How much of my credit should I use?

Published February 12, 2024

4 min read

Key Points About: How much credit should I use?

Your credit utilization ratio looks at your credit card debt compared to your available credit.
To find your credit use rate, add up the debt on all your cards and then divide it by your total credit limit.
You may be able to lower your credit usage if you decrease your credit card balance or get a credit limit increase.

Good credit management can have a significant impact on your overall financial health. With the right credit habits, you can reach many important goals, like buying a home or getting a car. But, if you're new to credit, one question that you may have is how much of your credit you should use. While the answer differs based on your personal circumstances, there are some things that you should keep in mind to make more informed decisions about your credit usage. One thing you may want to consider is your credit utilization ratio.

What is a credit utilization ratio?

Your credit utilization looks at the amount of available credit that you're using on your revolving accounts (like credit cards) as a percentage. According to the Office of Financial Readiness, your utilization ratio makes up 30% of your credit score and, lower credit usage is better for your credit score.

Credit utilization is important because lenders want to see how you're managing the credit currently available to you. If you're using too much credit, it may show lenders that you're overextended.

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How can I calculate my credit usage?

You can find your credit utilization ratio by dividing the amount of debt you owe on your revolving credit accounts by your total available credit. You can usually find this information by logging into your credit card account.

For example, a $1,000 balance on a single credit card with a $10,000 limit equals a credit utilization ratio of 10%. If you have another card with a $100 balance and a $5,000 limit, your credit utilization on that card would be 2%. Your total credit utilization on both cards would be about 7%.

Did you know?

According to the Office of Financial Readiness, your credit utilization ratio only applies to revolving debt, like credit cards, home equity and personal lines of credit. Other forms of credit like mortgages, personal loans, and student loans aren't included, although they are important for other parts of your credit score.

What should my credit utilization be?

Since your credit utilization accounts for 30% of your FICO Score,¹ you should keep your available credit limits high and your debt low. The Office of Financial Readiness suggests a credit utilization ratio of 1-10%. If you max out your credit cards you may increase your utilization ratio—leading lenders to view you as a potentially risky borrower. So, if you're using a high percentage of available credit, you should try to pay down your balances as quickly as possible to lower your usage.

How can I improve my credit utilization ratio?

Since your credit limit and current debt makes up your credit utilization rate, you may be able to lower your ratio if your available credit increases or if you lower your credit card balance.

Pay off your credit card balance

One way that you may be able to lower your card utilization is to pay off your credit card debt. If you’re close to maxing out your credit cards, you run the risk of your utilization becoming too high. You can try to make more than one credit card payment a month to help you keep your balance low.

Ask for a credit limit increase

If you want to increase your spending power while keeping your credit utilization low, one thing you may be able to do is get a credit line increase. You can request a credit limit increase from your credit card company. It’s important to note that a credit line increase isn’t guaranteed. If you recently opened your account or haven’t managed your account wisely, you may have issues getting an increase approved. It’s still important to keep in mind that you can still run up your credit card balance (even with a limit increase) if you don’t practice good credit management.

Apply for a new credit card

You can get a new credit card to increase your total available credit. It’s important to carefully consider this option because applying for a new credit card may impact your credit score in other ways. But you may find it easier to keep your utilization ratio low if you have more than one card.

One thing you can do is see if you prequalify for any credit card offers. When you prequalify for cards, you typically only get a soft inquiry, and you can compare different card features to find the best credit card for you. Check to see if you prequalify for a Discover^® Card.

Keep your old credit cards open

You should keep your old credit cards open even if you don’t use them much because closing a card could lower your available credit, which in turn can increase your credit utilization ratio.

Monitor your spending

A good budget can help you manage your credit utilization rate. Limit your spending on your cards and always pay your credit card bill on time. You can get text or email alerts when a payment is due on your credit card. You should also check your credit utilization on your individual accounts, and make sure you’re not going over on any one card.

Remember, a credit card can be a great tool to help increase your spending power and give you access to more money than you have on hand. But it’s important to use your card wisely by keeping your credit utilization low. By establishing good credit habits, you can help secure your financial future.

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