Credit utilization is an important factor in the credit card industry. The term “credit utilization” means how much credit you have available versus how much you have in use.

Being mindful of this ratio is a move that can make or break your credit card experience.

Take a look at credit card utilization to learn what it is and how to use it in your favor. Doing so can help you best use your credit card toward future credit and financial growth.

Breaking down credit utilization

The credit utilization ratio shows how much of your total credit limit you are using vs. how much you’ve been given by the lender.

Credit utilization is the ratio of how much you have charged on your credit card account vs. how much open credit you have available.

It’s a sum that can help shape your credit and your spending habits alike.

Take a look at these best practices to learn more about how to factor in your own credit utilization and make it count for your own financial goals.

Why does credit utilization matter?

The biggest reason credit utilization matters is that it impacts your credit score. If you are maxing out your credit card balances and paying the minimum amount, the chances are that your total balance will be lowered.

By how much? Often, it’s large chunk. Maxing credit lines shows lenders that you are overextending and need that line of credit to help pay your bills.

When they see you maxing credit lines, lenders are less likely to lend you more funds. They see you extending on your credit lines and don’t want to advance more that you won’t be able to pay.

In contrast, if you have open lines of credit that you aren’t utilizing, it shows that you can pay off your purchases quickly. Lenders are more likely to allow you credit because you have proven that you have the liquid capital to pay off your purchases.

Credit as a financial tool

You don’t need the credit to make ends meet; you’re using it smartly and have funds to spare. This is true for those of all income levels.

That credit line could be 2,000, or it may be 200,000. Lenders simply want to see how much credit you have available in relation to how much you actually use.

Having open credit or quickly paying off your charges shows lenders you are responsible and have the means to pay off your bills and then some. This is a great way to get approved for future purchases.

How to best utilize your own credit

You may be wondering what the point of having open lines of credit is if you can’t use them. Or if using them will hurt your credit score. But it’s a little more nuanced than that.

It’s not that you can’t use the line of credit; it’s that you should pay it off, or pay much of it off, rather than letting the debt sit.

Doing so shows lenders you can’t afford to pay that bill (otherwise, you would because of extreme interest fees on credit cards). Therefore, it’s a good indicator of what you can and can’t afford each month.

Credit utilization strategy

However, significant use of your credit line, followed up with timely payment can be a great way to show you have liquid funds to share It can also show you are smartly earning your credit card rewards points.

This may initially drop credit scores slightly but will bring them back up and then some once you pay it off.

In contrast, leaving the balance on the card month after month will cause your score to plummet due to bad payment history. Before making large purchases that you can’t immediately fund, take this into consideration.

Of course, sometimes, this is simply necessary. Life happens, and you have to make payments that you weren’t necessarily ready to make. But doing so regularly could impact your credit score in the wrong direction.

If you choose to do this on purpose and pay your bill in full, however, it’s a calculated move that can not only raise your credit, but your credit line.

Lenders will see that you’re trustworthy and have more funds to provide, and for it, they may reward you by offering up bigger amounts that you can spend.

This may not be true for new cardholders. But the longer you become established with a credit card issuer, the more likely they are to give you more freedom with how much you can spend.

In most cases, creditors like to see utilization under 30%.

Who tracks credit utilization

First, consider that you should be tracking your own credit use and credit report. Know how much you’re spending each month, what’s due, and more. You should know better than anyone just how much funds you have ahold of and how much you can still spend any given day.

This is true in both senses. How much credit you have available and how much you can actually afford to pay off.

You aren’t the only one who knows how much is due on your credit card accounts.

Obviously, the credit card company knows your credit utilization. They will likely notify you in the event of several things.

  • If your credit accounts are too close to your credit limit.
  • If you are eligible to expand for a credit limit increase.
  • If they have advice about payment options.
  • And more.

Major credit bureaus

Major credit bureaus also know your credit utilization. Each month, they receive a report from your credit card company outlining how much is on your account vs. how much you have available to spend with each credit card company. This is your credit utilization ratio. This is also called your credit utilization rate, says Experian, one of the three major bureaus.

Data is compiled into an algorithm and can affect your credit score with them. Again, quick payoffs on large amounts can initially lower but then raise your credit score.

While racking up large bills and failing to pay them in a timely manner can lower your score.

Sometimes it’s a necessary evil in life. But if you can avoid it, it will help keep your credit score intact.

How to improve your credit utilization

There are several ways to improve the way you use your credit utilization. Take a look at these best tips to reevaluate how you use your own credit cards in the future.

Use your account regularly

If you rarely use your card, you could actually benefit from high utilization. Use it for everyday purchases, then pay off the card directly.

This will prevent you from being charged any late fees or interest amounts.

Regular account use can help you build a good credit utilization ratio in the process.

Consider this as a way to reevaluate your daily spending habits, work on your overall utilization score, and eventually achieve a higher credit score.

Keep your account current

Sometimes you will need to use your credit for a big ticket purchase. Appliances break, tires go flat, unexpected travel is a need, and many other reasons.

If you are using your credit card as a financial tool, you don’t need to worry about this. All you need to do is keep making your credit balance payments at the due date. This is called keeping your account current.

When you make balance payments, you are keeping the ratio of credit line available and credit in use at a healthy place. If, however, you should charge the total amount of credit and neglect to pay down the balance, there will be downsides.

A higher credit use can lead to a lower credit score if not scaled with proper payment strategy. You could also rack up a hefty interest charge.

Overtime, the interest charge may even exceed the value of your purchases. You’ll end up paying more over all by letting the balance linger on your card.

Credit utilization recap

Credit utilization refers to the amount of credit you are using vs. how much is available to you at any given time.

How you manage these numbers can affect many things, such as your credit score, your ability to earn a higher credit limit or new lines of credit, and more.

Keep in mind that it’s reported each month to major credit bureaus, so this number sticks with you for the long haul.

Users spend on their credit cards in many different ways, from those who barely touch their lines of credit to those who use it for everything.

There are pros and cons to each, and understanding them is the best way to know how to use your card daily.

Consider utilizing your credit availability to reach your personal and financial goals best.

Vital is the credit card that rewards you to share and spend responsibly. Sign up today for the card paired with a full suite of digital financial trackers. Vital empowers your credit growth process, then rewards you as you cross credit score milestones. Vital is the credit card that pays you to share and spend responsibly.


What Is a Credit Utilization Rate?,” Experian

How Much of Your Credit Should You Use?,” CreditKarma

Vital Card blog posts are intended for informational purposes only and should not be considered financial or any other type of advice.