What Is Revolving Utilization?


Want to improve your credit score? One effective way is by lowering your revolving utilization rate, also called your credit utilization or debt-to-credit ratio. Your credit debt makes up 30% of your FICO credit rating; only your payment history matters more.

So what is revolving utilization, and how can you improve it? Here’s what you need to know.

What Is Revolving Utilization?

Your revolving utilization rate compares your credit debt to your total credit limit. To calculate it, divide your balance by your credit limit. Let’s say you have a $2,000 balance on a credit card with a $5,000 limit. Your utilization rate would be 40%.

The revolving utilization rate you see on your credit score is based on all your accounts. So if you had a second $5,000 credit card with no balance in addition to the card above, your total credit card utilization rate would be 20%.

Your utilization rate is based on revolving credit. So credit cards and other lines of credit count toward your utilization rate; other types of debt, like mortgages and loans, don’t. Tracking those debts is important for financing decisions, but they don’t factor into your utilization rate.

Paying credit card for purchases

What Is a Good Revolving Utilization Rate?

Experian recommends that you keep your revolving utilization rate below 30%. The lower your rate, the better.

Here are a few ways you can reduce your rate.

  • If you can, pay off your credit card balance every month. The less you owe, the lower your utilization rate. You’ll also avoid interest on your balance and boost your credit.
  • If you can’t pay down your balance every month, try increasing your overall credit limit. Ask your credit card company to raise the limit on your existing account, or open another line of credit.
  • If you have old credit cards you no longer use, keep them open. They’ll improve your utilization rate if they don’t carry a balance.

If you don’t know your business credit score, you might have a business blind spot. For more credit and financing tips, check out The Bottom Line.

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