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By: AgFed Credit Union

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What is my Credit Utilization Ratio?

 Nov 20, 2023
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Everyone knows credit scores carry significant weight in today’s financial world. Your score directly impacts whether you’ll be extended credit and how much interest you’ll pay. But it’s not the only factor lenders review before approving a loan.

Another key figure is your credit utilization ratio. This number plays two substantial roles – it impacts your overall credit score and helps lenders determine how responsibly you manage particular debts.

In this article, we’ll review why your credit utilization ratio is important, how it’s calculated, and steps you can take to improve your number.


What is a Credit Utilization Ratio?

Your credit utilization ratio (CUR) is a figure that lenders use to quickly review how well you manage credit. Although it’s most associated with credit card balances, your CUR also includes any revolving credit lines you have, such as a home equity line of credit.

The ratio is expressed as a percentage and measures your outstanding credit balances versus the total amount of credit available to you – in other words, the amount of credit you’re currently “utilizing.”


How Do I Calculate My Credit Utilization Ratio?

Calculating your credit utilization ratio is straightforward and involves a simple formula:

CUR = Total Outstanding Credit Card Balances ÷ Total Credit Limits x 100

To determine your CUR, obtain copies of your current credit card statements. Then,


  1. Total outstanding balances on all credit cards.
  2. Add the credit limits of each credit card together.
  3. Divide your total credit card balance by your total credit limit.
  4. Multiple this number by 100 to convert it to a percentage.


For example, imagine you have three credit cards with the following balances and limits:

Credit Card

Outstanding Balance

Credit Limit

Card A



Card B



Card C





When added together, your total credit limit is $9,000, and your total outstanding balances equal $2,500. Using the above formula, your CUR would be 28% ($2,500 ÷ $9,000 x 100).


What is an Ideal Credit Utilization Ratio?

Most experts and credit reporting bureaus recommend keeping your credit utilization below 30%. For example, if your credit limit is $10,000, you should try to keep your outstanding credit card balance below $3,000.

A low ratio indicates that you can responsibly manage credit, signifying that you don’t rely too heavily on debt. It also demonstrates that you’re more likely to make on-time credit payments.

Individuals with exceptional credit scores often have CURs below 7%.


Why Does Your Credit Utilization Ratio Matter?

Your credit utilization ratio is one of the most significant factors in determining how credit reporting agencies calculate your credit score. Creditors use your ratio to predict if you will be a responsible borrower, decide whether to issue you a new credit card, and determine if you qualify for a credit limit increase.

A high CUR signals that you might be prone to overspending on credit cards. It could also indicate that you’ll be allocating a large portion of your budget toward debt payments, effectively stretching your finances too thin. If so, you’ll be at a higher risk of making late or missed payments. A higher ratio can negatively impact your credit score.

A low credit utilization ratio demonstrates that you’re more likely to manage credit responsibly and make on-time payments – two factors that lenders love to see.


How Can I Improve My Credit Utilization Ratio?

If you currently have a CUR over 30% and are concerned about it negatively impacting your credit score, there are several steps you can take to improve it.

  • Reduce outstanding balances: Paying down current debt is the best and most responsible strategy to reduce your ratio. As your balances decrease, so will your credit utilization. This move also demonstrates to lenders that you are actively managing your debt.


  • Pay off high-interest debts: A simple way to reduce your CUR is to lower your credit debt, focusing first on the credit products with the highest interest rates. There are a few ways you can go about this, including paying over the minimum monthly payment, making an extra monthly payment, or even consolidating your debt. As you focus on paying down debts, avoid adding new charges; otherwise, breaking out of this cycle will become harder.


  • Request a limit increase: You can ask your lender for a credit card limit increase. Most credit issuers will work with you if you make consistent and on-time monthly payments. Increasing your credit limit is a fast way to lower your CUR. However, don’t let the new higher limit tempt you into spending more.


  • Open a new credit card: Applying for a new credit card can lower your CUR since it raises your overall credit limit. However, your credit score may be temporarily affected due to the hard inquiry on your credit report. Like a credit limit increase, you want to avoid the temptation of using this card for purchases.


We’re Here to Help!

Your credit score lets lenders quickly assess your ability to manage credit and other loans. It also plays a significant role in how much interest you’ll pay. To improve your score, you’ll want to maintain a healthy credit utilization ratio.

If your ratio is above 30% or you plan to apply for a loan soon, we’re ready to help. Options, such as debt consolidation, can help you reduce outstanding debt quickly and affordably. To get started, please give us a call at 202-479-2270 to speak with a team member today.

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