Credit Utilization Ratio

A credit utilization ratio is a calculation of how much debt you have versus your credit limit. 

The credit utilization ratio is calculated by looking at your credit limits and determining how much of the limit you have used. If you have $500 on a credit card and you used $400, then your usage of the card is high. This negatively impacts your credit score because of the high amount of debt. If you have three credit cards, and the other two are below the 50% usage mark, it looks more favorable, than if you have all three cards maxed out.

In the first decade of the millennium, it was highly publicized by bankruptcy experts and financial gurus like Stephen Snyder, The Motley Fool writers, and others that you need to have your debt below 30% of your credit limit. In other words all revolving credit accounts should be at 29% maximum of the credit limit in order to increase your credit score.

In this strategy, it is about the amount you owe versus the payment history. Yes, payment history matters, but the idea behind this strategy is to focus on the amount debt owed, while maintaining correct monthly payments.

How it Works

  • Maintain a balance that is at least 71% below your credit limit.
  • Record how much you are charging to each revolving credit account.
  • Have balance alerts set up.
  • Obtain a credit limit increase.
  • Determine when our creditor reports to the bureaus.
  • Pay mid-cycle to your card to show an extra payment for the 30-day cycle.

The quicker you can pay down debts the better for this strategy to work on your credit score.


  • The amount of credit you have and the amount you utilize can determine your credit score.
  • If you use more of your credit, meaning your are above the 30% mark, your credit score will decrease.
  • A lower credit utilization ensures your credit score will increase or at least stay the same.
  • By using this strategy, you know when to make payments to reflect well on your credit report.
  • You are also lowering your credit utilization ratio with additional payments.

Yes, the consistent and increased payments help in this strategy, but remember the focus is to get your revolving debts below the 30% mark to help increase your scores.

Steven Millstein
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