How do I keep my credit utilization under 30%?

Many credit experts say you should keep your credit utilization ratio — the percentage of your total credit that you use — below 30% to maintain a good or excellent credit score.

Credit utilization is a major factor in your credit score, so it pays to keep an eye on it. View the 30% rule as a good guideline, but be aware that using even less is better for your score.

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Keeping up with what percentage of your credit limits you're using is easier than you may think. You can set up alerts with your credit card issuers to track your balances. Or sign up for a free credit score that displays utilization rates.

How much of my credit should I use?

If there's no bright line, why the 30% rule? It’s likely because the recommendation to keep your credit utilization low invariably prompts the question, “How low?” Having a number gives you an upper limit when thinking about how much to spend on your credit cards.

The 30% answer finds backing from the credit bureau Experian: "The 30% level is not a target, but rather is a maximum limit. Exceeding that level will have significantly negative impact on credit scores," says Rod Griffin, Experian’s director of public education. "The lower a person’s utilization rate, the better from a scoring standpoint."

The FICO scoring model seems to agree with this conclusion. “Consumers with FICO scores of 800 use, on average, 7% of their available credit,” says Can Arkali, a senior director for FICO.

Credit utilization and your score

How much you owe on your credit cards relative to your credit limits makes up about 30% of your FICO score.  VantageScore, a competitor scoring model, calls credit utilization "highly influential."

Note that your credit score is composed of a number of factors. If your overall credit profile is excellent, it’s unlikely that your credit score will plunge if your credit utilization ratio rises slightly one month.

And, happily, damage from credit utilization is easily reversed. With the vast majority of scores, as soon as a new, lower balance (or lower credit utilization) is reported to credit bureaus, the harm is undone.

What's next?

• Sign up to get your free credit score and report from NerdWallet. Information is updated weekly, and the factors affecting your score are broken out to make them easier to understand.

Making on-time payments is the number-one factor in maintaining a good credit score. But after that, lenders look closely at your credit utilization — or how much you're spending in comparison to the total of all your credit card limits.

Your credit utilization rate (or amounts owed) makes up 30% of your FICO credit score and is the second-most important factor after payment history. Experts generally recommend keeping your utilization rate below 30%, with some suggesting that a single-digit utilization rate (under 10%) is best.

"Really, being in the single digits is better," says Jim Droske, president of credit counseling company Illinois Credit Services (and someone with a perfect credit score). "It's the best place to be because, mathematically, it's an algorithm; you want to be at the lowest number, but anything greater than zero."

While it's not necessarily exact science, spending more than 10% to 30% of your credit signals to lenders that you might be at risk of going over your limit and may not be able to pay the balance back.

On an average day, you probably don't think much about this percentage, especially if you know you always stay under your limit. But if you want to earn the best credit score possible, take a closer look at your CUR.

Calculating your credit utilization

To calculate your CUR, divide your total outstanding balances across all your cards by your total credit limit. Then, multiply by 100 to get the percentage.

For example, if you carried the average credit card balance of $6,194 on your card(s) and also had the average credit card limit of $22,751, you would divide the first by the second and multiply by 100. This would give you a CUR of about 27%.

Whether you have a utilization rate near the average 27% or not yet below 10%, there are always small moves you can make to lower yoursand see a boost in your score.

How to keep your credit utilization low

Here are Select's three tips for lowering your CUR:

1. Pay off your balances more than once a month.
2. Request a higher credit limit.
3. Avoid closing credit cards.

Pay off your balances more than once a month

Instead of waiting for the due date to pay off your credit card balances, consider making periodic bill payments throughout your billing cycle.

Card issuers report your statement balance to the credit bureaus roughly once per billing cycle to the credit bureaus — Equifax, Experian and TransUnion. The bureaus then use your reported balance to calculate your CUR. 

It's hard to know when exactly your card issuer(s) is going to report your balance, but if you pay down your card regularly, the bureaus are more likely to see a smaller amount. Some people pay off their cards as soon as they use them, but you could also make bimonthly or weekly payments if that's easier.

You also may want to call your card issuer to ask when they report to the credit bureaus, especially if you are trying to manage multiple credit cards. Not every card issuer followers the same reporting schedule.

Another method is to sign up to receive text or email balance alerts from your credit card issuer. Consider using credit cards with user-friendly apps that let you manage your payments from anywhere.

For instance, cardholders of the American Express® Green Card or American Express® Gold Card can use the Amex mobile app Pay It®, Plan It® feature to pay off small purchases as soon as they post to their account. This way, cardholders can ensure that their balances stay low. Terms apply.

And Citibank customers who carry a card such as the Citi Rewards+® Card can opt in to use the Citi Mobile® Snapshot feature on the app so that they can view their available credit amount and credit card balances without the hassle of having to log into their accounts.

Request a higher credit limit

Having low balances and high credit limits is the recipe for low utilization. Consider calling your card issuer to ask for a credit limit increase if you find that you're regularly spending more than 30% of your total limits.

Increasing the total amount of available credit makes it easier to stay below the 30% threshold, giving you a little more breathing room to make your monthly expenditures. Just make sure that you feel confident in your ability to stick to your budget; a higher threshold provides additional opportunity to spend beyond your means.

Before you call, pay down at least some of your outstanding credit card balances to show you are financially responsible. (It's not exactly necessary, but it will help with your case.) Your approval is not guaranteed, but you're in the best position to get approved if these two factors are true:

1. You have at least a good credit score (661 to 780).
2. Your income has increased since you applied for the credit card.

Of course, checking off the above items is not a guarantee, but having a good score and income does increase your chances of getting additional credit.

If you just opened a new credit card, you may have to wait at least three months before requesting a credit limit increase. Some cards issuers, like Citi, require that you wait six months between credit limit increase requests. So, if you have a card like the Citi® Double Cash Card, you can technically only request a higher limit twice per year.

Before you ask for a higher credit limit, know that doing so could result in a hard inquiry if your card issuer pulls your credit report in the approval process. Hard inquires temporarily ding your credit score.

Avoid closing your credit cards

Think twice before you close out any of your credit card accounts — especially your oldest one.

When you get rid of your credit card, you also take away that specific credit limit from your overall available credit. This often results in your utilization percentage going up and, thus, an immediate negative impact on your credit score.

While your score will likely decrease initially after closing a credit card, continue to make your bill payments on time on your other credit cards and your score will rebound within a few months.

The only two caveats to avoid closing your credit card accounts are if you're paying an annual fee on a credit card that is no longer worthwhile or your credit card has a high interest rate.

Before closing an account, check to see how your credit score would be affected by using an online score simulator, such as CreditWise® from Capital One. With this free service, you can see how taking certain actions, such as closing a credit card or paying off a balance, might impact your credit score.

Information about the American Express® Green Card has been collected independently by Select and has not been reviewed or provided by the issuer prior to publication.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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