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A high credit card utilization typically stops hurting your credit score once a new, lower balance is reported to the credit bureaus. The main way to reduce your credit card utilization is to pay down your balances. Once you do that, your score might recover within a couple months, all other things being equal.
How Long Does High Credit Card Utilization Impact Your Credit Score?
For most credit scoring models, a high credit card utilization can impact your credit score as long as your balances remain high. If you pay down your balance and your card issuer reports the lower credit card utilization to the credit bureaus, you could see a positive effect on your scores in as little as 30 days.
Credit scores are sensitive to your credit utilization ratio—the amount of credit you're using relative to your total credit limits. The lower your utilization, the better for your credit score.
However, some newer scores, namely VantageScore® 4.0 and FICO® 10 T Score, use something called trended data. Those credit scores include utilization data from up to 24 months ago. You can think of traditional credit scores as a snapshot and scores using trended data as a video. As the name implies, they look at the trend over time. Are your balances overall growing or shrinking? They aren't yet used for mortgages, but they will be in the future. The use of trended data means that paying off credit card debt all at once, whether through a loan or a windfall, is unlikely to keep a history of high balances from affecting your credit score.
Most credit experts suggest keeping credit utilization under 30%. That means if you have a credit card with a $3,000 limit, you should keep the balance under $900 to avoid doing more serious damage to your credit score. If your credit utilization changes significantly, the impact to traditional scores can be large.
How Credit Utilization Rate Affects Credit Scores
Credit card utilization is the portion of your credit card limit that is in use. Credit utilization is an important factor in calculating "amounts owed," which makes up about 30% of your FICO® Score☉ . FICO Scores are used by 90% of top lenders, so it's an important consideration.
You can calculate your credit card utilization by dividing your card's balance by its credit limit. Similarly, overall credit utilization is the sum of your total credit card debt across all cards divided by the sum of your credit card limits and multiplied by 100.
Here's an example of how this could work.
Let's say you have a retail credit card with a credit limit of $300, and you charge $150 worth of merchandise. You now have a credit card utilization rate of 50%—well above the recommended 30% ceiling—for that particular credit card.
Now let's say you have a second credit card that you mainly use to buy coffee. It has a credit limit of $5,000 and the typical monthly balance is also about $150. The utilization on that card is just 3% ($150 divided by $5,000, multiplied by 100).
If you only have these two cards, overall utilization would be slightly less than 6% ($300 divided by $5,300, multiplied by 100). That's an excellent overall credit utilization rate.
Tips for Decreasing Your Credit Utilization Rate
Whether a score algorithm uses the most recent balance reported or trended data, a habit of keeping your balances low relative to credit limits (and avoiding missteps that could hurt your score) can help your credit score. Here's how to get and keep your credit card utilization low.
- Pay down credit card balances. Lower balances relative to credit limits translate into lower credit utilization. Enact a plan to pay off your credit cards, and your scores will likely improve over time.
- Ask for a credit limit increase. This works best if the credit card is not brand new or if your income has increased. It may also result in a hard inquiry on your credit report which could ding your score by a few points. Before you ask your card issuer for a limit increase, check your credit score.
- Apply for a new credit card. Again, your credit score will make a difference, but a new card will increase your overall credit limit. If your credit card debt does not change, that can help reduce your utilization.
- Consolidate your credit card debt. A debt consolidation loan could help you lower your credit card utilization by reducing the amount you owe on credit cards. However, you still owe about the same amount of money. Another advantage of a debt consolidation loan is you may pay less interest on what you owe. Just be sure you don't run up your credit card balances after taking on the loan, or you could end up in a worse situation.
- Keep credit cards open. Unless you have a compelling reason to close your credit card accounts, keep them open. They contribute to both your overall credit limits and the average age of your credit accounts, a minor factor in your credit score. If you are trying to avoid an annual fee, ask the issuer if you can switch to a card that doesn't have one.
- If a low credit limit results in high utilization, consider paying early. Once a charge posts, you can typically pay it off online. You don't have to wait for a statement, and paying early can help you avoid a high utilization on your credit report.
The Bottom Line
With most credit scores, any damage from a high credit card utilization goes away when credit bureaus have up-to-date information on your new, lower balances. However, it's still smart to make a habit of keeping balances relatively low. Newer scores using trended data look back at up to 24 months' worth of balances and payments, so routinely controlling the balances can be smart. The use of trended data also means that a spike in balances that occurs in a pattern (the holidays, let's say) won't have as much impact.
You can see the impact of your spending and borrowing habits on your credit scores for free with Experian's FICO® Score. No credit card is required—it's truly free, and you can use it to see your progress as you build and then maintain good credit.