Credit Utilization: Why You Shouldn't Max Out Your Limit
What credit utilization ratio is and how it affects your score
5 minbasics
Credit Utilization: Why You Shouldn't Max Out Your Limit
Credit utilization is the second most important factor in your credit score after payment history. It makes up 30% of your FICO Score.
What Is It?
Credit utilization = how much credit you're using / total available credit.
Example: If your limit is $1000 and you've spent $300, your utilization is 30%.
What Percentage Is Good?
| Utilization | Rating |
|---|---|
| 0-10% | Excellent |
| 10-30% | Good |
| 30-50% | Fair |
| 50-75% | Poor |
| 75-100% | Very Poor |
How to Lower Utilization
- Pay before the statement date — banks usually report to credit bureaus once a month
- Pay multiple times per month — don't wait for the end of the billing cycle
- Request a credit limit increase — higher limit = lower percentage
- Don't close cards — this reduces your total available credit
Important Nuance
0% utilization isn't ideal either. Banks want to see that you use credit. Optimal range: 1-10%.
Quick Way to Improve Your Score
If your utilization is high, pay off the balance before the statement date. The effect on your score will be visible next month — unlike other factors, utilization has no "memory."