Introduction to Credit Utilization

So what is credit utilization anyway?

That’s just a fancy way of talking about how much of your available credit you’re using. Would you feel safer lending money to someone who has plenty of people he could borrow from, or someone who has already maxed out his borrowing capability?  The credit card companies feel the same way.  This means you need to avoid doing two things:

• Don’t use up most of the credit on any one card
• Don’t use up most of your available credit overall

On the first point, it looks much better if you’ve used 30% of your available credit on three different cards, than 90% of your available credit on one; the latter looks like you’re using up all of your available credit and may not be a good credit risk. Obviously if you have high utilization on all of your cards, that’s even worse.  While your best bet is to check your spending habits and make sure you’re not overusing your credit cards, there are ways to influence your credit rating through card utilization without changing your spending habits.

Most credit card companies will increase your limit if you ask, especially when you have higher limits on your other cards.  Remember that credit card companies can see the limits on your other cards, and if they see that another issuer believes you can handle a certain amount of credit, they may increase your limit on their card as well. If you can raise the credit limit on several of your cards, then even if your credit usage stays the same, your usage as a percent of your available credit drops, which can increase your credit score.