5 Ways to Improve Your Credit Utilization & Raise Your Credit Score

A woman holds her finger on a pointer that points to green in a color wheel meant to represent a person's credit score.
Getty Images

Trying to improve your credit score?

Whether you’re looking to secure a mortgage, finance a new car or simply apply for a credit card, your credit score matters. That magic three-digit number plays a critical role in determining the terms you’ll be offered.

Your credit utilization ratio is one metric that significantly impacts your credit score.

In this guide, we’ll break down what credit utilization ratios are, how they work and why credit utilization can make or break your credit score.

What Is a Credit Utilization Ratio?

Also called your credit utilization rate, your credit utilization ratio is the amount of available credit you’ve used.

Your available credit is the maximum amount of revolving credit you can use. In other words, your available credit is your credit limit minus your balance.

Your credit card, for example, might have a credit limit (or spending limit) of $7,000. So say you’ve charged $3,000 to your credit card, which has a limit of $7,000. Your remaining credit is $4,000.

To calculate your credit utilization rate, divide the amount of credit you’ve used (your card’s balance) by your credit limit. Then multiply it by 100 (to make it a percentage).

Using the above example, your credit utilization rate would be nearly 43%.

Why Is Your Credit Utilization Ratio Important?

Your credit utilization ratio is important because it’s a large determining factor when it comes to your credit score.

A low credit utilization ratio indicates that you are not overly dependent on credit and are more likely to be a responsible borrower.

Basically, lenders use your credit score to determine your risk when it comes to borrowing money — and paying it back on time. A lower credit score indicates a higher risk. That means you might only qualify for a loan with a high interest rate or not qualify at all.

Here’s a quick review of what goes into determining your FICO score. (Note: your FICO score is just one credit scoring model, but it’s the version lenders typically use.)

  • Payment history (35%)
  • Credit utilization or amounts owed (30%)
  • Length of credit history (15%)
  • New credit (10%)
  • Credit mix or different types of credit (10%)

That makes payment history and credit utilization the two most important factors when it comes to determining your credit score. Missing payments or maxing out your credit cards each month indicates risk to lenders. Will you actually be able to make your monthly mortgage payments on time if you’re racking up debt?

Experts recommend keeping your credit utilization ratio below 30%. So, if you have a credit limit of $10,000, you should strive to keep your balances below $3,000 or, ideally, below $1,000.

The lower you can keep your credit utilization rate (as close to zero as possible), the better.

As a general rule of thumb, a low credit utilization rate means a higher credit score. A high rate means a lower credit score.

Rod Griffin, the director of public education at Experian, encourages consumers to remember that 30% isn’t your goal or a target.

“You shouldn’t try to reach 30%,” he says. “That’s a max. The lower, the better. Above that, your scores start to suffer.”

Ultimately, lower credit utilization rates are better. In fact, when asked what the ideal credit utilization rate is, Griffin responded simply: “Zero percent.”

person putting a credit card into a credit card reader.
Getty Images

5 Ways to Lower Your Credit Utilization Rate

So you’ve checked your credit utilization ratio and it’s nowhere near that ideal 10%.

Here are some simple steps you can take to lower your credit utilization ratio and therefore improve your credit score.

1. Decrease Your Spending

This is perhaps one of the easiest ways to lower your credit utilization rate: Simply cut your spending. Or at least don’t charge as much to your credit card. Then, you’re using less of your available credit.

Another option is to spread your purchases across multiple credit cards. By doing so, you can effectively lower the utilization ratio on each card and minimize the impact on your credit score.

But if you use your credit card more like a debit card so you can reap the cash back and free travel rewards, consider these other tips.

2. Pay Off Your Credit Card Balance Early

To keep your credit utilization low, you’ll need to do more than pay your credit card bill on time — you’ll need to pay it before your credit card company reports your usage to the credit bureaus.

However, this can get a bit tricky.

Credit card companies typically report your credit usage to the credit bureaus at the end of your billing cycle. But some will report it at the end of each month — or not at all. You’ll want to contact your card issuer and ask.

Once you know, you can make efforts to pay down or — better yet — pay off your credit card before your credit utilization is reported so you can avoid a hit to your score.

3. Ask Your Credit Card Issuer for a Credit Limit Increase

If you spend responsibly and pay off your card on time, it might be time to call your credit card company and ask for a higher credit limit. As long as you don’t have an exorbitant amount of debt, it typically won’t be an issue.

The idea is to give yourself additional credit — but to keep your spending the same and not use it. So if you typically charge $1,000 to your credit card each month and have a $5,000 credit limit, you’re already using 20% of your total available credit. Increase your credit card limit to $7,000, and you’ve just bumped your credit utilization down to 14%.

And remember, just because you have more room to spend money doesn’t mean you should.

4. Open Another Credit Card

Similar to increasing the credit limit on your credit card, you might consider opening a new credit card to increase your total available credit. Your credit limit on the new card will vary, and you likely won’t know what it is until after you’ve been approved, but it should give you a little boost.

Note, however, applying for a credit card will trigger a hard inquiry into your credit history so the company can evaluate your risk (and thereafter approve or deny you), which could temporarily lower your credit score.

If you’re working on paying off debt, a balance transfer credit card might help you reach both goals — tackling debt and lowering your credit utilization.

5. Monitor Your Credit Utilization Ratio

Keeping an eye on your credit utilization is the best way to improve your credit score.

Many credit monitoring apps, like Credit Karma and Mint, provide free access to your credit score along with insights into your credit utilization ratio over time.

Additionally, most credit card companies have their own apps where you can manage your accounts and monitor your credit utilization ratio on the go. For example, the Discover app provides a snapshot of your utilization ratio and can send you alerts when you’re approaching your credit limit.

Take Control of Your Credit

Your credit utilization ratio plays an important role in your credit score, but here’s the thing: Once you understand what it is and how credit utilization works, it’s easy to take steps to keep it low.

In fact, it’s one of the easiest credit scoring factors to keep on top of — as long as you can keep your spending in check.

Rachel Christian is a senior staff writer at The Penny Hoarder. Carson Kohler, a former staff writer, contributed.