Overall and per card, what it takes to get under 30 and 10 per cent, and the two moves that raise the ratio without adding a penny of debt.
Divide the balances on your credit cards by their credit limits. With illustrative balances of $3,200 against $10,000 of limits, overall utilization is 32 per cent, but one card is at 70 per cent of its limit. Paying $200 brings the overall figure to 30 per cent and $2,200 brings it to 10 per cent; closing the unused card, with no new debt at all, pushes it to 45.7 per cent.
Worked in full in Personal Finance for Beginners by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Three cards, both balances at an illustrative 22.9 per cent APR. Utilization is computed on revolving credit: cards and credit lines, not instalment loans such as a car loan or a mortgage. The balance that counts is usually the one the issuer reports to the credit bureaus, which is typically the statement balance, not what you owe today.
| Card | Credit limit | Balance reported | Utilization |
|---|---|---|---|
| Card A | $5,000 | $1,800 | 36% |
| Card B | $2,000 | $1,400 | 70% |
| Card C, unused | $3,000 | $0 | 0% |
| Total | $10,000 | $3,200 | 32% |
Overall utilization = total balances ÷ total limits = 3,200 ÷ 10,000 = 32%
Per card = card balance ÷ card limit: A 1,800 ÷ 5,000 = 36%, B 1,400 ÷ 2,000 = 70%, C 0%
Excel: =SUM(C2:C4)/SUM(B2:B4) overall, =C3/B3 per card
Notice that the overall figure is not the average of the card figures. The average of 36, 70 and 0 is about 35; the true ratio is 32 because each card counts in proportion to its limit: card B, at 70 per cent, is a third of the simple average but only a fifth of the $10,000 of limits. Scoring models are widely reported to look at both the overall ratio and the highest individual card, so a single card near its limit can matter even when the total looks moderate.
Turn the ratio around: the balance allowed is the target times the total limit, and the payment needed is whatever sits above it.
Balance allowed = target × total limits
30%: 0.30 × 10,000 = $3,000, so pay $200
10%: 0.10 × 10,000 = $1,000, so pay $2,200
Thirty per cent is a widely quoted guideline, not a published threshold: scoring models do not disclose their cut-offs, and the general guidance is simply that lower is better, with single-digit utilization often cited for the strongest profiles. Treat the targets as staging posts.
Which card the money goes to changes the per-card picture. $800 paid on card B takes it from 70 to 30 per cent and the overall ratio to 24 per cent. The same $800 on card A takes A to 20 per cent and the overall ratio to the same 24, but leaves B at 70. Same total, different worst card. If the APRs differ, the higher rate should usually come first for cost; at equal rates, the card closest to its limit is the one to clear.
The ratio has two halves, and the limit side can move without your debt changing at all.
| Move | Total limits | Overall utilization | Payment to reach 30% |
|---|---|---|---|
| Nothing | $10,000 | 32% | $200 |
| Close unused card C | $7,000 | 45.7% | $1,100 |
| Limit on A raised to $8,000 | $13,000 | 24.6% | $0 |
Closing the card you never use feels tidy, and it raises your utilization by 13.7 points overnight, because $3,000 of limit vanishes while the balances stay. Getting back to 30 per cent would then take $1,100 instead of $200. A limit increase does the opposite, but only helps if the extra room stays empty: spending into it puts you back where you were with more debt.
Suppose you put $1,500 of everyday spending on card A each month and pay it in full after the statement arrives. You never pay interest on it. But if the statement is what gets reported, the bureaus see $4,700 of balances, which is 47 per cent overall and 66 per cent on card A. Paying the spending off a few days before the statement date, rather than after, lowers the reported figure without changing what you spend.
The table pays card B first, as the card nearest its limit, then card A.
| Paid | Card A | Card B | Overall | Interest saved a month |
|---|---|---|---|---|
| $0 | 36% | 70% | 32% | $0.00 |
| $200 | 36% | 60% | 30% | $3.82 |
| $800 | 36% | 30% | 24% | $15.27 |
| $1,400 | 36% | 0% | 18% | $26.72 |
| $2,200 | 20% | 0% | 10% | $41.98 |
| $3,200 | 0% | 0% | 0% | $61.07 |
The last column is the part that does not depend on any scoring model. At 22.9 per cent, $3,200 of revolving balance costs $61.07 a month, about $733 a year. The utilization ratio is a reading on the same problem the interest bill measures directly; how credit card interest is calculated shows that bill day by day.
Lenders use a different ratio for affordability: payments against income, worked in how to calculate your debt-to-income ratio.
The blank calculator in the free workbook for this book shows how much of a card payment is interest and how long the balance takes to clear.
Usually, because the limit disappears while the balances stay. In the worked example $3,200 of balances on $10,000 of limits is 32 per cent; close the unused $3,000 card and the same $3,200 sits on $7,000, or 45.7 per cent. Getting back to 30 per cent would then take $1,100 of repayments instead of $200.
Both are commonly looked at. The worked example is 32 per cent overall, but one card is at 70 per cent of its $2,000 limit. Paying $800 on that card brings it to 30 per cent and the overall figure to 24 per cent; the same $800 on the larger card leaves the 70 per cent card untouched.
Not necessarily. Card issuers usually report the statement balance, so spending $1,500 a month on a card and paying it in full after the statement still shows up. On the example's $10,000 of limits, a reported balance of $4,700 is 47 per cent. Paying before the statement date lowers what is reported.
This article is one calculation from Personal Finance for Beginners. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
Get the book on Amazon →Free companion files
Also on Amazon UK · Amazon Germany · Amazon France · Amazon Canada
Reading guide: personal finance and investing for beginners → · All 1340 articles →
If this book helped, or didn’t, a few lines on Amazon are worth more than they look: they are what the next reader goes on. Write a review. The workbook stays free either way.