Your credit score is influenced by more than just paying bills on time. Managing your credit utilization—how much of your available credit you're using—is another key factor. Keeping this rate low can significantly improve your credit score.

What Is Credit Utilization?

Credit utilization measures how much credit you use compared to your total credit limit. It's expressed as a percentage and is a significant factor in your credit score.

How to Calculate Credit Utilization:

1. Add up your credit card balances.
2. Add up your credit limits.
3. Divide your total debt by your total credit limit.
4. Multiply by 100 to get the percentage.

Example:

If you have two credit cards with a combined limit of $10,000 and carry a total balance of $5,000, your credit utilization rate is 50%. Lowering this percentage indicates better credit management and can boost your credit score by as much as 30%.

It's also important to balance usage across cards. For instance, carrying $3,000 on one card and $2,000 on another (30% and 20% utilization, respectively) is better than having $5,000 on one card (50% utilization).

Credit Utilization's Impact on Your Credit Score

Credit utilization is a key factor in determining your credit score:

• Low utilization suggests you manage credit responsibly, leading to a higher score.
• High utilization signals overextension, which lowers your score.

Using only one card heavily—even with multiple cards—can negatively impact your score, especially if your credit history is short. Spreading expenses across several cards with a good credit history is a smarter strategy.

Tips to Improve Your Credit Utilization

Keep Credit Accounts Open:

Avoid closing unused credit card accounts. Keeping them open maintains a higher overall credit limit, reducing your utilization rate. Store the card safely if you don't plan to use it.

Spread Expenses Across Cards:

Distribute purchases among your cards to prevent high utilization on a single card. This helps maintain balanced usage across accounts.

Request a Credit Limit Increase:

If you have a good credit history, ask your card issuer for a higher limit. Alternatively, consider opening a new card with 0% APR to increase your available credit.

Pay Balances in Full Each Month:

Aim to pay off your credit card balances every month. Make bi-weekly payments to keep your balance low throughout the month.

Target a Utilization Rate Under 10%:

While keeping utilization below 30% is good, staying in the single digits is even better for boosting your credit score.

Track Reporting Dates:

Your credit card company may report your balance to credit bureaus before your payment due date. Find out when they report and pay your balance before that date to keep your utilization rate low.

Final Thoughts

Managing your credit utilization is one of the easiest ways to improve your credit score. Aim to:

• Keep your utilization rate below 30%, ideally under 10%.
• Pay off balances in full or make multiple payments each month.
• Spread expenses across cards and avoid closing accounts unnecessarily.

By staying mindful of your utilization and practicing smart credit habits, you'll improve your credit score and enjoy the benefits of responsible credit card use.