What is credit utilization?

Credit utilization measures how much you're spending of your available credit limit from all cards combined.

For example, let's assume you have three different credit cards, with individual credit limits of $1,000, $4,000 and $5,000. Your total available credit will be the sum of these credit limits: $10,000.

Let's also say your current balances on these three cards are $350, $500, and $150. Your total outstanding balance is the sum of these: $1,000.

You can determine your credit utilization by dividing your total outstanding balance by your total available credit. In this example, your credit utilization would be $1,000 divided by $10,000; or in other words, 10%. To optimize your credit score, it's best to keep your credit utilization under 30%. If you can manage to keep it under 10%, that's even better.

In addition to paying down outstanding balances, another great way to increase your credit utilization is to apply for a new 0% interest credit card and increase your total available credit.