How much of your credit should you use?

Three young women shopping and discussing how much of credit you should use Image: Three young women shopping and discussing how much of credit you should use

In a Nutshell

Your credit utilization rate — the amount of revolving credit you’re currently using divided by the total amount of revolving credit you have available — is one of the most important factors that influence your credit scores. So it’s a good idea to try to keep it under 30%, which is what’s generally recommended. But that advice isn’t a shortcut to improving your credit. Plus, the impact that your credit utilization rate has on your credit scores and reports might also depend on a number of other factors.

Louis DeNicola is a personal finance writer and has written for American Express and Discover. Editorial Note: Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our marketing partners don’t review, approve or endorse our editorial content. It’s accurate to the best of our knowledge when posted. Availability of products, features and discounts may vary by state or territory. Read our Editorial Guidelines to learn more about our team.
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It’s commonly said that you should aim to use less than 30% of your available credit, and that’s a good rule to follow. But there’s really no magical utilization rate cutoff for every scoring model.

Using less of your available credit is generally best for your credit scores because using a large amount of your available credit could mean you’ll have trouble repaying that debt. If you want to keep your scores low and your credit reports in good shape, you should try to use as little of your credit as possible.

But the right utilization rate for you might depend on a number of factors, including the state of your credit reports in general, the number of credit accounts you use and your overall financial health.

Read on for a closer look at how to manage and assess the amount of credit you use.


What is a credit utilization ratio?

Your credit utilization rate (or ratio) refers to the relationship between your revolving accounts’ available credit limits and the balances you’re carrying across all of those accounts.

Say you have a credit card with a $1,000 limit and it had a $500 balance when your account’s information was sent to the three major consumer credit bureaus. In this scenario, your credit utilization ratio would be 50% because you’re using half of your available credit limit.

Keep in mind that paying off your credit card balance in full could still result in a high utilization rate being reported to the three bureaus. That’s because credit card companies often report your balance to the credit bureaus around the end of your statement period — not immediately after you make a payment.

If you frequently use your cards and want to keep your credit utilization rate low, you may want to pay down your balance before the end of your statement period to reduce the balance that gets reported.

It’s also important to remember you don’t have just one credit utilization rate. The rate on each of your accounts can affect your credit scores and show up on your reports, but your overall credit utilization is also important.

What’s included in your credit utilization rate calculation?

Unfortunately, this question doesn’t have just one answer. Different credit-scoring models consider different types of accounts when they calculate your utilization rate.

For example, in October 2019 spokespersons for both FICO® and VantageScore® (the two big credit-scoring companies in the U.S.) told us they generally don’t include any paid-off, closed accounts that are in your credit reports when calculating utilization rates.

FICO might include a closed account that still has a balance, like an account that’s gone unpaid and is closed by the card issuer. But VantageScore doesn’t include any closed accounts when calculating credit utilization rates.

The FICO credit-scoring model doesn’t consider home equity lines of credit, or HELOCs, when determining utilization, but the VantageScore credit-scoring model does.

All FICO scores and most VantageScore scores consider only the most recently reported credit limits and balances as part of the utilization equation. As a result, if you use your accounts for crucial expenses and your utilization increases, you may see a dip in your credit scores. But your scores could increase again once you pay off those expenses and bring down your utilization.

The latest VantageScore scoring model, VantageScore 4.0, also considers your utilization rates over time — as part of what’s known as trended data. And some creditors may consider your historical utilization when reviewing your application, even if that history doesn’t impact the credit scores they receive.

So what’s the right amount of credit to use?

If you’re trying to increase your credit scores as much as possible, then you should use as little of your available credit as possible. VantageScore recommends keeping your utilization rate below 30%, but that’s not necessarily a shortcut to better credit. Depending on the state of your accounts, it might also benefit you to keep a lower credit utilization rate across the board, not just in total.

But there may also be such a thing as using too little credit. In some cases, it’s better to use at least a little of your available credit with each account, because using some can be taken to show you’re actively using and managing your credit rather than keeping your cards in the sock drawer.

Fortunately, a perfect utilization rate isn’t required for an excellent credit scores. According to FICO, 7% is the average utilization rate for people with a FICO Score 8 of at least 785.


Next steps

A history of low credit utilization could help you in some cases, but your current utilization is often more important. The good news is that there are several ways to lower your credit utilization in both the short and long terms.

Also, remember that utilization is just one important scoring factor that helps determine your credit scores. Making on-time payments, increasing the length of your credit history, and having a mix of different types of credit accounts could all help you improve your scores over time.


About the author: Louis DeNicola is a personal finance writer and has written for American Express, Discover and Nova Credit. In addition to being a contributing writer at Credit Karma, you can find his w… Read more.