Credit utilization accounts for approximately 30% of your FICO score, making it the second most important factor after payment history (35%). Utilization is calculated by dividing your current credit card balances by your total credit limits, with lower percentages being better for your score.
The impact of utilization on your score follows a sliding scale:
- 1-9% utilization: Optimal impact, providing maximum points for this factor
- 10-29% utilization: Very positive to positive impact with minimal point reduction
- 30-49% utilization: Moderate negative impact with noticeable point reduction
- 50-69% utilization: Significant negative impact with substantial point reduction
- 70%+ utilization: Severe negative impact with major point reduction
FICO scoring models look at utilization in three important ways:
- Overall utilization across all cards combined
- Per-card utilization on individual accounts (having one maxed-out card can hurt even if overall utilization is low)
- Number of cards with balances (fewer cards with balances is generally better)
The good news about utilization is that it has no “memory” – once you reduce your balances, your score can improve as soon as the new lower balances are reported to the credit bureaus, typically at your statement closing date.