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Bottom Line Up Front

  • Your personal credit utilization ratio is the percent of available credit on all open-end lines of credit— including credit cards and loans.
  • Keeping a low utilization ratio is one of the fastest ways to improve your credit score. Aim to maintain a utilization rate of less than 30%.
  • Checking your balance regularly, reducing debt, making early payments and requesting a credit increase are all good ways to keep your ratio in a healthy range.

Time to Read

3 minutes

May 13, 2022

You may be on top of how much you spend, making sure it’s within your means. But did you know your spending habits can affect your credit score? Your credit utilization ratio could affect up to 30% of your credit score.

So, what's a credit utilization ratio and how can you improve it? Read on to find out.

What’s a credit utilization ratio?

When you’re approved for credit cards or lines of credit, your lender decides what your credit limit, or the maximum amount you can borrow, will be. Your credit utilization is a ratio that represents how much of your available revolving credit you’re using. In other words, what percentage of your allotted credit limit have you borrowed?

For example, if you have $5,000 of open-end credit and you owe $1,500, then you credit utilization ratio is 30%.

$1,500/$5,000 = .30 or 30%

Improving Your Credit Utilization Ratio

These strategies might help your utilization ratio.

  • Keep tabs on accounts. Regularly check your credit card balances so you can monitor your credit utilization ratio and keep it low. Experts say you should have balances no higher than 30% of your total credit limit.
  • Reduce debt. Carrying a balance on your credit card accounts each month may harm your credit utilization ratio. Try to pay more than the minimum credit card payments or the total balance each month to prevent your outstanding balance from growing. Consider budgeting and other debt repayment plans to reduce your credit card debt.
  • Make early payments. Do you pay your balance in full every month? You still might still be dinged for a high credit utilization ratio if your issuer reports to the credit bureaus before you pay. Making an additional payment mid-cycle might help keep your credit utilization ratio in check.
  • Request a credit increase. Having a higher credit limit could mean a lower credit utilization ratio. But the ratio only decreases if you don’t make additional charges. For example, if you owe a balance of $300 on a credit card with a $500 limit, your credit utilization ratio is 60%. Increasing your credit limit to $1,000 would make your credit utilization ratio 30%—right where you want it—unless you rack up more charges.
    Your request for a credit limit increase could be denied if your credit limit is already high, or if a credit card issuer sees that you owe too much on your current credit lines. Be aware that your request might also temporarily lower your credit score a few points, especially if you make multiple credit limit increase requests.
  • Open a new card. Opening a new credit card could increase your available credit, giving you another payment method and an additional per-card utilization opportunity. Spread monthly spending across cards to help keep ratios down. However, opening a new credit card could also put you at risk for overspending. And, be aware that applying for a new credit card may temporarily lower your credit score, especially if you apply for cards at multiple lenders.

A Membership Bonus

Navy Federal Credit Union members have access to the Mission: Credit Confidence® Dashboard, where you can monitor your credit score and be notified of any changes. If you're not a member, consider joining us today for access to a range of tools to help you on your financial journey.

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This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.