Debt-to-Credit Ratio (Credit Utilization) Explained

If you’ve ever been told to “keep your credit utilization below 30%,” you might have wondered what that means and why it matters. Credit utilization — also called your debt-to-credit ratio — is one of the most important factors in your credit score. The good news is that it’s also one of the easiest to improve once you understand how it works.

What Is Credit Utilization?

Credit utilization is the percentage of your available revolving credit that you’re currently using. It compares your credit card balances to your credit card limits.

The formula is simple:

Credit Utilization = Total Credit Card Balances / Total Credit Limits x 100

For example, if you have two credit cards:

• Card A: $1,500 balance, $5,000 limit
• Card B: $500 balance, $3,000 limit

Your total balance is $2,000, and your total limit is $8,000.

$2,000 / $8,000 = 25% utilization

Credit bureaus look at both your overall utilization (across all cards) and your per-card utilization (each card individually). Having one card maxed out can hurt your score even if your overall utilization is low.

Why 30% Matters

Credit utilization makes up about 30% of your credit score — it’s the second most important factor after payment history. Lenders use it as a signal of how much you depend on borrowed money.

Here’s the general breakdown of how utilization affects your score:

• 0-10%: Excellent. This signals you use credit sparingly and manage it well.
• 10-30%: Good. You’re within the range that most experts recommend.
• 30-50%: Fair. Your score starts to take a hit here.
• 50-75%: Poor. Lenders see this as a risk sign.
• 75-100%: Very poor. Your score will be significantly impacted.

The “30% rule” is a widely used guideline, but lower is better. People with the highest credit scores tend to keep their utilization under 10%.

Important note: utilization has no memory. Unlike late payments that linger for years, utilization is recalculated each time your credit is checked. If you lower your balances this month, your utilization improves immediately when it’s next reported.

What Counts and What Doesn’t

Credit utilization only applies to revolving credit — mainly credit cards and lines of credit. It does not apply to:

• Mortgages
• Auto loans
• Student loans
• Personal installment loans

These are installment loans with fixed balances that naturally decrease over time. They’re treated differently in scoring models.

How to Improve Your Credit Utilization

Here are practical strategies to lower your utilization and boost your score:

Pay Down Balances

The most direct approach: pay off your credit card debt. Even partial payments help — going from 60% utilization to 25% can make a noticeable difference in your score.

Make Payments Before the Statement Closes

Your credit card issuer reports your balance to the bureaus once per month, usually on your statement closing date — not your payment due date. If you make a payment before the statement closes, the reported balance will be lower, which improves your utilization.

Request a Credit Limit Increase

If your balance stays the same but your limit goes up, your utilization percentage goes down. A $2,000 balance on a $5,000 limit is 40%. But if your limit increases to $8,000, that same balance drops to 25%.

Only request an increase if you trust yourself not to spend more. A higher limit only helps if your balance doesn’t rise with it.

Spread Spending Across Cards

If you have multiple cards, spreading your spending across them can keep any single card from having high utilization. Remember, per-card utilization matters too.

Keep Old Accounts Open

When you close a credit card, you lose that card’s credit limit from your total available credit. That can increase your overall utilization even though your balances didn’t change.

For example, if you have $3,000 in total balances and $15,000 in total limits (20% utilization), closing a card with a $5,000 limit drops your total limits to $10,000 — bumping utilization to 30%.

Avoid Maxing Out Any Single Card

Even if your overall utilization is fine, having one card at or near its limit sends a negative signal. Try to keep every card below 30% individually.

Common Questions

Does being an authorized user affect utilization? Yes. If you’re an authorized user on someone else’s card, that card’s balance and limit can factor into your utilization. This can help or hurt depending on how the primary cardholder manages the account.

Does checking my utilization hurt my score? No. Checking your own credit is a soft inquiry and doesn’t affect your score.

How quickly does utilization update? Most card issuers report to the credit bureaus once a month. After you pay down a balance, it typically takes one billing cycle for the updated utilization to appear on your report.

Bottom Line

Credit utilization is the ratio of your credit card balances to your credit limits, and it’s the second biggest factor in your credit score. Aim to keep it below 30% — and ideally under 10% — for the best results. The fastest ways to improve it are paying down balances, making payments before your statement closes, and keeping old accounts open. Unlike other credit factors, utilization responds quickly to changes, so every payment you make can have an almost immediate positive impact.