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Your credit utilization rate is an influential factor in your credit scores. This ratio indicates how much of the available credit on your credit cards you're using at a given time. While some financial experts recommend keeping your utilization rate at 30% or below, there is no magic threshold.
In reality, you can never have too much available credit, and the more you have, the better it is for your credit score.
What Is a Good Amount of Available Credit?
Credit scoring models consider your available credit for each individual credit card, as well as across all of your cards.
The 30% credit utilization rule of thumb can be an easy benchmark to help you make sure you don't use too much of your available credit. But for the benefit of your credit score and your overall financial health, it's best to keep your utilization rate as low as possible.
To give you an idea of how people in different credit score ranges manage their credit cards, here's how much available credit each range has on average, according to Experian data:
|Average Available Credit by Credit Score Range|
|Credit Score Range||Available Credit|
|Very Poor (300-579)||27%|
|Very Good (740-799||87.6%|
As you can see, even people with good credit tend to use more than 30% of their available credit, which shows that going beyond that threshold won't wreck your credit. But people with higher credit scores tend to use far less, showing that they can manage their credit well.
How to Use Credit Responsibly
Managing your credit utilization well is key to building excellent credit. Here are some steps you can take to keep your credit card balance low relative to your credit limits:
- Pay before the statement date. Credit card issuers report your account balance to the national credit reporting agencies once a month, typically on or close to the statement date. If you make a large payment before the current statement cycle closes, it will reduce the balance your credit card company reports to the credit bureaus.
- Make multiple payments throughout the month. If you have a low credit limit, try to make more than one payment throughout the month to maintain more available credit and drive down your utilization rate.
- Use credit cards sparingly. If you have trouble with overspending on your credit cards, that could make it challenging to maintain a lot of available credit. It's good to have at least something reported to the credit bureaus every month, but consider using your cards sparingly to avoid racking up a lot of debt.
How you handle all of your debts is also important in avoiding using too much of your available credit on your credit cards. Here are some other good credit habits to develop if you haven't already:
- Always pay your bill on time.
- Make it a priority to pay down existing credit card debt if you're carrying a balance. Paying your bill in full each month when possible will go far to help your credit.
- Apply for credit only when you need it.
- Avoid applying for multiple credit accounts, especially credit cards, in a short period.
- Avoid closing old credit card accounts.
- Check your credit score regularly to keep track of how your actions impact your credit history.
How to Increase Your Credit Limit
If you don't have a lot of available credit on your credit cards, it can be difficult to keep a low credit utilization rate. Fortunately, there are a couple of ways you can increase your credit limit.
First, you can request a credit line increase from your existing credit card issuer. If you've proven that you manage your debt well, your credit score has increased or your income has grown, the company may consider giving you more available credit.
The second way to get more credit is to apply for a new card. Once the bank or credit union opens the account, the available credit will be added to your total.
Keep in mind that both actions will typically result in a hard inquiry on your credit report. But that temporary, small impact on your credit score may be worth it if it helps lower your credit utilization rate.
Finally, it's important to note that credit card issuers can also lower your credit limit. This can happen if you've missed recent payments, rarely use your card or report lower income than when you first opened the account. It can also happen if general economic conditions cause the financial institution to lower limits to reduce their exposure to risk.
If this happens, it could impact your credit score negatively, especially if you didn't have a lot of available credit to begin with.
Can Too Much Available Credit Hurt Your Score?
There's no such thing as too much available credit when it comes to your credit score. As the data suggests, people with exceptional credit use only a small fraction of what they have on their credit cards, and that has helped their credit scores.
However, having a lot of available credit could tempt you to spend more money. If this is a concern, take steps to avoid spending more than you can afford to pay back. Keeping your credit card out of your wallet and tucked away in a drawer is one way to avoid overspending; another is not uploading your credit card information to online websites that make it easy to buy with the click of a button.
If you try to increase your available credit by applying for multiple credit cards in a short period, credit scoring models could see that as a sign of risk—and it could hurt your credit score and your chances of getting approved for financing when you really need it.
Monitor Your Credit Regularly to Avoid Major Issues
Many things can hurt your credit score, including how much of your available credit you're using. In most cases, though, you can address potential issues before they inflict significant damage on your credit profile.
Experian's free credit monitoring service allows you to view your Experian credit report and your FICO® Score☉ powered by Experian data whenever you want. You'll also get real-time alerts when changes to your credit are made, such as new accounts, credit inquiries and more.
As you monitor your credit score and reports regularly, you'll have the information you need to build and maintain an exceptional credit history.