What Is Credit Card Utilization: Essential Keys To Improving Your Credit

consumer trying to understand what is credit card utilization

What Is Credit Card Utilization And Why You Should Care

Has your credit score been going down recently? Are you having trouble managing your line of credit responsibly? One of the main factors that influence your credit score is your credit card utilization. If your utilization ratio is poor and you’re using too much credit line you may notice your credit score decreasing. Below we’ll discuss what is credit card utilization and why it is the key to improving your credit score.

man handing credit card for purchase

The Effects of Credit Card Utilization

If your trying to understand what is credit card utilization and how it impacts your credit score, realize this one thing. Credit companies take your credit utilization into account when determining your score. Your score influenced by several different factors, predicts a credit utilization weighting of 30%. This percentage makes your card utilization more important when determining your score than any other factor, except for credit history.

Although there are no hard and fast rules, in general, it is better to have a utilization of 30% on your accounts.

It is very easy to calculate your utilization ratio. If your credit limit is $6,000 and your balance is $3,000 the resulting credit utilization ratio will look like this: 6,000 / 3,000 = 0.5 = 50%. This means that you have a utilization percentage of 50%, which is a bit higher than the ideal amount.

So why is it important that you don’t let your credit card utilization get so high?

1. Demonstrates a Lack of Self-Discipline

Taking your psychology into account, creditors predict that you may be more likely to be bad at managing your money. In fact, you have a greater risk of going bankrupt if your utilization is high. It is very easy to get credit in America. Therefore, it’s easy to overuse credit cards and to take on too much debt.

consumer credit card swipe

People who are great at managing their money, usually will show a lot more constraint with their credit card usage. Credit card users who keep their utilization under 30% should be more reliable. And as a result more likely to continue making payments on time for years to come.

2. Debt-to-income

Credit bureaus don’t collect income data. However, it is assumed that most credit card limits are a bit more than the income you declared when applying for a card.

If you have large amounts on your card, and it appears to be more than your monthly income, then this means you are more or less in debt to the credit card companies. This is not good.

While your debt-to-income ration doesn’t directly affect your score, it can be a factor in determining your reliability.

Your DTI ratio sums all your monthly debts and obligations such as monthly credit card payments and loan payments. This may also include other payments such as alimony. Afterwards, divide the sum by your monthly income, before taxes

3. Living Off Of Credit

When you are using your credit card too often it may appear that you are living off of credit, rather than a reliable income. This is a clear red flag that makes you seem unreliable.

wallet full of credit cards

If you are living paycheck to paycheck or relying on credit cards for monthly expenses you won’t be seen as a trustworthy borrower. You may be seen as a potential risk for your credit card company.

Credit isn’t really intended to be used for monthly expenses or as a replacement for your monthly income. When you seem to be using it for your everyday living expenses and aren’t paying it all back each month, this is a signal that you may not be capable of paying back the debt in the future.

Final Thoughts

If you have a credit card one of the best things you can do is learn what is credit card utilization then work to lower your utilization ratio.

Remember that, at least as a general rule, you should keep your ratio below 30% utilization at all times. By managing your card wisely, and keeping your utilization low, you may find that your credit score starts to rise once again.

Looking for guidance on your personal finance needs? Have questions? Contact us today to learn more about what Credit Squared can do for you.

Get Control of Your Credit With Our Free Ebook

* indicates required



  1. This article proves you learn something new everyday.

    Credit cards can be a dangerous thing to have if not used properly. 

    How do you find out your credit card utilization? Or your credit score? 

    Be nice to see after reading this article. 

    Very nice article to help me learn something I didn’t know, thanks for that

    • Thanks for your positive comments.

      Yes credit cards can be dangerous if not used judiciously.  That’s why a lot of folks run into credit problems.

      You should only be using about 25% – 30% of your credit card utilization.  Find you credit limits for all cards and divide that by the amount of credit card debt outstanding and that will give you your credit card utilization rate.

      Say you have $50,000.00 in credit availability and you have $15,000.00 in outstanding amounts payable. $15K divided by $50K gives you a utilization rate of 30%. Stay at 30% or below and that should help maintain a fairly healthy credit score.  There are other factors that impact your credit score, so keep those in mind.  

      You can learn more here.

      Best Ways To Increase Your Credit Score

      There are some free sources online that offer credit scores for free if you don’t mind giving out some of your personal information.Check out Credit Karma at this link.

      Free Credit Score



  2. This is great information. 

    I think most people have had a problem with this at some point.

    What do you think would be the easiest way to lower credit utilization for someone having a problem with it?

    Also is it possible to have good credit with high credit utilization or is it always going to have a significant negative impact?

    • Hi Briana,

      Great questions.

      The easiest way to lower credit utilization is to cut back on credit card spending and stay within a budget.

      Most experts estimate that a credit utilization ratio should be around 30% and no higher.

      FICO breaks down or weights the following types of financial activities to determine your credit score:

      Amounts owed – 30%New credit – 10%Length of credit history – 15% Payment history – 35%Credit mix – 10%

      You can read more about it here:

      Know Your Credit Options

      The trouble for most people is that they only make minimum payments, spend more each month and carry higher balances. The only way to fix that is to spend less and pay balances down faster.

      To achieve a good credit score (750 or higher) while also maintaining high credit utilization requires paying off your balances every month. This is usually for folks with lots of financial resources and not common for most consumers. 

      So if you are just making the minimum payments each month and spending more, then high credit utilization will always have a negative impact on your credit score.

      All the best,



  3. Hi Patrick,

    I loved reading your article. There is so much great information here that everyone can use.

    Understanding credit card utilization gives me a better idea about how much credit I should be using.

    It was amazing to learn that lenders assign less risk to credit card users who keep their utilization under 30% as they find them more reliable.  Lots of consumers go way above that, then wonder why their credit scores are so low.

    Now that I am aware of this I will try my best to keep my credit card utilization under 30%.

    Do you know of any other strategies that might help raise my credit score?

    • Thanks for your comments on the post. It looks like you get the point of this post and fully understand what is credit card utilization.

      Credit card utilization is one of the most important factors in determining your credit score.  Master that part of your finances and you will be well on your way to a great FICO score.

      It’s great to hear that your goal is to maintain your utilization below the 30% threshold.  Just remember that there are other factors that impact your credit score.

      1.) Amounts owed (30%) 2.) New credit (10%) 3.) Length of credit history (15%) 4.) Payment history (35%) 5.)Credit mix (10%)

      Maintain this mix and you can will be in rare company enjoying the highest credit scores around.

      There are several strategies you can employ to raise your credit score.  Read this post to learn more.

      10 Simple Ways to Improve Your Credit Score Fast!

      Best of luck,



  4. Hi Patrick, it is interesting to learn how credit card ultilization can affect one’s credit score. 

    I made a serious commitment this year to pay back my two credit cards. Though, I am not in the red, as in the banks constantly calling me up, I know that my credit card ultilization is way high. 

    This I learned through your helpful article. So, I have decided to pay a fixed amount to my cards on a monthly basis and opted to rather use my debit card instead. 

    As you had mentioned, credit card should not be used for regular or daily purchases. 

    Hopefully, within 6 months I would have a better credit score.

    Thanks for the helpful read. 



    • Hi Roopesh,

      Understanding your credit utilization can go a long way toward improving your credit score and getting your spending under control.

      Most folks are not aware that a high credit utilization ratio reduces their chances of maintaining a good credit score and blocks their ability to get additional important credit, like a mortgage or car loan.

      It’s a good idea to use your debit card when possible and only use your credit cards when necessary.  Maintaining a ratio below 30% is a wise practice. 

      In the end, being disciplined about your spending and using credit only when necessary will help get your financial house in order.




Leave a Reply

Your email address will not be published.