Credit Utilization

Credit utilization is calculated by dividing your total revolving balances, mainly credit cards, by your total credit limits. If you have two cards with limits of 3,000 and 2,000, your total limit is 5,000. If your balances add up to 1,500, your credit utilization is 30%.

Credit scoring models in many countries treat utilization as an important signal. Using a large share of your available credit can suggest financial stress, even if you pay on time. Using a small share suggests you are managing credit comfortably. Many guides suggest keeping utilization below about 30%, and lower is generally better.

Utilization can be lowered by paying down balances or, if appropriate, by having higher credit limits while keeping spending the same. Paying your balance before the statement date can also reduce the balance that gets reported.

Unlike missed payments, which can stay on a credit report for years, utilization usually reflects only recent balances. Bringing it down can therefore improve a credit score fairly quickly.