Why Does Higher Credit Utilization Decrease Your Credit Score?

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Key takeaways

Credit utilization is how much you’ve spent on your credit cards relative to their limits.
High utilization signals financial risk to lenders and can significantly lower your score.
Lower your utilization by paying down balances, requesting a higher limit, or consolidating debt.

Americans are relying more on credit cards to keep up with rising costs. In fact, the Federal Reserve reported that credit card balances jumped by $45 billion from Q3 to Q4 of 2024—an alarming surge in debt.

Carrying a balance month to month is far from ideal. Interest charges can quickly pile up, and your utilization ratio will increase.

Credit utilization is the second most crucial factor in determining your score. The stronger your score, the better loans and credit cards you’ll secure.

Understanding how utilization works—and why keeping it low is crucial—can make a big difference. Let’s break it down and see how you can manage it effectively.

What is credit card utilization?

Your credit utilization ratio is the percentage of your available credit you’re currently using relative to your limit. It is how much you’ve charged to your card.

FICO scores (used by 90% of lenders) consider the utilization rate on your individual cards and all your cards combined.

How to calculate credit utilization?

You can use the same formula that a credit utilization calculator would apply to calculate your utilization. Divide your balance by your credit limit. Then multiply by 100 to get a percentage.

For example, if you have a card with a $5,000 limit and a $1,400 balance, your utilization is 28%. If you have a second card with a $40 balance and a $1,000 limit, your total utilization is 24% across both cards.

The rule of thumb is to keep your utilization below 30% – below 10% is even better.

Credit card utilization chart

Here’s an example of how utilization can look across three different cards.

Credit	Balance	Limit	Credit Utilization
1st Card	$100	$500	15%
2nd Card	$800	$2,000	40%
3rd Card	$1,200	$5,000	24%
All three cards	$2,100	$7,500	28%

How does credit utilization affect your credit score?

Your revolving utilization accounts for 30% of your credit score. It is second only to your payment history.

The reason it ranks so high is that it tells lenders if you are handling borrowing responsibly. A low utilization rate signals that you will not spend more than you can afford to repay. On the other hand, a high rate indicates that you are financially overextended and could easily miss a payment.

Experian found that consumers with excellent credit have utilization rates under 10%, whereas those with poor scores have ones around 80%. Many people don’t realize how much credit card usage affects credit scores. They carry a high balance and are not aware of the damage it can do.

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How much will lowering credit utilization affect your score?

Credit utilization is typically dynamic. Spending increases it, and paying down debt lowers it. Pay down your balances, and you could see a positive effect on your score in as little as 30 days. Bring it into the optimal range – under 10% – and you can boost your score by 10 to 50 points.

The newer credit scoring models – VantageScore 4.0 and FICO 10T Score – use trended data. They include utilization ratios from up to 24 months prior in their calculations. As a result, you won’t get an immediate boost from paying down debt. On the other hand, your score won’t suffer as much if your usage is a little high one month due to holiday shopping.

Why did my credit score drop? Even if you pay on time, maxing out your cards can still lower your score due to increased utilization. Once your utilization is over 50%, your score may drop by 50 to 100 points or more. Always pay attention to how much you’re spending.

No matter which scoring model lenders use, it’s true that the more consistently you maintain a low balance, the better it is for your score.

What is the best way to lower credit utilization to an acceptable level?

If your high credit utilization ratio is dragging down your score, it’s time to reduce it. You can pay down balances, negotiate credit card debt, or request a higher limit. Here are some practical strategies to lower your usage.

Maintain minimal credit card debt

Credit card debt is a score killer. Getting out of debt is one of the best things you can do. One tip on how to pay off credit card debt fast is to make more than the minimum payment each month. The more you pay, the sooner you’ll reduce your balance.

Once you’ve paid down your debt, don’t go back to old habits. Swipe only for what you can pay for in full each month. That way, you never carry a balance, never pay interest, and your utilization rate will stay low.

If low limits spike utilization, pay early

Even small purchases can lead to a high credit utilization ratio if your card has a low limit. In this case, making multiple payments throughout the month can be the ticket.

Ask your issuer when they report your usage to the credit bureaus. Then, pay down your balance by that date. Most issuers report your balance around the statement closing date.

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Request a higher credit limit

Many card issuers are happy to raise your limit if you’ve recently received a higher salary or have a history of consistent on-time payments. Contact your issuer either online or by phone to find out how to increase your credit limit and if they conduct a hard inquiry.

A limit increase will lower your utilization ratio without reducing your actual debt. The method only works if you avoid adding new charges to your card.

Apply for a new credit card

A new card will increase your total available credit and reduce your utilization ratio. That is, as long as you don’t rack up more debt on it.

Many lenders offer credit cards for bad credit with lower limits and higher interest rates. Put a small recurring charge on it every month and pay your balance in full. You’ll help both your score and utilization.

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Credit card debt consolidation

If your high utilization is due to debt, try consolidation. You take out a personal loan with a lower interest rate and use the money to pay off your outstanding balances.

An advantage of debt consolidation is that you’ll pay off multiple balances simultaneously, bringing your utilization to zero. You’ll simplify your finances with one bill and will likely pay less interest.

Taking out personal loans for high credit utilization can be a smart move if used wisely, but don’t run up balances on your cards, or you’ll be back where you started. If you have a poor score, look for guaranteed debt consolidation loans for bad credit. Compare lenders to find a loan with fair terms and low fees.

Credit card debt settlement

If your debt is out of control, learn how to negotiate a credit card debt settlement. Credit card debt settlement is when you or a debt settlement company negotiate with creditors to reduce the amount you owe.

Debt settlement can provide immediate relief. The problem is that you may owe the IRS taxes, and it will negatively impact your score. Settlement works best for consumers who are very behind on payments.

If you’re wondering how to negotiate credit card debt, contact your creditors directly. Be polite and honest. Many creditors are willing to negotiate a lump-sum payment or payment plan.

Which credit utilization rate would be preferable to a lender on a credit card application?

Lenders prefer a utilization rate below 30%. If you have a high credit utilization ratio, consider lowering it before applying.

A few tips for applying for a credit card include paying down existing balances, requesting a higher limit, and avoiding new large purchases.

Frequently asked questions

1. What is the highest credit card utilization you should have if you are trying to build your credit score?

Aim to keep your utilization below 30%. You’ll see the most growth if your rate is under 10%.

2. What is the advantage of paying your credit card balance in full each month?

You will avoid interest, keep your debt manageable, and your balances low. Pay on time, and you’ll increase your score, too.

3. Does credit utilization matter if you pay in full?

Utilization still matters if you pay in full. Card companies typically report your balance at the end of your billing cycle. If your balance is high when reported, your utilization ratio will increase. Your score will suffer even if you pay in full.

4. How long does credit utilization affect your score?

Utilization generally affects your score as long as the balance is reported to the bureaus. Once you reduce your balance, the improvement will be reflected within one to two billing cycles. For newer scores that use trended data, utilization will affect your score for longer.

5. Does carrying a balance hurt your credit score?

When you carry a balance, it’s easier to end up with a high utilization ratio. High utilization lowers your score.

6. How long does it take for credit utilization to update?

Credit utilization typically updates once a month when your issuer reports your usage to the bureaus. You can see a change within 30 days. Newer scoring models use trended data. They look at your utilization over 24 months. In these models, it will take longer for your utilization to update.

Bottom line

Credit utilization has a big impact on your score. It tells lenders how responsible you are and if you handle borrowing responsibly. A lower utilization rate is one of the simplest ways to build and maintain a high score.

If your utilization is too high, paying down debt may be the best solution. Reducing your balances lowers your utilization and will save you money on interest. If you’re struggling to repay what you owe, consider debt relief. Debt consolidation, settlement, or negotiating with creditors can all help you get out of debt more efficiently.

Take the necessary steps to lower your utilization. It’s one of the best things you can do for your score and financial stability.

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Rachel Alulis

Rachel Alulis has been the lead editor for Moneyfor’s credit cards team since 2015 and for the financial rewards team since 2023. Before joining Moneyfor, Rachel worked at USA Today and the Des Moines Register. She then established a successful freelance writing and editing business specializing in personal finance. Rachel holds a bachelor’s degree in journalism and an MBA.

Why Does Higher Credit Utilization Decrease Your Credit Score?

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