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Credit Repair

Credit Card Utilization: Maintaining The Right Credit Balance to Limit Ratio

One of the first steps I recommend when repairing credit is to pay down any credit accounts where the balance is more than 25% of the account’s credit limit.

If you’re not sure what balances are being reported on your credit report, I suggest you get an up-to-date copy of your credit report from TransUnion.

What Is A Good Credit Card Utilization Rate?

When your credit score is calculated, substantial consideration is taken on a simple calculation. This calculation is called your “utilization”.

It simply means, “How much of your total available credit are you currently using?” In other words, “Is this person spending money without keeping in mind it must be paid back?”

Utilization is a huge factor when a credit score is calculated, and it is recommended that you do not go over a 25% credit card utilization.

Two things are taken into consideration in regard to utilization when your credit score is calculated. First, your overall utilization.

This is calculated by adding together the balances of all of your revolving accounts and then adding together all of the credit limits. Then divide the balance by the limit.

How Do You Calculate Credit Card Utilization

  • Credit Card #1: Balance: $300 Limit: $500
  • Credit Card #2: Balance: $100 Limit: $300
  • Credit Card #3: Balance: $500 Limit: $1000
  • Total Balance: $900
  • Total Credit Limit: $1800
  • Utilization = $900 / $1800 = 50% Total Revolving Utilization

In addition to your overall credit utilization, individual credit account utilization is also taken into account.

This basically means that if you have ANY individual account where the balance is over 25% of the credit limit, it is likely hurting your credit.

Therefore, even if your overall credit utilization is under 25%, if any one of those accounts has a balance of over 25%, your credit score is affected.

It’s About Ratio, Not Actual Numbers

I have been asked if the credit limit dollar amount matters. Specifically, if one has a credit card with a credit limit of $200, and every month it’s reported that this person uses 75% of the available credit, does the same (as previously stated) apply.

Logic may tell us that it shouldn’t apply because it’s likely that this person can easily pay off a $200 balance every month. However, utilization does apply –the limit does not matter. If you have a credit card with a $200 credit limit, spending over $50 will hurt your credit score.

When you are repairing or building credit, it’s good to have a credit card even if the credit limit is low. However, as you begin to build credit, it is in your best interest to request credit limit increases when the time is appropriate.

Remember: keep your utilization as low as possible –preferably at or around 25%. The right credit balance to limit ratio is key to optimizing your credit score.

Balance To Limit Ratio Calculator

Now that you understand how it works, check out this Balance to limit ratio calculator to see how you’re doing.


  1. So, does this mean that if I charge $1000 a month to a credit card with a $1500 limit, but pay it off completely every month, that it’s hurting my balance? Or is it only charges that stay on the card and incur finance charges that affect the score?

  2. So if you have 1 credit card that is maxed out, then you’re saying it’s better to get 3 more credit cards with the same limit and move 25% of the first balance to each card?

  3. Dumb question I guess…Is this just carrying a 25% balance from month to month, or actual dollars purchased? I pay my card in full every month, but sometimes spend up to 50% of the limit for a card.

  4. Sorry if I’m dense, but do you mean to say if I ever use more than 25% of my limit (even though I pay off the balance every due date) my credit score is adversely affected?

  5. Does this count if I pay it off every month? Like if I have a balance of $800 on a card with a $2000 credit limit and I pay it off at the end of the month. Another thought is if I have a statement balance of $400 on that same card but after the statement is posted and I spend another $400 or $500 but pay it all off before the next statement is posted. What is this doing to my credit rating?

  6. Here is the bottom line, establishing good credit means being a LOW risk. If you max out your credit cards each month, you are showing a dependency on credit! You must prove that you control the card not the other way around. Utilization is just a way for creditors to assess risk and generally staying at or below 30% of your limit is good enough. This is the first time I have heard the 25% rule. Good luck out there!

  7. “Does this count if I pay it off every month? Like if I have a balance of $800 on a card with a $2000 credit limit and I pay it off at the end of the month.”

    Most likely yes, because your credit card company will report your statement balance to the credit agencies. So either a) get your credit limit raised to an amount that would allow you to charge less than 25% of the limit every month, or b) pay off the balance BEFORE the statement date. Chances are, if you have good credit and you are responsible enough to pay off your balance every month, your credit card company won’t have a problem raising your limit (and some may do it automatically).

      1. I have a 500 spending limit please tell me how much should I only spend, I’m trying to get my credit scores up and this is my 1st credit card! HELP MEEEEE

    1. You will be @ 100% credit utilization therefore that will decrease your credit score. If, however, you spend only $30 of that $300 balance, you will be at 10% utilization and you should see a nice bump in your score.

  8. I have a 300 dollar card! and i been keeping balance at 100$ everymonth and im sort of letting it dance between 90 and 100 i know its over 35% median BUT i read on some crappy article to keep it at 90$ so it threw me off i had ZERO credit what will i have now.

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