Credit utilization ratio: what it is and how it affects your credit score

What credit utilization means

FCAC describes your credit utilization rate, also called your credit use, as how much credit you use compared to your credit limit. Equifax Canada puts it more simply: how much of your available credit you’re actually using.

It applies to revolving credit, where you can borrow, repay and borrow again: credit cards and lines of credit. Lenders read a high ratio as a sign you may be stretched. FCAC says they may see high usage as higher risk even when you pay your balance in full every month.

Equifax says high utilization can lower your credit score and low utilization can help it. It’s one of several factors, alongside payment history and the length of your credit history. Our Lab note on what a good credit score is covers the full picture.

How to calculate your ratio

The formula is the same for one card or all of them.

FCAC gives a second example: if your total limit is $5,000 and you’ve used $1,000, your ratio is 20%.

Per card and overall

Your overall ratio is all your balances divided by all your limits. But Equifax notes that the utilization of individual accounts can also be factored into credit score calculations. So a card near its limit can weigh on your score even if your other cards are nearly empty.

The 30% guidance

There’s no single official cut-off, but two sources give a number.

Treat these as ceilings, not targets. FCAC also suggests aiming for a higher credit limit and using only a small portion of it.

Why timing matters

Equifax says card issuers report your balance to the credit bureaus once a month. That snapshot isn’t necessarily taken on your due date. Your statement closes at the end of the billing period, and FCAC says the grace period of at least 21 days starts then. You can pay in full by the due date, owe no interest, and still have a high balance reported.

That’s why FCAC says to keep your monthly utilization low even if you pay the full balance. The fix is to pay during the billing cycle. Equifax says making several payments per billing cycle can lower the balance that gets reported.

Worked example: two cards

Say you carry $1,500 on Card A, which has a $2,000 limit, and $400 on Card B, which has a $5,000 limit.

Overall you’re under FCAC’s 30% line, which would be $2,100. But Card A on its own is at 75%.

• Pay $1,000 on Card A before its statement closes and your overall balance drops to $900 of $7,000, about 13%.
• If Card A’s limit rose to $4,000, it would sit at 37.5% and your overall ratio would fall to about 21%, without paying anything extra.

Ways to lower your ratio

• Pay more than the minimum. Equifax lists this first after spending less.
• Make several payments each billing cycle, so less is owing when your issuer reports.
• Ask for a higher limit. FCAC says if you’re often close to your limit, ask your financial institution for an increase. Equifax adds that it helps only if your payment history is good and you don’t spend more.
• Keep older cards open, so their limits stay in your total.
• Pay down card debt faster with a balance transfer or a line of credit at a lower rate, while keeping the old cards open.

Asking for a higher limit or a new card may involve a credit check. FCAC warns that too many inquiries close together can make lenders think you urgently need credit, so space out applications. If you’re building credit from scratch, a secured credit card works the same way: its limit is the denominator. Check your credit report to see the balances and limits the bureaus have on file, and use the credit card interest calculator to see what a carried balance costs.