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What Is a Good Credit Usage Percentage?

Your credit usage percentage directly impacts your credit score.

Chris Scott

Contributing Writer at Tally

July 30, 2021

Experian data recently found that the average credit usage rate — otherwise known as the credit utilization ratio — dropped by four points from 29% to 25% from 2019 to 2020. The 25% ratio is the lowest the credit utilization ratio has been in the last decade. 

Reducing your rate of credit usage is beneficial for a few reasons. Not only does it increase your available credit for future purchases, but it could also raise your credit score. The credit utilization ratio is one of the primary factors that determines both FICO and VantageScore credit scores. 

So, what is a good credit usage percentage? We’ll answer this question and touch on how credit usage impacts your credit score and why it's important.

What does "credit usage" mean?

Credit usage measures how much of your available credit you are using. The figure only takes revolving credit into account. Revolving credit allows you to borrow money up to a credit limit repeatedly. Examples of the types of credit accounts that are revolving include credit cards and lines of credit. Your credit usage does not refer to debts like mortgages or auto loans, which are for a lump-sum amount. 

To figure out your credit usage, divide how much credit you're using by how much credit you have available. This is also known more formally as the credit utilization rate

Let's say that you have two credit card accounts and a line of credit in your name. Your American Express card has a limit of $10,000, and you have a $5,000 balance. Your Chase card has a total credit limit of $12,000, and you have a balance of $5,000. Your line of credit is worth $8,000, and you have used $5,000. 

If you add $10,000, $12,000 and $8,000, you find that your total available credit is $30,000. That is the maximum amount that your lenders allow you to borrow. 

If you add your two credit card balances of $5,000 and $5,000 and your line of credit balance of $5,000, you find that your total credit used is $15,000. 

Divide $15,000 by $30,000 and multiply by 100 to receive your credit utilization rate of 50%. You are currently using half of your revolving credit. 

What is a good credit usage percentage? 

A good credit utilization rate is anything in the single digits. Based on the total available credit in the example above, you’d want to be using less than $3,000 of your available credit. Keeping your credit usage in the single digits can help you build an excellent credit score

However, reaching a lower credit utilization rate in the single digits takes time. Perhaps an easier goal to achieve first is to keep your credit utilization rate below 30%. Though there is some debate about this number amongst financial experts, this seems to be the generally accepted rule of thumb set forth by the credit bureaus. Keeping your credit usage below 30% reflects well in credit scoring models. 

On the other hand, you don't necessarily want to have a 0% credit utilization rate. When your credit card issuer or lender reports a zero balance to the bureaus, it reflects that the card is not being used, which could lead to it being closed. Closing accounts can make it more challenging to build a good credit score. 

Why is credit usage percentage important? 

Your credit utilization rate is important because of the way it impacts your credit report. Each month, your credit card companies and lenders report your balances to the credit bureaus. The bureaus then use this information to craft your credit score. Your credit score is a three-digit number that determines your creditworthiness and helps lenders decide: 

  • Whether they should lend you money 

  • The amount of money to lend 

  • What interest rate and terms the loan should have

Your credit utilization is one of the factors that determines your FICO credit score. Your credit usage is responsible for 30% of your FICO score, so keeping a high credit utilization rate can lead to a bad credit score. 

Similarly, your overall credit utilization also plays a role in determining your VantageScore, the other type of credit score. Though VantageScore does not provide the exact weighted percentages used to derive its scores, your credit usage still remains an incredibly important factor. The amount of credit you’ve used is considered "Extremely Influential" by VantageScore. 

Keeping your credit utilization rate low demonstrates to lenders that you can manage your personal finances. 

What can you do to improve your credit usage percentage? 

If you have a high rate of credit usage, there are a few things that you can do to help improve your situation. 

Paying down your debt 

One way to improve your credit usage is by paying down credit card debt and your lines of credit. When doing so, try to avoid putting new purchases on the card. Otherwise, your balances will remain high and your credit utilization rate will not improve. 

Also, remember that it takes at least one billing cycle for changes to show up in your credit history. For instance, if you pay down debt in January, you likely won't see this reflected on your credit card until your February statement. Then, the information is sent to the credit bureaus, where it then shows on your credit score. 

It's important that you demonstrate a history of paying down debt. The changes that can help build your credit score will not happen overnight. 

If you're looking for further assistance, consider using other financial products, such as balance transfer credit cards or personal loans for debt consolidation, to accelerate paying down your balances. 

Asking for a credit limit increase 

If you have a strong payment history, you can consider asking your lender for a credit limit increase. For instance, let's say that your credit card limit is currently $5,000. However, you have a decent credit score and demonstrate to your lender that you can make on-time payments. 

Your lender may be willing to grant you a credit limit increase. Many credit card companies allow you to do this online or in their mobile app. All you need to do is provide a bit of personal information. 

If you are rejected initially, don't be afraid to call your lender and negotiate a new credit limit

Using an app like Tally 

Another tool available to help reduce credit usage is Tally. Tally is a credit card payoff app that helps you pay down debt efficiently. Tally offers a low-interest line of credit1 to help you pay off existing balances, which can help you reduce your debt and your credit usage percentage. 

Reduce your credit usage and improve your financial situation

The terms "credit usage percentage" or "credit utilization rate" mean the same thing and reflect how much of your credit you are using. 

Naturally, it makes sense to wonder, "What is a good credit usage percentage?" A good credit usage percentage is in the single digits, though a broader target is greater than 0% and less than 30%. 

Should you have a high credit utilization rate, there are a few things that you can do to improve it. You can pay down debt, request a credit line increase or consider using Tally to pay off your balances efficiently.

1To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) Will be between 7.90% - 29.99% per year, and will be based on your credit history. The APR will vary with the market based on the Prime Rate.