What Is a Credit Utilization Ratio and Why It Matters

Example of a 30% credit utilization ratio
Credit utilization ratio is one of the most important factors used to calculate a credit score in the United States. It refers to how much of your available credit you are currently using.

In simple terms, it answers this question:

How much do you owe compared to how much you could borrow?

How Credit Utilization Is Calculated

The formula is straightforward:

Credit Utilization = (Total Credit Used ÷ Total Credit Limit) × 100

Example:
If you have a credit card with a $1,000 limit and your balance is $300, your utilization is 30%.

Why Credit Utilization Matters

According to industry research and credit scoring models, credit utilization represents around 30% of a FICO score.

Lower utilization signals:

  • responsible credit management

  • lower financial risk


  • better repayment behavior

High utilization may suggest financial stress, even when payments are made on time.

What Is a Good Credit Utilization Ratio?

Most credit experts use the following benchmarks:

  • 0–9% → Excellent

  • 10–29% → Good

  • 30–49% → Fair

  • 50% or more → Risky

Many lenders prefer to see utilization below 30%, while top-tier scores often stay under 10%.