The FICO scoring model looks at your credit utilization in two parts. First, it scores the credit utilization for each of your credit cards separately. Then, it calculates your overall credit utilization – the total of all your credit card balances compared to your total credit limits. A high credit utilization in either category can hurt your credit score.
Here’s how to calculate your credit utilization:
- Add up the balances on all your credit cards
- Add up the credit limits on all your cards
- Divide the total balance by the total credit limit
- Multiply by 100 to see your credit card utilization percentage
For example, let’s say you have the following credit card balances and credit card limits:
| Credit card | Credit card balance | Credit card limit |
| 1 | $1,350 | $3,000 |
| 2 | $489 | $2,000 |
| 3 | $911 | $1,000 |
| TOTAL | $2,750 | $6,000 |
After adding up the total balance ($2,750) and the total credit limit ($6,000), you then divide $2,750 by $6,000, which gives you .46. Multiply that number by 100 to get your credit utilization percentage, which in this case would be 46%.
If you need to figure out the credit limits on your credit cards, log into your accounts online or call the credit card company. You can check your credit card balance through your online account or on your credit card statements.
What is a good credit utilization ratio?
The lower your credit utilization, the better. It’s generally advised to keep your credit utilization under 30% to protect your credit score and avoid raising red flags to prospective lenders.2 Aim for a 10% or lower credit utilization ratio if you want an exceptional credit score.
If you max out your credit card and pay it in full every month, you won’t pay interest. But it won’t help your credit utilization, as you are using up all of the credit available to you. Remember, your credit utilization is the percentage of your credit limit you’re using, not whether you are making on-time payments.
