Americans Are Using Far Too Much Credit

by Christy Bieber | Updated July 21, 2021 - First published on Feb. 1, 2020

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The average American's credit score could be suffering because of too much credit use.

Did you know that the amount of credit you use has a big impact on your credit score? In fact it's the second most important factor that goes into determining your score. 

Unfortunately, millions of Americans are using far too much of their credit. The result is that they likely have reduced credit scores because of it. This could lead to a denial when you apply for a credit card or personal loan -- or it could mean you have to pay more for any credit that you are extended.

How much credit use is too much?

The amount of your available credit used, relative to credit extended to you, is called your credit utilization ratio. If you have $1,000 in credit available and have charged $500, you have a 50% utilization ratio because you're using half of your available credit line. 

To maintain a good FICO® Score, you should keep your credit utilization ratio to no more than 30% of your available credit. 

Unfortunately, many Americans are falling short of that ideal ratio. In fact, according to data from FICO, the average credit utilization is actually 33% -- 3% above the minimum recommended amount. That means those with an average credit utilization ratio, or an above-average ratio, are doing damage to their credit scores. 

What is the ideal credit utilization ratio?

While 30% is the maximum credit utilization ratio you should aim for if you want to avoid hurting your credit, you actually should try for an even lower ratio whenever possible. That's because a lower ratio is considered even more favorable by credit reporting agencies and lenders.

Consumers with credit scores of 800 or higher generally have much lower ratios, with the average ratio among this group at just 7%. So if you had that $1,000 credit limit, you'd want to use no more than $70 of your credit on that card if you were aiming to have a score above 800. 

Not everyone can keep their credit use to quite such a minimal level -- but ideally you should aim to keep your balance below 10% of your available credit.

How can you keep your credit utilization ratio low? 

The best way to keep your credit utilization ratio low is to avoid charging too much on your credit cards. The more you charge, the higher your ratio.  

If you use your card for most purchases and pay off the balance each month, you should contact your creditor to find out when it reports your balance to the credit reporting agencies. If it reports your outstanding balance before you've had a chance to pay off your debt, your credit utilization ratio may be very high even though you pay your bill in full each month. Try to make your payments before the creditor reports so you can lower the amount of credit used. 

You can also request a credit line increase. After all, if your credit limit becomes higher, your utilization ratio becomes lower even if your balance stays the same. This is a quick fix, but it's not a substitute for paying down credit card debt since you also have interest costs to think about. 

Don't hurt your credit by charging too much

If your credit utilization ratio is 33% like the average American -- or if you're using even more of your available credit than the average -- making a change is important to improve your credit score. Start working today on paying down debt so you can lower your ratio and raise your score in the process.

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