How to Lower Your Credit Utilization — Step by Step

The formula, in one paragraph

Credit utilization is the balance divided by the limit, times 100. Do it for each card on its own, and do it once for everything together: the total balance divided by the total limit, times 100. The bands are under 10% excellent, 10 to 29% good, 30 to 49% fair, 50 to 74% poor, and 75% or more very poor. Amounts owed are roughly 30% of a FICO score, so the ratio is worth moving — and it is the part of a score that moves fastest, because it changes as soon as the balance changes.

Step 1: Work out the overall number

Add the balances and add the limits, then divide. At the example numbers, Card A owes $1,500 on a $5,000 limit and Card B owes $1,000 on a $5,000 limit, so the total balance is $2,500 and the total limit is $10,000, and $2,500 divided by $10,000 is 25.00% — good. Good is not the top of the scale: under 10% is excellent, so 25.00% is a solid middle that still has room to improve.

Step 2: Check each card on its own

Scoring looks at the overall figure and at each card, so a single high card can drag the picture down. Card A is $1,500 divided by $5,000, which is 30.00% — fair, the first band above good. Card B is $1,000 divided by $5,000, which is 20.00% — good. The overall 25.00% hides the split: Card A is the card to attack first, because it is the one sitting in the fair band.

Step 3: Pay down the highest-utilization card first

Pay the card with the highest percentage first, because that is the card doing the most damage. Paying $1,500 clears Card A to $0, leaving $1,000 owed on the $10,000 limit, which is 10.00% overall — good, at the very edge of the good band. Paying $2,000 clears Card A and takes Card B to $500, leaving $500 owed on the $10,000 limit, which is 5.00% overall — excellent. The same $2,000 spread evenly would leave both cards part-paid and neither at zero, which is why the order matters.

Step 4: Ask for a higher limit

A bigger limit cuts the ratio without a payment, because the balance is divided by a larger number. At a $2,500 balance, a $25,000 total limit is 10.00% overall, so $15,000 more limit than the $10,000 now would do it. Ask for the increase only if it will not trigger a hard pull you cannot afford: a hard pull costs a few points for a while, and a refused increase buys nothing. The headroom before the next band matters too: $3,000 is 30% overall on a $10,000 limit, so there is $500 of headroom before crossing 30% — a small new charge crosses it.

Step 5: Time the payment before the statement closes

Pay before the statement closing date, not after it. The balance on the statement is the balance that gets reported, so a payment that lands before the closing date lowers the reported balance, and a payment that lands after it does not. Paying $1,500 before the closing date reports $1,000 owed and 10.00% overall; paying the same $1,500 after the closing date reports the full $2,500 and 25.00% until the next statement. Check the closing date on the statement, and set the payment a few days before it.

Do not close old cards

Closing a card cuts your total limit, and a smaller limit means a higher ratio on the same balance. The $2,500 you owe does not change, but the limit it is divided by shrinks, so the percentage climbs. Keep old cards open with a small charge now and then, and let the limit keep working for you.

What NOT to do

Do not open a spree of new cards just for the limit. Each application can trigger a hard pull, and several at once look like a rush for credit. A new card also adds a new account to the picture. The honest version of a limit increase is one ask on a card you already hold, and only when it will not trigger a hard pull you cannot afford. Paying $1,500 to reach 10.00% beats chasing limit you do not need.

That box is the whole formula.