Credit Utilization: What It Is and How to Improve It


“I’ve been on the hunt to lower my credit utilization from when I was an ignorant teenager, but the APRs on my credit cards were high. LendingClub allowed me to wipe out my balance for a low monthly fee, lower than all of my credit card payments. Here's to a bright credit future!” —Steven, a member from New York

What exactly is credit utilization?

Credit utilization is the amount of available credit you are currently using. Banks and other financial companies use this to see if you are a good candidate for a new loan.

Why is it important?

Companies that make loans want to make sure you are able to pay it back, so they are always looking to see if their borrowers are financially responsible. If they see you are using a lot of your available credit, it makes them think you might not be as responsible as you could be. We know, it’s sort of arbitrary, but it is one of the most important factors in deciding if you are a good candidate for a loan.

How do you calculate it?


This can be a pretty simple number to find with a little math. First, look at your most recent credit card statement to see how much you owe and how much your credit limit is. Divide what you owe by what your limit is and you get your credit utilization rate. If you do that for all your available credit cards and personal loans, you’ll find your total utilization rate.

For Example:

If you have two credit cards, add together how much you owe in total across both and divide by your combined credit limit. If you owe $1,000 on one card and $1,000 on another, that’s $2,000. If the first card has a credit limit of $3,000 and the other has a limit of $7,000. Your overall credit utilization is 20% or $2,000 divided by $10,000.


It's important to know that your credit usage is calculated for each line of credit, too.

How do you know if it's is too high?

It’s a good rule of thumb to keep your total credit usage under 30%. Ideally, your credit usage is under 30% for each of your cards or lines of credit, too.


How can you improve your credit utilization?

There are lots of ways to improve the amount of credit you use, but it comes down to variations on two ideas: pay down your debt, or increase your credit limits. Either one will help improve the calculations. Some specific ways to lower your credit utilization:

  • Pay down debt on accounts with high usage—Maybe you just never knew about that 30% rule, or you’re using one of your cards more than the others. Give all your cards some love! Plus, paying down those accounts will also help your overall credit usage.
  • Ask for a credit limit increase on all of your credit card accounts—You'd be surprised at what a phone call to your creditors can get you quickly and automatically. Just be sure to ask if they’re doing a soft or hard credit check to increase your limit, because it could impact your credit score. Learn more about soft versus hard credit inquiries.
  • Get a pre-paid (secured) credit card—This is one way to add a new line of credit and usually has a lower chance of you being denied. Getting a secured credit card from a bank or credit union is a good way to increase your credit line quickly.
  • Apply for a credit builder loan—This is a small loan you can get through banks or credit unions which usually has a short repayment schedule. You usually repay the loan in a year or two.
  • Apply with a co-borrower—If you don’t think you can get a new line of credit on your own, go in with another person who has better credit. Their higher credit score or better credit profile could help you get over the finish line.
  • Become an authorized user on someone else's credit card—When you are an authorized user, you have access to that card’s credit limit, which may increase your overall credit. Be sure your trusted partner, friend or family member hasn’t used too much credit on that card. That would defeat the purpose!

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