THE NO JOB LIFESTYLEHow it is calculated
Scoring models look at utilization in two ways: on each card and across all your cards together. Here is an example with two cards.
| Card | Balance | Limit | Utilization |
|---|---|---|---|
| Card A | $450 | $500 | 90% |
| Card B | $50 | $1,500 | 3% |
| Total | $500 | $2,000 | 25% |
The overall 25% looks fine, but Card A at 90% can still count against you. Installment loans such as car loans are generally not part of this ratio, though some scoring factors do look at them separately. Our credit utilization calculator can do the math for you.
What counts as a good ratio
The common advice is to stay under 30%, but that is a rule of thumb and not a cliff. People with the highest scores often use under 10%. A 0% reading on every card may score slightly below a small reported balance on one card, since the models want to see some activity. There is no reason to pay interest to manage this, though, because a balance reported on the statement can still be paid in full.
A higher ratio may suggest to lenders that you rely heavily on credit, even if every payment is on time.
How to lower it
- Pay before the statement closing date, since that balance is usually what gets reported.
- Make more than one payment during the month.
- Target the card with the highest percentage first.
- Ask for a limit increase, and first ask whether it needs a hard inquiry.
- Keep no fee cards open unless there is a good reason to close them, since closing reduces your total limit.
Paying a big purchase off quickly rather than at month end can make a noticeable difference for people with low limits.
How long utilization affects your score
In most current scoring models, utilization has no long memory. Once a lower balance is reported, the score can reflect it at the next update, often within about a month. Some newer models, such as FICO 10T and VantageScore 4.0, look at balance trends over time, so steady low use is the safest habit. If a card is reporting a high balance by mistake, you can dispute that with the bureau.
Questions people ask
Does credit utilization reset every month?
It updates when your issuer reports new balances, usually monthly. In most models, a high past month stops counting once a lower number is reported, although trended data models also consider history.
Is 0% utilization good?
It is not harmful, but a small reported balance on one card can score slightly better. Do not carry debt or pay interest in order to show one.
Do closed cards count in utilization?
A closed card's limit generally stops helping your ratio. If it still has a balance, that balance may still be counted, so paying it down is wise.