Mid-Year Money Check: What Your Credit Utilization Says About You
- High credit utilization means you're using a lot of your available credit lines.
- General rule of thumb says to keep your utilization under 30% (and even lower if you can)
- You can reduce your utilization by paying down your balances or increasing your credit limits.
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Your credit scores can wax and wane a bit like the moon, changing frequently as your credit accounts and balances change. However, big changes to your credit scores could be an indication that something is amiss.
That's why it's important to check your credit reports and scores on a regular basis. You can get free copies of your credit reports from all three major credit bureaus—Experian, Equifax, and TransUnion—through AnnualCreditReport.com (this is the only site authorized by the government to provide the free credit reports that you’re entitled to by law). So there's no reason not to check up on your credit at least a few times a year.
Why Now Is the Right Time to Check in on Your Credit
The transition from June into July marks the halfway point of the year—which is a great time to stop for a mid-year credit check-up. A lot can happen in six months, so pull all three credit reports to make sure everything looks as it should.
If you notice accounts on your credit report that you don't recognize, dispute them. You can dispute any fraudulent accounts or other errors right away, usually while you’re viewing your credit reports online. You have to dispute errors with each credit bureau, even if you see the same error on all three credit reports.
It's also a good idea to check your credit scores in a few places. You can get free credit scores from a variety of sources, including:
Credit card issuers. A lot of credit card issuers provide monthly updated credit scores for free. The type of credit score (FICO vs. VantageScore) and the bureau providing it vary by issuer.
Credit monitoring sites. You can find a variety of third-party sites and apps that offer free credit scores.
Credit bureaus. Experian and TransUnion offer free credit scores if you create a free account.
If your credit scores aren't looking as perky as you'd like, look to your reports to find out why. If you notice a lot of high balances, then high credit utilization is likely the culprit.
Freedom Debt Relief isn't a Credit Repair Organization and doesn't provide, or offer, services or advice to repair, modify, or improve your credit.
What Is Credit Utilization?
Your credit utilization ratio or rate is a measure of how much of your available credit you're using. It's calculated by dividing your credit card balance by the credit limit.
For example, if you have a credit card with a $5,000 credit limit and a $2,500 balance, your credit utilization is 50%.
If you pay down the balance to $1,000, then the utilization will also drop:
$1,000 / $5,000 = 0.2 or 20%
Your utilization is calculated for each of your credit cards individually, as well as overall across all of your accounts.
There’s no magic number to shoot for, but once your utilization hits about 30%, you could start to notice a negative effect on your credit scores. By the same token, if your utilization is in that 75-90% range and you start bringing it down, your credit score could improve noticeably.
Exactly what happens to your credit score will depend on many factors.
What Your Credit Usage May Be Telling You
Consistently low credit utilization rates are a great sign that you're managing your credit cards well. It means you're paying in full (or mostly in full) every month and not overspending on your cards.
High credit utilization—especially over time—can be an important red flag that you have unaffordable debt and you might be struggling to get ahead.
Here are some of the reasons you might be carrying high credit card debt:
You were surprised by an expensive emergency that you couldn’t cover with cash.
You used your credit card to pay medical bills.
You aren’t good at budgeting and you sometimes use your credit card even when you don’t have enough money to pay it off.
Prices have gone up faster than your salary, and you rely on your card to cover everyday expenses.
Your car broke down and you didn’t have enough money in the bank for the repairs.
Even if you're not alarmed by high utilization, creditors will be. Statistically, people with high utilization are more likely to miss payments or even default on their debt. That makes them riskier borrowers, no matter what the reason for the high utilization. That's why a high utilization rate can cause your credit score to drop.
Your high credit utilization isn’t telling you that you’re a bad person or that you can’t manage your money. It’s only telling you that you need a plan to address your debt.
Credit Utilization by Age: What the Numbers Show
High credit card utilization is a common problem shared by many people in need of debt relief. We looked at internal data from Freedom Debt Relief for debt relief seekers carrying a credit card balance. What we found says a lot about how different age groups are using—and relying on—credit right now.
Take a look at the infographic below:
What it shows:
People aged 18-25 had the highest average credit utilization at 81%—using most of their available credit.
Utilization gradually declines with age, but even people 65+ are using 67%, on average.
The percentage of people carrying a balance increases with age. Over 90% of adults 65 and older still carry credit card debt.
Across all age groups, the average utilization was 74%—well above the 30% guideline typically used to gauge financial health.
If your number’s that high, you’re not alone—but it may be time for a reset.
What to Do if Your Credit Utilization Is too High
Credit utilization is calculated based on your balances and your credit limits, so there are two ways to improve your utilization rate:
Decrease your credit card balances. Reducing your balances can also reduce your utilization (as long as your credit limits remain the same). Any extra money you can throw at your debt will help, so consider reworking your budget or adding extra income. You could also lower your credit card balances by consolidating them with a personal loan. Personal loan debt doesn’t factor into your utilization ratio. The key is to then avoid putting new debt on the paid-off cards.
Increase your credit card limits. Higher credit limits with the same balance reduce your credit utilization. Most issuers let you request a credit limit increase right from the online banking or mobile app menu. Note that some issuers may perform a hard credit pull for a credit limit increase, which could impact your credit score.
Your credit utilization rate is arguably the most fluid credit score factor since it changes every time your balance changes. Improving your utilization rate is one of the simplest and fastest ways to improve your credit scores.
Most credit card issuers report balances and limits to the credit bureaus once a month, often at the end of the billing period. Any changes you make could have an impact on your credit scores the next time the creditor updates your account details with the bureaus.
Author Information
Written by
Brittney Myers
Brittney is a personal finance expert and credit card collector who believes financial education is the key to success. Her advice on how to make smarter financial decisions has been featured by major publications and read by millions.
Reviewed by
Ashley Maready
Ashley is an ex-museum professional turned content writer and editor. When she changed careers, she was finally able to focus on turning her financial situation around. She went from deeply in debt to homeowner in two years. Ashley has a passion for teaching others about better living through better money management.
How often is credit utilization reported?
Credit card companies typically report every month, based on your card's billing cycle. However, not every creditor reports to all three credit bureaus or even every month. So, if you make a big payment, your credit utilization might not drop immediately. If you're looking forward to your utilization going down, ask your creditor when they will report your balance.
Can I lower my credit utilization without paying debt?
Yes. Even if your balance owed remains the same, you can lower your credit utilization ratio by increasing your available credit. You can do this by getting a credit limit increase on your existing credit cards, or by opening a new credit card account.
Does closing a credit card affect credit utilization?
Yes. If you close a credit card, you lose the credit limit on that card. That raises your overall credit utilization ratio. Here's an example:Let's say you have a $500 balance on a credit card that has a $1,000 credit limit. Right now your utilization is 50%.If you close that card, your credit limit effectively becomes $0. But you still have the $500 balance. You've more than maxed out the limit. Until your balance is paid off completely, this will look like a maxed-out account. The $500 balance will also factor into your overall utilization.