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Credit 101: What Is Revolving Debt Utilization?

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The First Thing To Do Before Applying For a Credit Card

A “revolving” credit account is an account where your monthly payment is based on your balance, which can change from month to month. Revolving balances can also be paid in full without incurring finance charges, if paid within the the “grace period.”

Revolving utilization, also known as your “debt-to-limit ratio” or “credit utilization,” measures the amount of your revolving credit limits that you are currently using. Your revolving utilization is an important part of your credit score. These calculations are made both on individual revolving accounts, and on the total credit limits and balances of all revolving accounts appearing on a credit report.

The majority of revolving accounts are credit cards or retail store cards of some type. Home equity lines of credit (HELOCs) are also considered revolving accounts, although most credit scores exclude HELOCs from utilization calculations. Here is how you can determine your “individual” and “overall” revolving utilization:

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  1. Look at your credit reports and identify all of your revolving accounts. Each of these accounts has a credit limit (the most you can spend on that account) and a balance (the balance amount from your last billing statement).

  2. To calculate individual utilization percentage on an account, divide the balance by the credit limit, and multiply that number by 100.

  3. To calculate overall utilization (all revolving accounts), add up all of the credit limits (total credit limit) and all of the balances (total balance) on your revolving accounts, divide the total balance by total credit limit, and multiply that number by 100.

Example of individual utilization: I have a credit card with a $5,000 credit limit and a $1,000 balance. I divide $1,000 by $5,000 and get 0.2. I then multiply 0.2 by 100 to arrive at 20%. My individual revolving utilization is 20% for that account.

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Example of overall utilization: If I have two credit cards, each with a $5,000 credit limit, my total credit limit is going to be $10,000. If I have a $2,500 balance on each of those cards, my total balance will be $5,000. I divide $5,000 by $10,000 and get 0.5. I then multiply 0.5 by 100 to arrive at 50%. My overall revolving utilization is 50%.

The percentages just calculated measure how much of your available credit you are currently using. These are some of the most important factors in a credit score, making up almost 30% of your score. To maximize your credit score, you’ll want this number to be as low as possible, with 10%, or lower, being ideal for most consumers.

Want to know what your revolving debt utilization is? Try Credit.com’s free Credit Report Card for an easy to understand overview of all the information in your credit report along with your free credit scores.

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  • Jenny B

    I am truly perplexed…for years, I had heard and read many times that having 30% or less credit utilization was considered to be good. Now, it seems like it suddenly has dropped to 10% or under? What gives?

    • Credit.com

      It depends on who you listen to. Some experts say 35%, some say 30%, even others say 20-25%. The bottom line is that the lower your revolving utilization percentage the better your score — 30% is better than 35%, 20% is better than 30%, etc. Having said this, with the FICO scoring model specifically, you earn the maximum possible points in that particular category when your utilization is 10% or less. They released a study late last year that showed high scorers (what they call the credit elite) carry an average of 7% on their total available credit limits.

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