Credit utilization is the percentage of your available credit that you are currently using. It is one of the most important factors in determining your credit score.
How It’s Calculated
Credit utilization = (Total credit used ÷ Total credit limit) × 100. For example, if your total credit limit is $10,000 and you are using $3,000, your utilization rate is 30%.
Why It Matters
- For credit scores: High utilization signals risk to lenders and can lower your score.
- For lenders: Shows whether you are relying heavily on credit for expenses.
Best Practices
Experts recommend keeping credit utilization below 30% to maintain a healthy credit score. Lower is better, as it shows strong financial management.
Final Thoughts
Managing credit utilization is one of the easiest ways to protect your credit score. Paying down balances and avoiding maxing out credit cards keeps utilization low and credit health strong.