Did you know that credit utilization is a key factor in having a good credit score? In fact, it can account for as much as 30% of your score.
What is it? Your credit utilization ratio is the percentage of the credit that you use from the total credit available to you.
And, generally speaking, the lower you keep that number the better off your credit score will be.
In this article, we’ll look at the latest data from Experian to understand how Americans are utilizing their credit, look at how you can calculate your credit utilization and give some tips on keeping it as low as possible.
Experian’s Latest Findings on Credit Utilization
The average credit utilization ratio is 28% in 2023. This number is up slightly from 2022, when the average consumer was utilizing 27% of available credit.
This most likely is a result of the average credit card debt number rising 11.7% from 2022 to 2023. The Experian data revealed that U.S. consumers now average $6,365 in credit card debt. That’s up from $5,699 at the same point in 2022.
As a result, it should come as no surprise that the Experian data also shows an increase in credit card delinquency as utilization ratios and debt totals rise.
Is your ratio better than this? And should it be for the health of your credit score?
We mentioned earlier that your utilization ratio comprises roughly 30% of your credit score. Keeping your utilization ratio as close to 0% as possible by paying your balances in full each month is a great way to “ace” that portion of your credit score.
But we know that’s not always possible for everyone.
Money expert Clark Howard often talks about how using more than 30% of your available credit is the tipping point that starts causing harm to your credit score. And for people trying to achieve a credit score of 800 or higher, that ratio likely needs to remain below 10%.
Keep reading to figure out how to calculate your own utilization ratio and to find some tips on keeping it as low as possible.
How To Calculate Your Credit Utilization Ratio
Just because a credit card offers you access to money doesn’t mean you should use it.
Your credit utilization ratio accounts for approximately 30% of your credit score in scoring models like FICO, so having an understanding of how this works is a key piece to maintaining or improving your credit score.
For most people, this is going to be calculated based primarily on credit card activity. That includes both cards you’ve applied for yourself and cards on which you’re listed as an authorized user.
The utilization ratio also includes any personal lines of credit and home equity lines of credit (HELOCs).
The good news is that it’s fairly simple to calculate on your own:
- Login to your credit card accounts and personal lines of credit.
- Write down your current balance and your credit limit for each account.
- Add the balances from each of your accounts together.
- Add the credit limits from each of your accounts together in a separate tabulation.
- Divide the total balances owed by the total of all your credit limits.
- Multiply that number by 100 to see it as a percentage.
Remember: The lower this number is, the better off you are.
Tips for Keeping Your Credit Utilization Low
So how do we keep this calculation low enough to improve your credit score?
Here are a few ideas that may help:
- Request a credit limit increase. Your utilization ratio may be high because the credit limit from your existing credit card issuer is too low. Asking them to extend you more available credit could be a good way to make your ratio much healthier without taking on any new debt. We have some advice on requesting a credit limit increase.
- Change your payment patterns. Credit expert Beverly Harzog says that you should call your credit card issuer and ask when your balance gets reported to the credit bureaus: “That day is often the closing date (the last day of the billing cycle) on your account. Note that this is different from the “due date” on your statement.” Paying right before this report date should give you a better chance at a lower reported utilization number. You can read more of her tips for increasing your credit score here.
- Open a new credit card. If you’re on top of your spending and you’re paying credit card bills in full, you may find that adding a new card to your mix is a good way to raise your amount of available credit. We have some advice on picking a good rewards or cash back credit card that could help you earn more for your spending, too.
How do you manage your credit utilization? Do you have some tips to share? We’d love to hear from you in the Clark.com community.