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Understanding Credit Utilization: Maximizing Your Score

As financial educators, we understand that navigating the complexities of credit can be daunting. We’re here to provide clarity and actionable insights, to help you maximize the power of credit utilization in order to optimize your credit score. With credit utilization making up 30% of your credit score, this is one of the more important factors to understand.


What is Credit Utilization? How do I calculate my Credit Utilization Ratio?

Your credit utilization ratio is the amount of revolving credit you’re using, divided by how much credit you have available. In other words, it’s how much you currently owe divided by your total credit-limit. A low credit utilization rate indicates you’re far from using all of your available credit and shows you aren’t over spending. A high credit utilization could mean you’re maxing out your credit cards, which some lenders may look at unfavorably.

Utilization rates are based on revolving credits like credit cards and other lines of credit. Your ratio does not include installment loans such as mortgages, auto loans, or student loans. However, these loans still affect your credit score, just in a different way.


Why is Credit Utilization important?

As we mentioned, credit utilization makes up 30% of your credit score, which makes this component one of the most important. Low utilization can help build and maintain a higher credit score, making  it easier to qualify for loans. Plus, it can help you qualify for lower interest rates on future loans. 

If other credit factors (payment history, length of credit history, etc.) are weak, that makes credit utilization that much more important. If you believe your credit utilization is hurting your overall credit score, try and lower it. LendingTree recommends aiming your credit card utilization be 30% or less.


How can I improve my Credit Utilization Ratio?

  1. Pay off or pay down balances – It’s important to keep your debt balances as low as possible month to month. By paying off or paying down your credit card balances you can also lower the amount of interest you’ll have to pay on the debt.
  2. Time Your Payments – Many credit card companies will provide the timing when they report your payments to credit bureaus. However, if yours does not, a good rule of thumb is to pay your credit card bill before the end of your billing cycle. You can also make multiple payments during the month. This will help you avoid negative marks on your credit.
  3. Apply for a Personal Loan to pay off and consolidate revolving debt – Personal loans are usually reported as an installment loan since you’re borrowing a fixed amount for a fixed period of time. That means they won’t be included in your credit utilization ratio. However, they will be considered in your debt to income ratio when applying for new loans.
  4. Don’t close credit card accounts – Closing a credit card will lower the amount of available credit you have. It can also hurt another component of your credit score: length of credit history. The longer you’ve had an account open, the more it can help your score. If the account has been open for a substantial amount of time, consider paying it off, but leaving the account open.
  5. Ask your credit card issuer to increase your credit limit – By receiving a limit increase, this will give you more available credit. In turn, this will lower your utilization, even if you don’t pay off more of your balance. The key here is making sure you don’t increase your spending when you receive a limit increase. 


Understanding credit utilization is important to achieving financial success and maintaining a healthy credit score. Once you’ve lowered your credit utilization ratio, it’s important to stay on top of it. Be sure to check your balances once a month, and if it looks like they’re going to be more than 30% of your total credit limit, make sure to pay them down. Remember, a lower utilization ratio signals responsible credit management and can significantly enhance your overall financial well-being. Here’s to maximizing your score and unlocking a world of possibilities.

To understand more about what factors can improve or hinder your overall credit score, check out our blog, Don’t Let Credit Be Spooky.

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