How Credit Utilization Impacts Your Credit Score

And How to Make it Work for You

How Credit Utilization Impacts Your Credit Score
August 21, 2018

Credit utilization is a fancy name for how much of your available credit you've used. It's one criterion used by the three major credit bureaus to calculate your credit score. Why do they care? Because your credit utilization is an indicator of the extent to which you rely on credit.

How credit utilization affects your credit score

The main thing you need to know is that high credit utilization negatively impacts your credit score. If you want to improve your score or make sure it stays high, you need to keep your credit utilization down.

Certified Financial Planner Joe Hogan, Director of Financial Planning at Mariaca Wealth Management, explains:

"From the lender's perspective, someone who is taking out a high percentage of the credit offered to them is a higher risk than someone who uses lower amounts.High credit utilization can be an indicator that a borrower is financially overextended and may fall behind on payments.This is so important to a lender, it accounts for 30% of your credit score. A high credit utilization is typically calculated as over 30%."

The thing is, there are reasons for high credit utilization besides being dependent on credit or being overextended. For example, someone who uses their credit card for all their expenses to maximize rewards may have high credit utilization, even if they pay their statement balance in full every month. This can happen when they have a credit limit that's in line with their monthly spend, and they pay their credit card once a month, near the due date.


John has a credit card with a $5,000 limit and typically charges around $4,000 every month, putting his credit utilization at 80%. When he gets his credit card statement, he pays his bill in full by the due date. His account is in good standing, and he's not reliant on his credit card – he can pay it off every month. Nevertheless, if his credit card company reports his balance before he makes that payment, then guess what? It will look like he cannot get by without most of his available credit (has high credit utilization). That's not great for his credit score.

What counts is your balance at reporting time

You might have picked up on the fact that this credit utilization business depends on your balance at the time it is reported to the credit bureaus. A good strategy for keeping your credit utilization low would therefore be to make sure you pay as much as you can before that balance goes to the credit bureaus.

The problem is, many people don't know when their credit card companies report their balances to the credit bureaus.

We at MoneyTips wanted to know whether customers could get that information if they wanted it. I contacted nine major credit card issuers through their social media support channels. Here's what I found out.

Most credit card issuers report your utilization at the end of your billing cycle or shortly after, but will not provide an exact date.

They will tell you the date your billing cycle ends, but that info is also available on your statement. If you know when your billing cycle ends, and you know they report on that date, or within two to three days of that date, you can keep your credit utilization low by ensuring you pay as much of your balance as possible by then.

Tips for keeping credit utilization low

It's important to note that your payment due date is typically two to three weeks after the end of your billing cycle. If you use most of your available credit and wait until your due date to pay your bill in full, your credit utilization will appear high. To keep credit utilization down, try making multiple payments throughout the billing cycle. Alternatively, pay a big chunk right before the cycle ends.

Personal Finance Expert Natasha Rachel Smith of TopCashBack offers the following advice for keeping your balance down:

"If you're able to get in the habit of repaying the balance each week, this is a strong and almost-secret trick to improve your credit score. Use your credit card like a debit card. One of the best ways to get your credit score up is by making all your purchases on your credit card but never exceeding how much you have on your debit card. The reason being that at the end of each week you can repay any debt you accumulated through your credit card without accruing any unnecessary interest and keeping your credit utilization ratio low."

Key takeaways

  • Your credit utilization is how much of your available credit you're using.
  • It accounts for about 30% of your credit score.
  • If you want to improve your credit score or keep it high, keep your credit utilization low.
  • You can do this by making sure you pay as much of your balance as you can by the end of your billing cycle – this is when some credit card issuers report your balance to the credit bureaus.
  • If you're not sure when your billing cycle ends, call your credit card company and ask!


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