Here’s What You Need to Know About Credit Utilization

Credit scoring is a mystery to many people, and for good reason. It’s not easy to understand the grading process or which factors matter most.

Credit scoring is a mystery to many people, and for good reason. It’s not easy to understand the grading process or which factors matter most.

While every lender has its own method for deciding which customers are worthy of financial trust, more than 90% of top U.S. businesses rely on the FICO score when reviewing credit and loan applications, according to the company. Of course, you have more than one FICO score, so you might be feeling confused all over again, but here’s the good news: When it comes to credit health, it’s best to narrow your focus to five main factors:

  • Credit length
  • Payment history
  • Account diversity
  • Inquiries
  • Credit utilization

Why Is Credit Utilization So Important?

Every factor of credit scoring is crucial, but credit utilization is responsible for 30% of your overall score, second only to your payment history’s weight of 35%. Credit utilization measures your revolving balances against your total credit limit. Lenders and credit card issuers rely on credit utilization to predict risk and future behavior. In general, the higher your utilization ratio, the greater your risk of defaulting on your balances. Risky behavior isn’t rewarded in the world of credit scoring, and you may see a decrease in your scores as your utilization ratio goes up.

To understand credit utilization, you first need to understand your line-item and aggregate calculations.

Line-Item Utilization

Line-item utilization measures your individual credit card balances against your individual limits. For example, suppose you have three credit cards, each with a $10,000 limit. Based on your current balances, your line-item utilizations break down like this:

Card A: Balance of $4,500 / Credit limit of $10,000 = 0.45 × 100 = 45% utilization

Card B: Balance of $2,000 / Credit limit of $10,000 = 0.20 × 100 = 20% utilization

Card C: Balance of $3,300 / Credit limit of $10,000 = 0.33 × 100 = 33% utilization

Aggregate Utilization

The average of your credit card utilizations is called aggregate utilization. Calculate yours by combining your current balances and dividing them by your total credit limit. In the example above, your total balance is $9,800 and your total limit is $30,000; therefore, your aggregate credit utilization is $9,800 / $30,000 = 0.32 × 100 = 32.6%

Which One Matters?

Line-item and aggregate utilization are both important factors in overall credit health, and FICO recommends keeping yours as low as possible.

How to Benefit from Credit Utilization

Credit utilization has an undeniable affect on your credit score, and there are ways to harness its influence in your favor. (Not sure where your credit stands? You can view two of your scores for free on

Keep Your Balances Low

If you struggle to curb spending or rely on credit cards to make ends meet, overhauling your budget is the first step. A few monthly changes could help you avoid overwhelming debt and related credit damage.

Check Your Credit Reports for Accuracy

Your credit reports tell the larger story of your financial history and responsibility, and accuracy is key. For example, suppose Card A’s $10,000 credit limit is mistakenly listed as $6,500 on your credit reports. While it may seem like a small issue, an incorrect credit limit can alter your utilization ratio and damage your credit score in the process. In this case, your line-item utilization would increase from 45% to 69.2%, and your aggregate utilization would increase from 32.6% to 37%. You can’t afford to ignore the details. Order free copies of your credit reports to ensure that they accurately reflect your credit card balances and limits.

Request a Limit Increase

If you’re working on debt reduction but need a quick fix, consider asking your lenders for limit increases on each of your cards. For example, increasing Card B’s limit to $15,000 would lower your line-item utilization from 20% to 13.3%, and your aggregate ratio from 32.6% to 28%. Requesting a limit increase could place a hard inquiry on your credit file, costing your score a few points, but the benefits of lower credit utilization are usually worth the temporary ding.

Change Your Bills’ Due Dates

It’s difficult to benefit from credit utilization if you are constantly battling the clock. If your credit card issuers report customer balances to the credit bureaus before you pay your bill, it may seem like your utilization ratio is constantly high. The fix? Contact your issuers and ask them when they typically report to the credit bureaus, and then move your bill’s due date to the week before. This strategy allows you to take full advantage of low credit utilization by giving you time to pay your balances before the reporting date.

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5 Random Reasons Your Credit Score Could Go Up


If you’re looking to improve your credit scores, there are lots of ways to do that. But there are also some behind-the-scenes changes that can cause your credit score to go up without you doing much of anything at all. So before you get started trying to fix your credit, check out if some of these factors can help you on your way to a better credit score.

1. Your Accounts Get Older

Like fine wine, credit accounts improve with age. Not your age, mind you, but the ages of all your credit lines (kept in good standing, of course). The FICO score models, for instance, use the length of your credit history to account for roughly 15% of your score. All other things being equal, the longer your credit history is, the better your score should be.

Length of credit history takes into consideration how long your credit accounts have been opened, including the age of your oldest account, the age of your newest account, and the average age of all your accounts. You can see how the age of your credit is affecting your credit scores for free on

2. When Negatives ‘Age Off’

Certain debts have an expiration date of sorts when it comes to your credit report. A collection account, for example, is supposed to age off of your credit report after 7 years plus 180 days from when it was first delinquent. (You can see our guide to the statutes of limitations on debts in each state across the U.S. here.) If it’s still on your report, you can dispute the credit report error with the major bureaus as well.

3. When the Issuer Increases Your Credit Limit

Credit scores are calculated in part based on how much of your available credit is being used.

Your amount of debt, which includes your “debt usage,”or “utilization” accounts for roughly 30% of your credit scores. That’s more than any other single factor except paying on time, which accounts for about 35% of your score. So, in a nutshell, getting a higher credit limit — as long as you don’t also increase your debt — can be good for your credit score because it results in a lower debt utilization. And sometimes issuers review your file and decide you’re ready for an increased credit limit without you having to ask for one.

You can calculate your overall utilization by adding up all the reported balances on your revolving accounts (credit cards, lines of credit) and dividing that figure by the total credit limits. Credit scores also weigh each individual account’s utilization rate.

4. When You Take Out a Loan

While your credit score might take an initial ding from the hard inquiry that can accompany applying for a loan, in the long run, it can help your scores if the account is unlike other types of credit you already possess. (And, of course, you keep it in good standing by making timely payments.) For example, if you already have credit cards and you take out your first car loan, your score might take an initial ding from the hard inquiry and new credit line, but this loan may help your scores over time by improving the “diversity” of your credit profile.

5. When You Lose Your Credit Card

It’s not always the case, but there are circumstances in which you report your card lost or stolen that your credit score could improve. When you report the card lost or stolen, some issuers close that account, create a new account number for you and move all your history over to that account, including the original open date. They then add that new account to your credit report.

If the original account has been open for a long time, you now have two trade lines with that length of history, which increases the average age of your credit. As mentioned earlier, credit age makes up roughly 15% of your credit score.

Not all card issuers follow the same protocols when reporting a lost or stolen card to the credit bureaus, so it’s not a good idea to try to improve your credit score by reporting your card lost or stolen when it actually isn’t.

More on Credit Reports & Credit Scores:

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