Credit card utilization

Credit card utilization is a fancy way of saying “how much of your credit are you using?” If you have a $1,000 credit limit on your credit card and a balance of $200, then you have a credit card utilization of 20% ($200 / $1,000 = 20%).

Utilization is an important factor in determining your credit score. In fact, it’s one of the most important factors that credit agencies use. As a result, improving your utilization is a great way to improve your credit score.

While the exact formula credit agencies use to determine your credit score is a secret, the rule of thumb is that utilization makes up about a third of your credit score. In general, people who use up most of their credit are less likely to pay back their loans. This makes them riskier borrowers, so their credit scores are lowered.

Credit Karma, a company that tracks credit history, compared credit scores to utilization rates across 15 million people. They found that the ideal utilization is between 1–10%. As utilization increases above that range, credit scores drop.

While it’s only one of many factors that affect your credit score, it’s the easiest to improve. Here are a couple of things that you can do right now to improve your utilization and your credit score.

Pay your credit card twice

It goes without saying that you should pay your credit card bill on time if you can. All credit cards will allow you to set up automatic bill pay online. At the bare minimum, this will make sure that you never miss a payment.

However, some credit card companies allow you to break up your monthly payment into two smaller payments each month. This is a great idea because it helps keep your balance lower throughout the month. A lower balance means a lower utilization. That’s a win!

If you don’t have the option to automatically pay twice a month, you can always pay manually! Just set a recurring calendar reminder to pay your credit card every other week. It accomplishes the same goal, albeit with a little more work on your part.

Raise the limit on your credit cards

A quick way of immediately lowering your utilization is to call your credit card company and request that they raise your credit limit. If you have historically made your payments on time, they may be willing to increase your limit. Just remember, raising your credit limit doesn’t mean you should spend more money. The goal here is to lower your utilization!

As an example, let’s assume that you have a $1,000 balance on a card with a $3,000 credit limit. If your bank raises that limit to $5,000, then your utilization will drop from 33% to 20%. That’s a meaningful difference!

It’s worth mentioning that a credit limit increase could require a hard inquiry on your credit report, depending on your bank. A hard inquiry means your bank will review your credit history again to determine if they should give you a higher limit. This will lower your score a few points in the short term, but the lower utilization will make it worth it in the long run.

Your credit card utilization can have a large impact on your credit score, but it’s only one of several factors. There is still no better way to improve your credit score than paying your bills, and paying them on time.


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