What is Credit Utilization?

An explainer on one of the five factors that affect your credit score.

Let's dig in and find out what you can do to make sure your credit utilization is working for you. 

What is credit utilization?

It's determined with this ratio: the amount of credit you're currently using divided by the total amount of credit you have available. Think of it as the total debt you owe divided by your total credit limit. For example, if you have a total of $20,000 in available credit across three credit cards and you’re carrying a total balance of $10,000, your credit utilization rate is 50%.  

How does credit utilization impact things like taking out a loan?

As a general rule, you should try to keep your ratio below 30%. Credit scoring models (FICO, VantageScore) tend to see low utilization as a sign of financial wellness and good money management – things that boost your credit score over time. A higher ratio can suggest financial struggles – a potential red flag for lenders.

Do personal loans count toward credit utilization?

In short, no. It's largely based on revolving credit accounts, typically credit cards. It may help to think of revolving credit like an open credit line without a specific end date. This means the amount you owe revolves from month to month, depending on payments and spending.

When you make a payment, you are paying down your debt (utilization), creating more space to borrow additional funds against your open credit line, up to the card maximum.  

Personal loans (like a World loan), are not a factor in calculating your overall ratio. Instead, these types of loans factor into debt-to-income ratio.

How can I improve my credit utilization?

• Pay down your balance to keep the ratio nice and low. If possible, pay in full (and on time!).
• Keep your credit cards open – even if you aren’t using them – to keep available credit up.
• Request a credit limit increase (again, to raise available credit).
• Use a personal loan to pay down revolving credit debt (then keep the line of credit open).

Since a personal loan does not count against your ratio, it’s a smart way to pay down revolving credit while still maintaining available credit.