Credit utilization is a central factor in credit scoring, second only to payment history. Utilization measures how much of your available credit you are currently using. For example, if your credit card has a $10,000 limit and you’ve charged $2,500, your utilization is 25%. Credit scoring models such as FICO and VantageScore weigh utilization heavily, generally rewarding cardholders who keep it below 30%. Lower utilization indicates that you are managing credit responsibly, not relying too heavily on borrowed money.

The best scores typically come from keeping utilization under 10%. It’s important to note that utilization is usually reported at the end of the billing cycle, not after payment. This means that even if you pay in full each month, your utilization could appear high if you charge a lot before the statement closes. Strategies to lower utilization include paying off balances before the statement date or spreading purchases across multiple cards. High credit limits can also help reduce utilization, but they come with the risk of overspending if not managed carefully.