments display the banks that you simply just using your credit as a tool but really only spend the money you have cash and then just pay it of.

I work in technology so I can say with confidence that banks use technology for risk managment. If you ever look at some of your credit reports, they also report what payments you made, how many time per month, what you high credit was, when you made the payments (in my case they will several per month), how much money you make, what type of credit you have. So if Bank of America gives you $1000, it may signal to another bank, if they give you credit then they may should give it to you too. Nordstrom asked me to give them a valid CC# to verify my identity but I think they use it assess your credit as well.

So the big picture is to prove to banks, that you do not NEED credit but you use it instead of your cash even though you have but you prefer to may lump sum payment. Ultimately these banks make money off each and every swipe you do at the stores which means money to them. You not using that them and not that often is no benefit to the bank. you using them all the time, allows them to make lots of money. The interest they charge you by carrying balance is just a secondary stream of income!

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At a credit repair clinic I attended the leader said to get a credit card and use it all the time and pay on it weekly. He said you buy gas, pay your electric bill, buy groceries, right? He said to raise your credit score...... You have $100.00 to use for groceries. You go to the grocery, charge $100.00 on your credit card then take that $100.00 put it in the bank, write a check or use your debit card and pay $100 on your credit card. YOu do that with all of your bills you are paying for anyway. Charge it and then make the payment. So in a months time even though you may have a $500.00 balance if you charged your groceries, gas, electric bill, phone bill, water bill and pay it back with the money you were going to use to pay it you may have charged twice the $500.00 limit on the card. YOU CANNOT HOWEVER CHARGE IT AND THEN SPEND THE CASH AND MAKE MINIMUM PAYMENTS. YOU HAVE TO CHARGE IT AND PAY IT CHARGE IT AND PAY IT..............

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