Introduction
Credit utilization is the percentage of available credit you use. Many people damage their credit scores without realizing it simply by using too much of their available credit.
What Is Credit Utilization?
Credit utilization = (Total credit used ÷ Total credit limit) × 100
A lower percentage indicates responsible credit use.
Why It Matters
- Major factor in credit score calculation
- High utilization signals risk to lenders
- Low utilization demonstrates financial discipline
Recommended Credit Utilization
- Keep it below 30% of your total available credit
- Lower utilization is better for maintaining or improving scores
Tips to Manage Credit Utilization
1. Pay Balances in Full
Avoid carrying high balances month to month.
2. Request Higher Credit Limits
Higher limits reduce utilization if spending remains the same.
3. Monitor Regularly
Check statements and credit reports for accuracy.
4. Avoid Opening Too Many New Accounts
New credit can affect utilization and credit age.
Common Mistakes
- Using most of the available credit constantly
- Ignoring the impact of multiple credit cards
- Not checking credit reports for errors
Conclusion
Credit utilization is a simple but powerful factor in maintaining a healthy credit score. Control it, monitor it, and your credit health will improve.