Credit Utilization Ratio: What You Should Know
5 Min Read | Last updated: January 7, 2025
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
Your credit utilization ratio is a factor in determining your credit score. See how your credit utilization ratio is calculated and how to lower it.
At-A-Glance
- Your credit utilization ratio is the amount of credit you’re using compared to your available credit.
- Having a high credit utilization ratio can negatively impact your credit score, so it’s best to keep your credit utilization low.
- You may be able to reduce your credit utilization ratio by paying down your credit card balances, requesting a credit limit increase, or opening a new credit card.
In this article, we’ll look at how your credit utilization ratio works and show you why a good credit utilization ratio matters.
What Is a Credit Utilization Ratio?
A credit utilization ratio measures how much revolving credit is being used compared to your total available credit. It can apply to credit cards, home equity lines of credit (HELOCs), and personal lines of credit.
Lenders may look for a low credit utilization ratio, which may be 30% (or ideally, even less) of your total available credit.1 The lower this percentage can be, the better.
Once you understand how to calculate your credit utilization ratio, you can take steps to improve it. This, in turn, can help to improve your credit score. Having strong credit can open doors to financing opportunities, including better terms and interest rates for credit cards and loans.
How Does Your Credit Utilization Ratio Affect Your Credit Score?
Your credit utilization ratio can be an important factor in calculating your credit score.
Credit scoring models may consider this ratio when they calculate your scores. Since there are different scoring models, the impact on your score may vary. Revolving credit utilization can account for 20% to 30% of your credit score, depending on the credit scoring model.2 No matter what scoring model is being used, having a low credit utilization ratio could help your credit score.
How to Calculate Your Credit Utilization Ratio
You can calculate your credit utilization ratio easily by using a calculator, like the one below.
Your Credit Usage
| Card 1 Utilization | 0.00% | |
| Card 2 Utilization | 0.00% | |
| Total Balance | $0.00 | |
| Total Limit | $0.00 | |
| Overall credit utilization ratio |
0.00% |
Your utilization:
Alternatively, you could run the numbers by hand. A good way to calculate your credit utilization ratio may be to create a three-column worksheet that lists your current balance and maximum credit limit for each credit card. The credit limit appears on your monthly statement.
Then:
- Add up all your current balances.
- Add up all your maximum credit limits.
- Divide the total of your outstanding balances by the total of your credit limits.
Here is a quick example:
| Cards | Card Balance | Card Credit Limit |
| Card A | $1,000 | $4,000 |
| Card B | $600 | $3,000 |
| Card C | $400 | $1,000 |
| Total Balance: | $2,000 Total Balance | $8,000 Total Credit Limit |
Credit Utilization Ratio = Total Balance / Total Credit Limit (expressed as a percentage)
Total Balance ($2,000) / Total Credit Limit ($8,000) = .25 or 25%.
How to Lower Your Credit Utilization Ratio
Ensuring your credit utilization ratio doesn’t go above 30%, keeping it much lower, may be considered a smart move.3
If your credit card utilization ratio is high, working to lower it may help improve your credit score.
Here are a few ways that you can lower your credit utilization ratio:
Pay Down Credit Card Balances
One way you can lower your credit utilization ratio is to reduce your total balance. The smaller the sum of your balances, the lower your ratio may be.
The Debt Avalanche Method is an accelerated way to pay down debt. With this method, you can focus on paying off the debt that has the highest interest charges. When the high-rate card balance is wiped out, apply the extra money to the card with the next-highest interest rate, and so on until your balances are cleared.
Consider Asking for a Credit Limit Increase
Another way to lower your credit utilization ratio is to increase your total available credit limit. By increasing this limit, your balances may stay the same, but the total amount of available credit may increase, which can cause your utilization ratio to go down. Of course, you may want to only use this strategy if you’re certain that you won’t use the higher credit limit to increase your spending. Instead, you may want to continue to work on paying your balances down.
Consider Applying for More Credit
Another way you can increase your total available credit limit is to apply for a new credit card. Again, that may only make sense if you are sure you won’t be tempted to overspend. If you go this route, keep in mind that there may be a small temporary decline in your credit score when you open a new credit card account. Opening a new credit card can cause a shift in the age of your credit history, and the hard inquiry used to apply for the new card can also drop your score temporarily, but with responsible use, your score may increase over time.
You can also prioritize your credit health with American Express MyCredit Guide. With the easy-to-use FICO® Score Simulator, you can track possible impacts to your FICO® Score for free before making big financial decisions. (FICO is a registered trademark of Fair Isaac Corporation in the U.S. and other countries.)
The Takeaway
Your credit utilization ratio is the percentage of your available credit that you’re using. Monitoring this ratio and reducing balances can improve both your utilization ratio and credit score over time.
1,2,3 “What Is a Credit Utilization Ratio?,” Equifax
Carla Fried is a freelance journalist who has spent her entire career specializing in personal finance. Her work has appeared in The New York Times, Money, CNBC.com, and Consumer Reports, among many other media outlets..
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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