Lesson 2 of 5

Credit utilization: the number most people ignore

Credit utilization is the percentage of your available credit you're currently using, both per card and across all your cards combined. Carrying a $2,000 balance on a card with a $10,000 limit is 20% utilization on that card. General guidance is to stay under 30%, and under 10% is even better for people optimizing for the highest possible score. The part most people miss: utilization is typically calculated from your statement balance, not your balance right before it's due -- meaning even if you pay your card off in full every month, a high balance on your statement closing date can still show as high utilization and affect your score, even though you never carried interest. If you're planning something that depends on your score soon -- a mortgage, a car loan -- pay down balances before the statement closing date, not just before the due date. This is one of the few credit factors that can improve within a single billing cycle, since it reflects your current balance rather than years of history like payment history does.