Glossary
Credit utilization
Credit utilization is the share of your credit card limits you are using, overall and on each card; lower is better for credit scores, and under 30% (ideally under 10%) is the usual guidance.
It is part of the "amounts owed" category, the second biggest factor in FICO scores after payment history. Most scores look only at your latest reported balances, so paying down helps as soon as the lower balance is reported.
Example
$2,500 of balances on $10,000 of limits
- Utilization
- $2,500 ÷ $10,000
- 25%
- After paying $1,500
- Before the statement dates: $1,000 ÷ $10,000
- 10%
Related terms
- Credit limitThe most you can owe on a credit card at once, set by the issuer from your income and credit history; your balances divided by your limits is your credit utilization.
- Credit scoreA number, usually from 300 to 850, that summarizes your credit report to predict how likely you are to repay; lenders use it to decide whether to approve you and at what rate.
- Statement balanceA credit card's statement balance is what you owed when the billing cycle closed; paying it in full by the due date avoids interest on purchases, while the current balance also includes charges since then.
Sources: myFICO: What's in my FICO scores