Credit Utilization Ratio: How to Calculate It and How Much to Pay Down
October 29, 2026
Credit utilization is the share of your available revolving credit that you are using. It is one of the largest factors in many credit scores. The formula is total balances ÷ total credit limits × 100. Scoring models look at both the overall ratio and the ratio on each card.
Suppose Card A has a $1,800 balance on a $6,000 limit (30%) and Card B has a $400 balance on a $4,000 limit (10%). Overall: ($1,800 + $400) ÷ ($6,000 + $4,000) = 22%. A commonly cited guideline is to stay below 30%, and the best scores tend to belong to people using under 10%.
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To reach 10% overall on $10,000 of total limits, balances must total $1,000, so you need to pay $1,200 in total. Which card to pay? Paying Card A down to $600 puts it at 10% and Card B at 10%, so both the per-card and overall ratios are 10%. If your cards charge different interest rates, put the extra payment toward the one with the higher APR first, unless a single card is near its limit and that is hurting the score. The paydown formula is: payment = balance − target ratio × limit.
Utilization has no memory in most models: when you pay the balance down, the ratio improves at the next reporting cycle, unlike late payments that remain for years.
| Scenario | Balances | Limits | Utilization |
|---|---|---|---|
| Current | $2,200 | $10,000 | 22% |
| After paying $1,200 on Card A | $1,000 | $10,000 | 10% |
| Limit increase of $5,000, no paydown | $2,200 | $15,000 | 14.7% |
| Both: paydown and limit increase | $1,000 | $15,000 | 6.7% |
Statement Date Timing
Issuers usually report the balance on the statement closing date, not the due date. If you pay your bill in full each month but spend heavily on the card, the reported balance can still be high, producing a high utilization on your report. Making a payment before the statement closes lowers the reported balance. This trick matters most before applying for a mortgage or auto loan.
Limit Increases and Closing Cards
Requesting a higher limit lowers utilization if your spending stays the same, but some issuers perform a hard inquiry; ask whether they use a soft pull. Closing an old card removes its limit from the denominator: if you paid off and closed Card B above, your $1,800 balance would sit against only $6,000 of limits, raising overall utilization from 22% to 30%. It may also shorten your average credit age over time. Consider keeping unused no-fee cards open.
Using the Numbers
Set a target (for example, below 10% before a major loan application), compute the required payment with the formula, and schedule it ahead of the statement date. Don't carry a balance just to show activity; paying in full avoids interest. If your balances are high relative to limits and you are paying 20% or more in interest, a paydown strategy that targets the highest-rate card first saves the most money.
Frequently Asked Questions
How is credit utilization calculated?
Total revolving balances divided by total credit limits.
What is a good utilization ratio?
Below 30% is a common guideline, and below 10% is better.
Does paying in full before the statement date help?
Yes, since the reported balance is lower.
Does closing a card hurt utilization?
It can, by lowering your total limits.
How long does the improvement take?
Usually by the next reporting cycle.