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The unsecured personal loan market continues to hit record highs, and despite challenging macroeconomic conditions, shows few signs of slowing down.

<p><b>Highlights:</b></p><ul><li><p>Personal loans are a growing sub-asset class of consumer credit that offer investors access to a growing $253 billion market.</p></li><li><p>Short-duration asset classes, like personal loans, typically offer favorable returns, without the same risk as longer-dated consumer assets, like mortgages.</p></li><li><p>The resilience of the unsecured personal loan market makes it an attractive asset class for banks and credit unions looking to diversify their portfolio mix.</p></li></ul><p>The unsecured personal loan market continues to hit record highs, and despite challenging macroeconomic conditions, shows few signs of slowing down. According to a May 2025 <a href="https://newsroom.transunion.com/q1-2025-ciir/">TransUnion</a> industry report, the personal loan market hasn’t just rebounded, it’s expanding. New loan originations, new account balances, and total loan balances are all up — quarter after quarter, year over year. </p><p>As banks and credit unions seek new ways to <a href="https://www.lendingclub.com/resource-center/institutional-investing/how-diversification-builds-resilience-in-banking">diversify their portfolio mix</a>, personal loans as an asset class offer a unique opportunity to invest in shorter-duration loans with high-yields. </p><p>Let’s take a closer look at what investors need to know about what’s driving sustainable growth in the unsecured personal loan market and benefits this expanding asset class offers institutional investors. </p><h2>What is the unsecured personal loan market? </h2><p>As of Q1 2025, unsecured personal loans represent a <a href="https://newsroom.transunion.com/q1-2025-ciir/">$253 billion market</a> with a total of 29.8 million loans. Currently 24.6 million Americans have an unsecured personal loan and carry an average of $11.6K in debt per borrower. </p><h2>6 trends personal loan market trends for investors to watch</h2><p>As the personal loan market continues to expand, here’s closer look at six <a href="https://www.transunion.com/content/dam/transunion/global/business/documents/fs2025/q1-ciir-consumer-lending-report.pdf">key trends</a> investors should keep an eye on:</p><ul><li><p><b>Total balances are hitting record highs </b></p><p>In Q1 2025, total balances climbed to $253B, but the average individual consumer’s loan balance dropped to $11.6K, about a 2% decrease compared to the prior year. </p></li></ul><p><i><u>Why this matters for investors</u></i><i>: A rise in total balances shows strong growth in the personal loan market overall likely indicates continued resilience despite turbulent economic times. </i></p><ul><li><p><b>New loan originations are climbing. </b></p><p>In Q4 2024, new originations increased for the fourth consecutive quarter, hitting a record 6.3 million — an increase of 26% year-over-year. </p></li></ul><p><i><u>Why this matters for investors</u></i><i>: Growth in new originations may signal strong demand and a healthy market, creating more investment opportunities, better diversification, and scalable volume for recurring purchases or securitizations. </i></p><ul><li><p><b>New account balances are increasing.</b></p><p> Total new account balances grew 17.3% year over year to $33.9 billion in the last quarter of 2024. </p></li></ul><p><i><u>Why this matters for investors</u></i><i>: Rising new account balances might suggest greater borrower capacity and demand, supporting higher loan economics and stronger yield potential.</i></p><ul><li><p><b>Loan term lengths are falling.</b></p><p> The average loan term length in Q4 2024 fell 9.8% from the prior year to just below 28 months. </p></li></ul><p><i><u>Why this matters for investors</u></i><i>: Unlike longer-dated assets, like mortgages, short-duration loans can potentially offer attractive returns in just a few years.</i></p><ul><li><p><b>Estimated median APRs are increasing. </b></p><p>Interest rates continued their upward trajectory for prime and near prime risk tiers in Q4 2024. Rates rose to an average median APR of 21.8%, a 12.4% increase from 2023.</p></li></ul><p><i><u>Why this matters for investors</u></i><i>: </i>Higher APRs can improve gross yields, potentially leading to stronger returns. This is especially true when credit performance remains stable.</p><ul><li><p><b>Delinquency rates are dropping.</b></p><p> The overall borrower-level delinquency rate fell to 3.49% in Q1 2025, down from 3.75% in Q1 2024 and up slightly from 3.25% in Q1 2023. Many credit segments are now performing on par with, or better than, 2023 vintages, reflecting stable repayment behavior. </p></li></ul><p><i><u>Why this matters for investors</u></i><i>: </i>Consistently improving delinquency trends suggests that credit conditions are holding steady, which may offer investors greater confidence in cash flow reliability and portfolio resilience.</p><h2>Key factors promoting growth unsecured personal loans</h2><p>The <a href="https://www.transunion.com/content/dam/transunion/global/business/documents/fs2025/q1-ciir-consumer-lending-report.pdf%22HYPERLINK%20%22https:/www.transunion.com/content/dam/transunion/global/business/documents/fs2025/q1-ciir-consumer-lending-report.pdf%22%20/">TransUnion market </a><a href="https://www.transunion.com/content/dam/transunion/global/business/documents/fs2025/q1-ciir-consumer-lending-report.pdf">analysis</a> points to <a href="https://newsroom.transunion.com/q1-2025-ciir/%22HYPERLINK%20%22https:/newsroom.transunion.com/q1-2025-ciir/%22%20/">several </a><a href="https://newsroom.transunion.com/q1-2025-ciir/">factors</a> driving the lower delinquency rates in the personal loan market, and in turn, sustained growth for personal loans across all risk tiers: </p><p><b>More competition for new originations: </b>Direct mail volume has remained relatively steady since 2023; however online loan inquiry volumes were up ~42% in March 2025 over the prior year. In Q4 2024, fintechs accounted for just over 48% of total new account balances and 34% of new loan originations, accounting for an 8% market share increase over the prior year. </p><p><b>Higher loan demand in the lower risk credit tiers. </b>Super prime (FICO 781+) borrowers increased market share by ~2% and below prime risk tiers (FICO 660 and below) also saw significant growth in new loan originations. Total balances for the super prime risk tier saw the most increases, with modest growth in prime plus (FICO 721-780). </p><p><b>New advances in lender risk management practices.</b> Despite reduced delinquency rates and less risky borrower classes, lenders still appear to be maintaining cautious exposure. In Q4 2024, average loan originations were just over $6k, and loan terms were shorter for all risk tiers year-over-year — with super prime seeing the biggest decline of 13% year-over-year.</p><h2>How investors can manage rate risk with personal loans</h2><p>With <a href="https://www.reuters.com/business/fed-officials-see-two-rate-cuts-2025-overall-turn-hawkish-2025-06-18/?utm_source=chatgpt.com">two Fed cuts</a> still expected later this year, many investors are reassessing interest rate exposure. Personal loans may help manage rate risk by introducing shorter-duration assets into portfolios typically anchored to longer-term, fixed-rate instruments.</p><p>If rates decline, refinancing activity could support continued growth in personal loan originations. This asset class may also offer diversification benefits and differentiated performance characteristics, though results depend on credit quality and market conditions.</p><h2>The takeaway</h2><p>During these times of economic uncertainty, capitalizing on the personal loan market may be a win for both borrowers and investors. Once seen as a last resort for consumers in financial distress, unsecured personal loans are now a go-to option for low-risk borrowers looking to refinance high interest debt. With new originations and balances hitting historic highs, and delinquency rates on a downward trajectory, investing in unsecured loans as an asset class could have a big payoff for investors. </p>

Banks that diversify across customer segments, lending categories, income streams, geographies, and digital platforms are not courting fragility, but insulating themselves against it.

<p>Since the 2008 global financial crisis, the concept of banks diversifying their operations has sometimes been met with skepticism. Critics warned that expanding into new products, sectors, or geographies could make institutions too complex to manage and too interconnected to fail—ultimately increasing systemic risk. As a result, many banks chose to streamline operations and double down on their core competencies.</p><p>But today’s economic landscape, marked by inflation, geopolitical instability, and technological change, demands a different approach. In this environment, diversification isn’t a liability; it’s a safeguard. Banks that diversify across customer segments, lending categories, income streams, geographies, and digital platforms are not courting fragility, but insulating themselves against it.</p><h2>What happens when banks lean into diversification</h2><p>A <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4147790">report from the Wharton School at the University of Pennsylvania</a> highlights how diversification, in its many forms, may enhance a bank’s stability and ability to weather economic shocks.</p><p>Wharton finance professor Itay Goldstein, along with Michael Gelman (University of Delaware) and Andrew MacKinlay (Virginia Tech), analyzed U.S. bank diversification around the 2008 crisis. Their research found that banks that had already expanded beyond their original geographic and typical lending business boundaries were better positioned to sustain higher levels of lending, reduce risk, and stabilize revenue streams during the downturn.</p><p>The study, which examined lending trends from 1997 to 2017, <a href="https://www.thebanker.com/content/2030a19f-0c17-5e91-a971-6a033aeccad0">revealed</a> that diversified banks were more resilient and continued lending throughout the crisis. In fact, they were able to sustain higher levels of lending activity during the downturn, especially to small businesses.</p><p>Small businesses received more than twice as many loans from the most diversified banks compared to the least diversified. These loans played a critical role in helping businesses retain employees and create new jobs in local communities.</p><p>Interestingly, when diversified banks expanded into new markets or product areas, the broader banking sector didn’t suffer. On the contrary, the overall economic impact was largely positive.</p><h2>3 strategies to leverage bank diversification</h2><p>The 2008 crisis proved that diversification can be a powerful tool for stability. As banks navigate today’s uncertainties, these three strategies can help boost lending, minimize risk, and stabilize revenue:</p><ol><li><p><b>Expand into New Business Segments</br></b>Diversifying into non-lending activities—such as insurance, securities, investment banking, and trust services—can strengthen a bank’s ability to lend during economic stress. <a href="https://knowledge.wharton.upenn.edu/article/how-diversification-helps-banks-lend-more-cut-risk-and-boost-the-economy/#:~:text=%E2%80%9CDiversification%20gives%20banks%20more%20stability,not%20always%20been%20viewed%20favorably.">Insurance lines, in particular,</a> have shown strong performance during financial crises.</p></li><li><p><b>Broaden Geographic Reach</br></b>Lending across more counties or states enables banks to maintain higher lending levels during downturns. The most geographically diversified banks <a href="https://knowledge.wharton.upenn.edu/article/how-diversification-helps-banks-lend-more-cut-risk-and-boost-the-economy/#:~:text=%E2%80%9CDiversification%20gives%20banks%20more%20stability,not%20always%20been%20viewed%20favorably.">lent twice as much</a> to small businesses during the 2008 crisis compared to their less diversified peers.</p></li><li><p><b>Invest in Consumer Credit as an Asset Class</br></b><a href="https://blogs.cfainstitute.org/investor/2025/01/29/consumer-lending-unlocked-opportunities-and-risks-in-a-27-trillion-market/">Short-duration investments like personal loans</a> offer attractive returns with lower risk than long-dated assets. Allocating capital to non-mortgage consumer credit can help banks diversify their balance sheets and improve resilience.</p></li></ol><h2>Spotlight: personal loans are a growing asset class</h2><p>Personal loans are emerging as a compelling sub-asset class within consumer credit, offering access to a <a href="https://newsroom.transunion.com/q4-2024-ciir/">$251 billion market</a>. With shorter durations and higher yields than traditional fixed-income assets, personal loans can deliver strong earnings—even in a high-interest rate environment.</p><p>While long-duration, lower-yielding assets will remain part of most portfolios, personal loans offer a unique opportunity for banks to diversify and strengthen their investment strategies <a href="https://www.americanbanker.com/news/banks-face-promise-and-peril-with-weakened-bank-regulators">amid regulatory and economic uncertainty</a>.</p><h2>The takeaway</h2><p>There’s no crystal ball to predict the future of the economy or the banking sector. But one thing is clear: banks must prepare for turbulence. Once viewed with caution, diversification has proven to be a powerful force for stability.</p><p>As the Wharton study shows, diversified banks not only weathered the 2008 crisis—they helped fuel recovery. By embracing diversification across lending, geography, and investments, banks can reduce risk, support multiple local economies, and build the resilience needed to thrive in any economic climate.</p>

The typical investment mix of long-term loans and securities may turn out to yield lackluster results. Banks may have another investment option: consumer credit. 

<p>Bank leaders today are navigating a complex list of ever-changing challenges. With a premium on liquidity, commercial real estate under duress, and credit risks shifting across sectors, traditional asset strategies are being re-evaluated — forcing banks to rethink where, and how, they deploy capital. </p><p>The typical investment mix of long-term loans and securities may turn out to yield lackluster results. Banks may have another investment option: consumer credit. </p><p>In recent years, <a href="https://blogs.cfainstitute.org/investor/2025/01/29/consumer-lending-unlocked-opportunities-and-risks-in-a-27-trillion-market/">consumer credit</a> has emerged as a viable, but often overlooked investment alternative for banks that want to balance out their long-duration, lower-yielding fixed income portfolios. In particular, personal loans — a growing sub-class within consumer credit — have proven to be a solid investment option for banks, thanks to their short durations, high yields, and solid returns. Some banks choose to build a portfolio of personal loans by offering the product directly; others choose to invest in loan portfolios originated by fintech or other banks. Many banks like working with fintechs to benefit from access to the asset without the added infrastructure.</p><h2>Understanding personal loans as an asset class</h2><p><a href="https://blogs.cfainstitute.org/investor/2025/01/29/consumer-lending-unlocked-opportunities-and-risks-in-a-27-trillion-market/">Consumer lending</a> has a market size of $27 trillion (and growing) and is generally categorized into two core groups: property-backed residential mortgages and non-property-backed consumer loans. As an asset class, it offers investors access to a wide range of opportunities that provide exposure to the creditworthiness of consumers – from traditional residential mortgages and personal loans to emerging products, like buy now, pay later (BNPL) loans.</p><p>This massive growth in consumer lending has largely been fueled by changing consumer behaviors and technology advances.</p><h2>Four key benefits of personal loans as an asset class</h2><p>When banks choose to invest in consumer lending, and more specifically the sub-asset class of unsecured personal loans, they can benefit from the following:</p><h3>1. Quality borrowers</h3><p>Consumers that take out personal loans are often individuals that are actively looking to improve their financial future. Borrowers are usually in their mid-30s to mid-50s with established credit histories, higher incomes, and relatively solid credit scores. They want to find a way to manage their debt responsibly and generally use personal loans to consolidate high-interest credit card debt. </p><p>After consolidating debt with a personal loan, borrowers can benefit from one simple payment, fixed terms, and fixed interest rates. Plus, it’s common for their credit scores to increase. LendingClub Bank members, for instance, see a credit score increase of 48 points, on average, after consolidating debt with a personal loan.</p><h3>2. Solid returns banks can count on </h3><p>Personal loans often have shorter durations (with terms typically ranging from 24- to 72-months) compared to longer-dated asset classes, like mortgages. They also typically offer higher yields (typically approximately 6-8%) with a steady stream of income coming from borrowers who repay their loans. </p><p>Delinquency rates for personal loans are low and trending downward across all risk tiers. In the last quarter of 2024, TransUnion reported the 60+ days past due delinquency rate dropped to <a href="https://newsroom.transunion.com/q4-2024-ciir/">3.57%</a>, down from 3.90% the previous year.</p><h3>3. Opportunity for diversification</h3><p>With their relatively high yields and short durations, personal loans offer banks the chance to diversify their investment portfolios. Long-duration, lower-yielding and traditional fixed income assets will likely continue to be a part of a bank’s investing strategy; adding shorter-duration assets can help balance out a portfolio. </p><h3>4. A growing asset class</h3><p>Personal loans as a market segment continue to grow. The latest <a href="https://newsroom.transunion.com/q4-2024-ciir/">quarterly data</a> on the US personal loans segment from TransUnion shows a 15% uptick in originations over the previous year — marking the third consecutive quarter of year-over-year growth. </p><p>Currently, 23.5 million US consumers have an unsecured personal loan, with total loan balances reaching $251 billion, according to the latest TransUnion figures.</p><h2>A strong choice in uncertain economic times</h2><p>In this political and economic climate, <a href="https://www.americanbanker.com/news/banks-face-promise-and-peril-with-weakened-bank-regulators">the banking and lending regulatory landscape faces many unknowns</a>. A changing regulatory and macroeconomic landscape could <a href="https://www.reuters.com/world/us/financial-firms-hated-us-consumer-watchdog-rapid-unraveling-creates-limbo-2025-02-13/">keep the industry in limbo</a> for months to come. </p><p>During times of unpredictability, it can be hard for investors to evaluate and make longer-dated investments. Short duration investments can provide compelling returns with a shorter time horizon. </p><h2>What to consider when investing in personal loans</h2><p>When <a href="https://blogs.cfainstitute.org/investor/2025/01/29/consumer-lending-unlocked-opportunities-and-risks-in-a-27-trillion-market/">investing in personal</a> loans, investors can choose from a range of structures with different risk and return profiles. For instance, LendingClub Bank offers investors the flexibility to purchase loans on a passive or active basis, in bulk or as individual loans. Loans can also be purchased as whole loans or in security format.</p><p>Before investing in personal loans, banks should determine their objectives and where they want to play on the risk-return spectrum. They should also determine the best provider to work with—ideally one with deep experience in the space and a track record of delivering compelling returns. </p><h2>The bottom line</h2><p>With heightened uncertainty as multiple economic forces put pressure on banks’ balance sheets, U.S. banks would do well to look to new options. Despite the macro headwinds facing U.S. banks — tighter monetary policy, commercial real estate stress, and deposit volatility — personal loans stand out as a resilient asset class.</p><p>Amid falling valuations in fixed-income securities and rising credit risk in commercial real estate and corporate lending, personal loans offer a diversified, high-yielding, and risk-adjusted opportunity that aligns with the ever-evolving needs of banks.</p>

Budgeting is a lifelong money management skill that can help you control your spending, save for the unexpected, and build a strong financial foundation. 

<p>Using a budget is a key part of being financially responsible. Understanding how budgets work and putting even the most basic budgeting techniques into practice can help you set a firm financial foundation and meet your future financial goals. Here&#39;s what you need to know about budgeting and why it plays an important role in your financial well-being.<sup>[1]</sup> </p><h2>Why is budgeting so important? </h2><p>The idea of setting up and using a budget may seem daunting—especially if you&#39;ve never had a budget before. It&#39;s important to remember that budgets are simply tools that can help you get where you want to be financially. No matter what life stage you&#39;re in, a budget can help you manage your everyday expenses, build your savings, pay down your debt, and plan for future goals like retirement.<sup>[1]</sup> </p><p>Here are some key reasons why budgets are so important.  </p><h3>1. Budgeting helps keep you honest about where (and how often) you&#39;re spending money </h3><p>Budgets shine a spotlight on your spending habits—the good, the bad, and the ugly. This is likely the reason many people put off making a budget to begin with. However, having a clear outline of how much money you have coming in and going out each month can help you make smarter financial decisions.  </p><p>When you take a hard look at your income, expenses, and financial goals, you&#39;ll be better able to see where you need to cut back. Plus, you may even find that you have some extra cash to put toward a short-term goal, like building up your emergency fund or paying down debt. You could even start saving for a dream vacation. Creating fun savings goals is one way to help you <a href="https://www.lendingclub.com/resource-center/personal-finance/sticking-to-a-budget-common-problems-and-solutions">stick to your budget</a>.<sup>[1]</sup> </p><h3>2. Budgeting curbs overspending  </h3><p>If you have a tendency to overspend, a budget can help you make sure essentials are covered before you spend on extras. While enjoying a meal out or shopping online are often well-deserved treats, the costs of these extras can add up quickly. Creating a budget can help you identify your needs, wants, and goals, so you can allocate how you spend and save your cash accordingly.  </p><p>While you may not need to cut out discretionary spending entirely, a budget helps set guardrails to keep overspending in check. For example, if you find you&#39;re spending too much on takeout, consider cutting back to one night of food delivery a week. Then you can put the cash you save toward another goal, like <a href="https://www.lendingclub.com/resource-center/personal-finance/what-is-the-debt-avalanche-method-and-how-does-it-work">paying down debt</a>.<sup>[1]</sup>  </p><h3>3. It can help you reach your personal financial goals </h3><p>Everyone&#39;s financial goals are a bit different depending on your individual financial values, lifestyle, spending habits, and other factors. However, no matter what your personal financial goals may be, a budget can help you meet them.</p><p>For example, let&#39;s say your goal is to build an emergency fund of $1,200 over the next year. You can then use your budget to allocate $100 a month into a high-yield savings account. If cash is tight, a budget can also help you figure out where you need to cut back on other expenses to make this goal happen. At the end of the 12 months, you may be able to celebrate reaching your goal and you may consider adjusting your budget to continue building your savings or set a new goal.<sup>[1]</sup>  </p><h3>4. Budgets help get you (and keep you) out of debt </h3><p>It&#39;s easy to rack up debt—especially if you have lots of high-interest credit cards or don&#39;t watch your spending carefully. By tracking your expenses carefully and setting specific goals each month, you can not only avoid reckless spending, but you may be able to pay down your debt faster.  </p><p>If you find you&#39;re having trouble paying off your credit cards each month or struggling to keep up with different accounts, a <a href="https://www.lendingclub.com/personal-loan/debt-consolidation">debt consolidation loan</a> could help. This type of loan rolls debt into one easy-to-manage monthly payment you can build into your budget, making it easier to stay on top of your debt. </p><h2>Types of budgeting that can help level-up your finances </h2><p>There is no one-size-fits-all approach to budgeting, and the type of budget you use can change over time. The most important thing when choosing a budget type is to find what works best for your money habits, spending needs, and savings goals.   </p><h3>Here are a few common types of budgeting strategies   </h3><ul><li><p><b>Zero-based budget: </b>With this method, your take-home pay minus your expenses should equal zero each month. So if you bring home $5,000, then you&#39;ll allocate every dollar into some type of category like rent, groceries, utilities, transportation, and discretionary spending. It&#39;s important to include financial goals, like paying down debt and building your savings, in those categories, too.<sup>[2]</sup>  </p></li><li><p><b>50/30/20 budget: </b>This approach involves dedicating 50% of your income to necessities like housing and food, 30% on discretionary expenses (like entertainment and personal-care items), and 20% on your financial goals, such as savings and retirement. This general rule of thumb may be easier to follow when setting your budget.<sup>[3]</sup>  </p></li><li><p><b>Pay yourself first budget:</b> This budgeting strategy makes saving the top priority. To start, you&#39;ll need to set a monthly savings goal. Then, with each paycheck, set those funds aside to essentially &quot;pay yourself.&quot; After that, you can spend your remaining money however you choose. Just be sure you&#39;re still covering your essentials and paying down debt, so you don&#39;t get behind on your bills or take a hit to your credit.<sup>[4]</sup> </p></li></ul><h2>The bottom line </h2><p>Budgeting is a money management skill that&#39;s important to building both short- and long-term financial success. Although creating a budget may feel intimidating at first, once you get started you may find it enlightening. Setting goals and milestones to celebrate along the way can help you stick to your budget. Remember, it&#39;s OK for your budget to fluctuate over time as your income, spending habits, and needs change.<sup>[5]</sup> </p><hr/><p>    </p><ol><li><p><a href="https://www.consumerfinance.gov/about-us/blog/budgeting-how-to-create-a-budget-and-stick-with-it/">Consumer Financial Protection Bureau</a>. “Budgeting: How to create a budget and stick with it.” </p></li><li><p><a href="https://www.incharge.org/financial-literacy/budgeting-saving/zero-based-budgeting/">InCharge Debt Solutions</a>. “Zero-based budgeting.” </p></li><li><p><a href="https://files.consumerfinance.gov/f/documents/cfpb_worksheet_my-spending-rule-to-live-by.pdf">Consumer Financial Protection Bureau</a>. “My spending rule to live by.” </p></li><li><p><a href="https://studentaid.gov/resources/prepare-for-college/students/budgeting/budgeting-tips">Federal Student Aid</a>. “Budgeting tips.” </p></li><li><p><a href="https://consumer.gov/managing-your-money/making-budget#what-to-know">Consumer.gov</a>. “Making a Budget.” </p></li></ol><p></p><p></p>

Your credit utilization rate measures the balances of your revolving accounts against your credit limits. Naturally, your ratio can influence your credit scores. A low utilization rate could improve your credit scores while a high utilization rate may hurt them. 

<p>Your credit utilization rate measures the balances of your revolving accounts against your credit limits. Naturally, your ratio can influence your credit scores. A low utilization rate could improve your credit scores while a high utilization rate may hurt them. </br></br>For that reason, it’s worth understanding exactly how credit utilization rates work and how they impact your credit. While the math is straight forward—you only need to know addition and division—it’s not always clear which numbers to use.</p><h2>How credit utilization ratio works</h2><p>Credit utilization refers to the percentage of your total available revolving credit, such as credit cards and personal lines of credit. The balance on installment loans, including <a href="/personal-loan">personal loans</a>, aren’t part of credit utilization rate calculations, though they can impact your credit score.</p><p>You actually have two utilization rates: Individual account utilization and your overall utilization. To determine your individual utilization rate, credit scoring models like FICO divide the reported revolving balance by the credit limit on each card or line of credit.<sup>[1]</sup> Your overall credit utilization rate is the comparison of all applicable revolving balances and the limits. </br></br>Both your overall credit utilization rate and the utilization rate of individual accounts can be important to your credit score.</p><h2>How does credit utilization affect your credit score?</h2><p>Credit utilization rates can be a major factor in your credit score. However, the specific impact will depend on the type of credit scoring model and your overall credit profile.</br></br>FICO, for example, lists revolving utilization as a subcomponent of the “amount owed” portion of its scoring formula, which can account for 30% of your FICO Score. </br></br>A low utilization rate—both overall and on individual accounts—is generally better for your score.</br></br>Lowering your utilization rate can be one of the fastest ways to <a href="/resource-center/personal-loan/how-to-improve-credit-score">improve your credit score</a> because most scoring models only consider your utilization rate as it is reported. Meaning, you may see a quick credit score boost if you’re able to pay off a high utilization rate at once.</p><h2>Why credit utilization is important for lenders </h2><p>Lenders use you credit score as a benchmark to determine if you qualify, among other things, for a loan, as well as its rates and terms. Because your credit utilization rate can be a major scoring factor, it could have a direct impact on the lender’s decision. </br></br>If you have high revolving credit limits and low balances, creditors take that as a sign that you know how to use credit wisely. If you are borrowing heavily against all your credit cards and revolving lines of credit, that can be a sign you’re not as financially responsible as you could be—or are under financial strain.</p><h2>How to calculate your credit utilization</h2><p>You can calculate your credit utilization rate by dividing the amount of revolving debt you owe by the amount of credit available. </br></br>For example, suppose you have a credit card and a line of credit, each with a limit of $5,000, for a total credit limit of $10,000. You owe $1,000 on the line of credit and $2,000 on the credit card, for a total of $3,000 owed. Given this, your credit utilization ratio is 30%.</br></br>There are several key points to remember when calculating utilization rates:</p><ul><li><p>Many credit card issuers report balances monthly, around the end of each statement period or billing cycle. </p></li><li><p>The bill for the statement period may be due around three weeks later. </p></li><li><p>Credit scoring models only calculate the balances reported on your credit reports at the time. </p></li><li><p>Typically, credit card companies will report your balances to the credit bureaus around the end of each billing cycle.<sup>[2]</sup></p></li><li><p>If the creditor reports to credit bureaus before you pay off the credit balance in full each month, you could still have a high credit utilization rate. </p></li></ul><p>To calculate the most accurate utilization rate, review your credit report rather than your current credit card balance. Some credit reports may also include your credit utilization ratio, saving you the math.</p><h2>5 ways to improve your credit card utilization</h2><p>In the end, there are only two numbers that matter—the balance and the credit limit—but there are ways to decrease your credit utilization rate and potentially boost your credit scores.</p><h3>1. Ask for a credit limit increase. </h3><p>As long as your balance doesn’t increase as well, a higher credit limit can lower your utilization rate and make it easier to maintain a low rate. You can ask card issuers for a credit limit increase. However, the request may lead to a hard credit inquiry, which might cause a temporary dip to your credit score.</br></br>Also, check the annual income amount you reported to the credit card company, which you can typically find in your online account. If your income has risen, updating the amount may help you get approved for a higher credit limit or lead to a credit limit increase initiated by the card issuer.</p><h3>2. Pay down credit card balances early.</h3><p>Lowering your credit card’s balance <a href="https://www.myfico.com/credit-education/blog/credit-score-factor-amounts-owed">before issuers report</a> it to the bureaus could also lead to a lower utilization rate. While the reporting often occurs around the end of each statement period, you could call your card issuer to confirm the exact timing. </p><h3>3. Open a new credit card. </h3><p>Opening a new revolving credit account, such as a credit card, can increase your total available credit. However, keep in mind that a new card may carry an annual fee and could increase the temptation to spend, racking up debt and increasing—rather than helping—your utilization rate. </p><h3>4. Keep your credit cards open.</h3><p>If you have a credit card you’re considering closing, you may want to keep it open to maintain your available credit limit to potentially have a lower utilization rate. </br></br>You could use the card for a small monthly bill and turn on autopay to ensure on-time payments and avoid account closure due to inactivity. Or, set a calendar reminder to use the card every few months (and another one to pay it down).</p><p>If there’s a specific reason you don’t want the card due to its annual fee or concerns about overspending, closing it may be a better option. <a href="https://www.lendingclub.com/resource-center/personal-finance/how-to-cancel-a-credit-card-without-hurting-your-credit-score">Learn more about closing a credit card account</a>.</p><h3>5. Become an authorized user on another person&#39;s card.</h3><p>Credit card issuers may report accounts to the credit bureaus under both the primary and authorized users’ names. As an authorized user, you could benefit from having the additional available credit limit. </br></br>Keep in mind, as an authorized user, you’re also giving up some control. For instance, if the primary cardholder generates a high utilization rate, it could show up on your credit report as well. If they fail to make on time payments, your credit scores could also be impacted.</p><h2>How personal loans help you lower credit utilization ratios</h2><p>There are two ways a personal loan might lower your credit utilization rate.</br></br>The first is if you use a personal loan rather than a credit card for a major purchase. Since personal loans are installment accounts, the balance and initial loan amount aren’t part of utilization calculations.</br></br>You can also use a <a href="/personal-loan/credit-card-consolidation-loan">personal loan to consolidate credit card debt</a>. In other words, you could take out a loan and use the money to pay down your debt. By eliminating your credit card balances and leaving the cards open, you could significantly lower your utilization rate.</br></br>By using a personal loan to pay down credit card debt, you will typically have a fixed interest rate, single monthly payment, and know exactly when the loan will be paid off. You can pre-qualify for a <a href="/personal-loan">debt consolidation loan</a> and check your rate with LendingClub Bank without impacting your credit score.</p><h2>Manage your credit utilization responsibly</h2><p>Tracking your credit card balances, credit limits, and statement period end dates can be prudent activities from a personal finance perspective. The most active way to manage your utilization rate is to make payments before issuers report your balances to the credit bureaus. </br></br>It’s generally better to avoid using credit cards for big purchases if cash is available to pay off your entire statement balance. This helps prevent high-interest credit card debt.</p><hr/><h2>Credit utilization FAQs</h2><p>Still have questions? Some of these commonly asked questions may provide the answer.</p><h3>When is credit utilization calculated?</h3><p>Credit utilization is calculated each month when credit card issuers report your balance to credit bureaus. Changes in your credit report, such as a new reported balance on a credit card, can lead to a different utilization rate. </p><h3>Does credit utilization matter if you pay in full?</h3><p>Yes, it still matters. Even if you pay your credit card bill in full, you could have a high utilization rate that may hurt your credit scores. Credit card balances are often reported weeks before the bill’s due date, and the reported balance is what impacts your utilization rate. </p><h3>How does credit utilization affect your credit score?</h3><p>Credit utilization rates can have a major impact on your credit scores. The specific amount of points will depend on the scoring model and the other information in your credit report. But if you have a high utilization rate, lowering it may be a way to increase your credit scores. </p><h3>What is a good credit utilization ratio?</h3><p>There’s no specific point where a utilization rate goes from good to bad. Keeping your overall utilization rate below 30% can be a helpful rule of thumb<sup>[3]</sup>—but the lower, the better. </p><hr/><ol><li><p><a href="https://www.myfico.com/credit-education/blog/credit-utilization-be">FICO</a>. &quot;What Should My Credit Utilization Ratio Be?&quot;</p></li><li><p><a href="https://www.experian.com/blogs/ask-experian/credit-card-balance-vs-utilization/">Experian</a>. &quot;What Is the Difference Between Credit Card Balance and Utilization?&quot;</p></li><li><p><a href="https://www.experian.com/blogs/ask-experian/how-to-calculate-credit-card-utilization/">Experian</a>. &quot;How to Calculate Credit Card Utilization.&quot;</p></li></ol><p></p>

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