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What is the Best Credit Utilization Ratio?

A credit utilization ratio in Canada has an impact on your credit score. Utilization ratios express the amount of credit you’re using against the total amount available to you. Generally speaking, credit utilization only reflects activity from credit card issuers. However, other credit products are not affecting your credit score.

In this article, we’ll explore the best credit card utilization ratio. This includes an overview of what a credit utilization ratio is. Also, how it impacts your credit and how to improve your rate.

What is a credit utilization rate?

A credit utilization rate reflects how much credit you are using against how much is available to you. In other words, it’s the percentage of total credit you’re using at the moment.

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Why is your credit utilization important?

Your credit utilization ratios affect your credit scores. More specifically, credit utilization makes up 30% of your credit score calculation. If your credit utilization rate is high, your credit score might suffer. Being mindful of how much credit you’re using will help you achieve and maintain a good credit score.

Credit utilization is important to consider for your general financial health. When people carry a lot of credit, they are more susceptible to financial hardship. If an unexpected expense or a sudden job loss were to arise, over-leveraged individuals are the most at risk. Generally speaking, lower credit utilization ratios indicate better financial health.

What is a good utilization ratio?

A credit utilization ratio of 30% or less is ideal. A rate of 30% or less increases your credit score. On the contrary, you may think a credit utilization of 0% is the goal. However, this is not true. If you don’t use your credit, you won’t build a payment history. Your payment history has the largest impact on your credit. For this reason, your goal shouldn’t be to never use any credit. Thus, your aim should be to find a healthy balance between 10% and 30% in credit utilization.

What are the limitations of credit utilization ratios?

If you’re reducing your credit utilization ratio to improve your credit score, you might not see results immediately. Credit reporting is not updated every day. Recent payments or new credit won’t reflect immediately.

Another limitation is a credit utilization ratio is not everything. Having credit available to you can help in an emergency, such as losing your job or an unexpected expense. If you need to use your credit in a pressing financial situation, that’s what it’s there for. Fixating on how much credit you’re using isn’t everything. Of course, you should manage your personal finances with stability in mind. But sometimes financial emergencies arise and that’s okay.

How to calculate your credit utilization ratio

Credit utilization ratios only reflect revolving credit. This includes credit card accounts. Other types of credit do not impact utilization, such as personal loans and mortgages. For calculation purposes, only consider your revolving credit accounts.

You can calculate your credit utilization ratio by following the below steps:

Step 1Add up total available credit
Step 2Add up all current credit card balances
Step 3Divide the total balance by the total credit card limits
Step 4Multiply by 100

Now, you have your credit utilization ratio expressed as a percentage.


Marcus has 3 credit cards with credit limits of $1,000, $2,500 and $1,500. The current balances are $560, $1,200 and $755, respectively. Marcus’ total credit limit is $5,000 ($1,000 + $2,500 + $1,500). His total current balance is $2,515 ($560 + $1,200 + $755). Marcus’ credit utilization ratio is 50.3% ($2,515 / $5,000 x 100).

Ways to reduce and improve your credit utilization

There are several strategies you can use to improve your credit scoring through utilization rates. Let’s explore them further below.

  • Pay down balances early. If you make payments in full earlier than the due date, your amount owing will be lower sooner. Therefore, this means there’s a better chance low balances will reflect on your credit report.
  • Monitor spending habits. It’s much easier to overspend on a credit card than with actual cash. Start to assess your spending habits and determine where you can make improvements.
  • Don’t close unused cards. After paying off a credit card, temptation to close the account may arise. You can’t overspend on a closed account. However, you would be reducing the total credit available to you. Instead, keep the account open to preserve your credit utilization ratio.
  • Increase your credit limit. By obtaining more credit, you’re increasing the overall credit available to you. This is a quick way to decrease credit utilization ratios.
  • Balance transfers. If you’re struggling to stay on top of credit card debt, consider a balance transfer. Many companies offer a reduced rate for a specific period of time. This usually motivates people to pay off the debt quickly.
  • Set up balance alerts. It’s easy for payments to slip through the cracks. But the more payments you miss, the higher your balances will become. Consequently, this will make your credit utilization ratios worse and worse over time. By staying on top of payments, your credit utilization will remain in a healthy place.

Credit Utilization and You

Maintaining health credit utilization will help your credit score. In addition, it will keep you in a healthy financial position since you aren’t over-leveraged. If you need help understanding credit utilization or want assistance with your credit score, reach out to Consolidated Credit. Their team of experts and professionals can help you achieve your financial goals!

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