Financial Planning Credit Card Utilization, Defined and Demystified Read the Article Open Share Drawer Share this:Click to share on Twitter (Opens in new window)Click to share on Facebook (Opens in new window)Click to share on Tumblr (Opens in new window)Click to share on Pinterest (Opens in new window)Click to share on LinkedIn (Opens in new window) Written by John Ulzheimer Modified Aug 15, 2019 4 min read Advertising Disclosure The views expressed on this blog are those of the bloggers, and not necessarily those of Intuit. Third-party blogger may have received compensation for their time and services. Click here to read full disclosure on third-party bloggers. This blog does not provide legal, financial, accounting or tax advice. The content on this blog is "as is" and carries no warranties. Intuit does not warrant or guarantee the accuracy, reliability, and completeness of the content on this blog. After 20 days, comments are closed on posts. Intuit may, but has no obligation to, monitor comments. Comments that include profanity or abusive language will not be posted. Click here to read full Terms of Service. Save more, spend smarter, and make your money go further Sign up for Free photo: BigBeaks Credit card utilization is one of the most important credit score-related topics, and also one that’s often misunderstood. This complicated equation, also called revolving utilization, is an incredibly important factor in your FICO credit scores. Grab your credit reports and a calculator as I walk you through it. Credit card utilization is the relationship between the balances on your credit cards and the credit limits on all of your open credit card accounts. It is expressed as a percentage and is calculated a number of ways. It’s so important that it is a key factor in the “Debt” category of your FICO credit score. The debt category is worth 30% of your FICO score points and while the credit card utilization percentage isn’t alone worth all 30% (that’s a myth), it’s certainly key to earning and maintaining great scores. Line Item Utilization – Calculate this first The first way to calculate your credit card utilization is by doing so for each one of your cards. So, go grab each and every one of your credit cards, retail store cards and gasoline cards and make a stack. As long as they have revolving terms, meaning you don’t have to pay them in full each month, they need to be in your pile. Each of those cards has a credit limit, which is the highest amount that can be charged on that card. You can find the limit by looking at a statement or by calling the credit card issuer. Or, you can look at your credit report. Getting the limits from your credit reports is the most important method (because that’s how credit scores calculate utilization) but they aren’t 100% accurate 100% of the time. For every card that has a balance (meaning you got a bill this month), divide that balance by the credit limit. Then multiply that figure by 100 and you’ll get the utilization percentage on that card. So, if you have a $50 balance and a $500 credit limit you’ll get 10%. Your goal is to have the lowest possible percentages. Now, you’re going to be tempted to cheat. Just because you already did or plan to pay the balance in full doesn’t mean your percentage is 0. Credit scores can’t tell what your intentions are and as long as the balance is showing up on your credit report then you will have a utilization percentage greater than 0. NOTE: Sometimes credit limits don’t show up on credit reports. This is what I was referring to earlier about it not being accurate 100% of the time. If your report has missing credit limits on open credit card accounts then you’re not out of the woods. Look for the field called “High Balance” and use that figure in lieu of the missing credit limit. The high balance is the historical highest balance on that account. Aggregate Utilization – Calculate this next The method for calculating aggregate utilization is exactly the same as it was for line item utilization except for one difference. You’ll need to add together all of the balances on your credit cards and all of the credit limits as well. Then you’ll divide the aggregate balance by the aggregate limit. Now, it’s important you do this right. Just because you have a credit card that doesn’t have a balance doesn’t mean it won’t count here. You’ll still include the credit limit, which will help your percentage. This is the number one reason you don’t want to close credit card accounts even if you don’t use (or want) the card any longer. The unused limit helps your utilization percentage. What’s a Good Percentage? According to FICO, the consumers who have the highest scores in the country (760 and above) have an aggregate utilization of 7%. That’s about as clean of an answer you’re ever going to get to a FICO score question. Of course that doesn’t prevent people from giving answers that are all over the place. I’ve seen 30%, I’ve seen 50% and I’ve even seen 70%. This can vary based on other scoring models; if your check your free credit score using the VantageScore model, aggregate utilization may be different. The way the scores are designed rewards consumers for having a lower rather than higher utilization. So, generally, the lower the number the more points you’re going to earn in your score. 30% is better than 50%, but not as good as 7%. And I’m not sure where in the world someone got 70%, that’s just terrible. John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Save more, spend smarter, and make your money go further Sign up for Free Written by John Ulzheimer More from John Ulzheimer Leave a Reply Cancel replyYour email address will not be published. Required fields are marked *Comment * Name * Email * Website Notify me of follow-up comments by email. Notify me of new posts by email. Δ Browse Related Articles Credit Info How to Master Your Credit Utilization Like A Pro Credit Score Chapter 03 : What Affects Your Credit Score? Credit Secured vs. Unsecured Credit Cards Explained: Which Is … Credit Score Chapter 08: How to Increase Your Credit Score Credit Score Chapter 05 : What Credit Score Do You Start With? Credit & Credit Cards Chapter 01 : What Is a Credit Score? Credit Info What Your Credit Score Says About You Credit Info Chapter 10: What to Do About Credit Report Errors Credit Score Chapter 04: What Are the Credit Score Ranges? Credit Score Chapter 06: What Is a Good Credit Score?