How much of your credit card limit should you use?

Credit card use is one of the biggest score factors you can change fast. Here is how it works and how to lower it.

What "utilization" means

Utilization is your card balances divided by your card limits. If your cards have $5,000 in limits and you owe $2,000, you are using 40%. Scoring models look at each card and at all your cards together.

A simple target

A common guideline is to stay under 30%, and people with the highest scores often use under 10%. There is no penalty for using some credit; what matters is the balance that gets reported.

Timing matters

Most card companies report the balance on your statement, not the balance after you pay. Paying down a card a few days before the statement closes can lower the balance that gets reported, even if you pay in full every month.

Ways to lower it

Pay down the card with the highest percentage first. Make two smaller payments a month instead of one. Keep old cards open, because closing a card removes its limit. A limit increase can help, but ask whether it causes a hard inquiry.