How much of your limit you use matters. Keep it low and pay in full.

What utilization is

The CFPB describes it this way: part of your score is based on the amount of credit you are using divided by the total amount you have available. This is your credit utilization ratio.

It applies to revolving credit, which mostly means credit cards. A card with a $5,000 limit and a $1,500 balance is at 30 percent.

How to calculate yours

Add up the balances on all your cards. Add up the limits on all your cards. Divide the first number by the second.

Look at each card by itself too. One card near its limit can stand out even when your total looks low. Your limits and balances are on your statements and on your credit reports.

The 30 percent and 10 percent guidelines

These are guidelines, not cliffs. The CFPB’s wording is that many experts recommend using less than 30 percent of your total credit limit, and that consumers with the highest scores often use less than 10 percent.

Nothing special happens at 31 percent. Lower is simply better, and very low is best.

You do not need to carry a balance

This is the most common mistake. The CFPB states it directly: you do not need to carry a balance on credit cards to get a good score, and you do not need outstanding debt at all.

Paying the balance in full each month helps you get the best scores and keeps your interest cost as low as possible. Leaving a balance on purpose only costs you money.

Why timing can matter

Scores are calculated at different times. The CFPB notes that if your score is calculated on a day you have a high balance, that can affect your score even if you pay the balance in full the next day.

Most of the time this does not matter. Before a mortgage or car loan, it can. In the month or 2 before you apply, pay the card down before the statement closes, not only before the due date.

Three ways to lower it

First, pay balances down. This is the only way that also saves interest.

Second, pay earlier in the month, so a lower balance is on the card when it is reported.

Third, have more available credit. A higher limit on a card you already hold lowers the ratio if your spending stays the same. Ask the issuer whether a limit increase request involves a hard inquiry before you make it.

What can raise it without you spending more

Closing a card removes its limit from your total. The CFPB warns that closing a card can increase your utilization ratio and lower your score.

An issuer can also lower your limit. The CFPB confirms that card companies generally can increase or decrease credit limits, and it gives this tip: do not get too close to your limit, so a lower limit does not cause problems.

Utilization is 1 factor

The CFPB lists what scoring models usually consider: your bill-paying history, your unpaid debt, the number and type of accounts, how long you have had them, how much of your available credit you use, new applications, and any collections, foreclosure, or bankruptcy.

Most scores treat payment history as the top factor. A low balance does not make up for a missed payment. Pay on time first, then manage the ratio.