Score Advice

How Utilization Rate Affects Credit Scores

Dear Experian,

I have been led to believe that a component of one's overall credit score is the ratio of current credit card balances to one's total available credit. If one had three credit cards, is each card's ratio calculated individually, or is it one's total credit card balance compared to one's total available credit? Also, I've heard that the important thresholds are 30 percent and better yet, 10 percent; is that correct?


Dear RLS,

Credit scores consider both your total balance-to-limit ratio, or utilization rate, and your balances as compared to the limits on individual accounts.

Your utilization rate is an important indicator of credit risk. To calculate your balance-to-limit ratio, divide the balance by the credit limit for that account. To calculate your total utilization compare your total balances to your total limits.

Why Utilization Rate Affects Credit Scores

A high utilization rate is a sign that you may be experiencing financial difficulty and is a strong indicator of lending risk. As a result, high utilization hurts credit scores and can cause lenders to be reluctant to extend additional credit.

If you have a high balance-to-limit ratio on one card, that negative can be significantly off-set by having a low overall utilization rate. That is why we caution against closing unused cards if your scores are low and eliminating that open credit limit might increase your total utilization ratio.

Keep Credit Card Balances as Low As Possible

VantageScore recommends an overall utilization rate of no more than 30 percent. However, the lower your utilization ratio, the better for your credit scores.

Ideally, you should pay your balances in full each month so that you never pay finance charges and don't spend more than you can afford to repay. But, don't expect paying in full to lower your utilization. The balance reported is the amount owed when you receive your billing statement.

The only way to have a zero balance is to not use the card for an entire billing cycle or pay the balance well before the due date so that your billing statement will show a zero balance due.

If your scores are not as good as they need to be to be approved at the best rates, paying down balances is often the best action you can take to improve your risk.

Thanks for asking.
The "Ask Experian" team

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