Credit Utilization

Credit utilization is the percentage of your available credit that you're currently using. If you add up the balances on all your revolving accounts, like credit cards, and divide that by the total credit limit across those accounts, the result is your utilization. It's generally the second-biggest factor in most scoring models, right behind payment history.

The math is straightforward: balance divided by limit. A lower percentage generally signals that you're not leaning heavily on borrowed money, which reads as lower risk. A high percentage, even if every payment is on time, can suggest someone is close to maxing out what's available to them.

Credit Utilization = Balance / Credit Limit

Example:
  Balance:        $2,000
  Credit limit:  $10,000

  Utilization = $2,000 / $10,000 = 0.20 = 20%

Credit utilization is calculated by dividing your total balance by your total credit ____.

Someone has a $3,000 balance on a card with a $12,000 limit. What's their utilization?

There's no single official cutoff, but many scoring models tend to treat utilization under roughly 30% more favorably, with even lower generally viewed as better still. Utilization is also calculated per card and across all cards combined, so one maxed-out card can hurt even if your overall balance elsewhere is low.

Utilization only looks at your combined balance across all cards, so a single maxed-out card can't affect it if your other cards have low balances.

Because utilization is based on a snapshot of current balances, it can also swing relatively quickly compared to other factors — paying down a balance can improve it within a billing cycle or two, which makes it one of the more responsive levers you have available.