Credit utilization: the math, per card and overall

You can pay every bill on time and still see your score drop because your cards are carrying high balances. That's utilization. It's simple math, and once you see it, you can plan around it.

Utilization is how much of your available credit card limit you're using. Scores look at it two ways:

• Per card: each card's balance divided by its limit.
• Overall: all your card balances added up, divided by all your card limits added up.

It mainly applies to revolving credit like credit cards. Installment loans, like car loans, are counted differently.

Lower is generally better. You'll often hear "stay under 30%" as a guideline, and people with the highest scores tend to use much less than that. There's no magic number, and paying in full every month is still the best habit.

Most common scores look at the balances on your latest reports, so utilization can change month to month. Some newer scoring models also look at how your balances trend over time.

• Credit limit: the most you can charge on a card.
• Reported balance: the balance your card company sends to the bureaus, usually around your statement closing date.
• Revolving credit: credit you can reuse after paying it down, like a credit card.
• Available credit: your limit minus your balance.

Sam has two cards:

• Card A: $900 balance on a $1,000 limit = 90%
• Card B: $100 balance on a $4,000 limit = 2.5%

Overall: $1,000 owed out of $5,000 in limits = 20%. His overall number looks fine, but Card A is nearly maxed, and per-card utilization can count too. Moving $500 of his monthly payment to Card A first would drop it to 40% without changing what he owes in total. (Made-up example.)

• Cards near or over their limit. Those usually hurt most.
• Limits reported wrong, or missing. A missing limit can make a card look maxed.
• Closing an old card lowers your total available credit, which can push overall utilization up.
• Utilization often responds faster than most other factors once lower balances report, but no one can promise how much your score will move.

Make a simple table with every card: limit, current balance, and balance divided by limit. Then add up all the balances and all the limits to get your overall number. Circle the card with the highest percentage. That's usually the first one to work on.

Educational information only. Not legal, financial, investment or tax advice. Results vary, and no one can guarantee credit outcomes.