What is Credit Utilization Ratio: A Complete Guide

Nov 10, 2022 By Triston Martin


Credit utilization measures how much of a borrower's total credit line is used at any time. Credit reporting agencies use a borrower's credit utilization ratio to determine the borrower's credit score. A borrower can raise their credit rating by reducing the amount of credit being used relative to the total available credit. Reducing your available credit by cancelling a credit card is not the way to raise your credit rating. The ratio of your used credit to available credit should be low.

How Credit Utilization Ratio Works

Revolving credit is the primary focus of the credit utilization ratio. The utilization ratio is known for how much of a borrower's available revolving credit has been used. You should know your debt-to-income percentage as you manage your credit card balances. Revolving and non-revolving credit are factored into this ratio, making it an important consideration when applying for credit. Utilization of revolving credit (which rises and falls) is pretty typical, but it should be kept below 30% whenever possible.

How Can You Lower Your Credit Utilization Ratio?

Reduce your credit utilization ratio to raise your credit score quickly and easily. Here are four strategies for lowering your credit utilization ratio, allowing you to pay off more debt and free up more cash in the process.

Pay Off Your Balances

Paying down your credit card balances is the most effective way to reduce your credit utilization ratio. It's a win-win situation because as your debt is paid off, so is your credit utilization ratio. In addition, when you pay off your balances, you stop accruing interest. Check your credit utilization ratio and score based on how much debt you believe you can pay off in the next few months.

Open A Balance Transaction Credit Card

You may want to look into a balance transaction credit card if you're finding it difficult to make a dent in your balances due to the monthly interest charges. These cards allow you to move your existing credit card balances to a new, unified card, making managing and paying off your debt simpler. To help you more quickly pay off your balance, the best balance transfer credit cards provide a 0% APR promotional period of 15-21 months. Another perk of applying for a balance transaction credit card is expanding your available credit. If you don't make any other large purchases, this can help you reduce the percentage of your available credit that has been used.

Request A Credit Limit Increase

Asking your credit card company for a higher credit limit is another smart move that can help you reduce your credit utilization ratio. When your credit limit is raised, you can access the more available credit, and your credit utilization ratio drops. Be wary of accumulating debt with your newfound glory.

Apply For A New Credit Card

Another option to reduce your credit utilization ratio is to apply for a new credit card. If you keep your overall spending at the same level and don't add any new cards to your account, your credit usage ratio should go down. In addition, by adding a new card to your wallet, you can take advantage of the rewards programmes, sign-up bonuses, and other benefits offered by the most competitive credit cards.

How Credit Utilization Impacts Borrowers

As borrowers make purchases and repayments, their credit utilization ratio will change. Credit bureaus are updated throughout the month on the total amount owed on revolving credit accounts. How a borrower's credit utilization rate is calculated can vary depending on the time frame in which lenders report credit balances to a bureau. As a result, debtors who wish to reduce their credit utilization must be patient, as the utilization rate may take several billing cycles to decrease as debt is paid off.


Keep your credit utilization ratio as low as possible, as it significantly impacts your credit score. To calculate your credit utilization rate, you can use a dedicated calculator, such as this one, a credit monitoring app, or do the math yourself. One way to raise your credit score is to lower your credit utilization ratio. Don't worry if you have a history of high balances and late payments; it is still possible to improve your credit. You can eliminate your debts as soon as you establish a regular payment schedule and start making your monthly payments on time.

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