Credit Rating Amount Owed as Percentage of Available Credit

A credit rating considers five major areas of credit use: payment history, amounts owed, length of credit history, types of credit and new credit. One of the major calculations that affects your score in the amounts owed area is the percentage of your available credit that you currently owe on credit cards, also known as your credit utilization.

Utilization Basics

Credit scores consider not only your utilization on each credit card but also your overall utilization across all cards. Calculate utilization by dividing a card balance by the card's limit. For example, if your most recent statement on a credit card shows a balance of $2,392 and a credit limit of $4,000, your utilization is 60 percent. If you also have another card with a balance of $120 and credit limit of $3,000, your overall utilization is 36 percent. Utilization over 50 percent on any one card or overall can hurt your credit score, according to Fair Isaac Corporation. Liz Weston of MSN Money recommends keeping your utilization below 30 percent for best results.

Decrease Utilization

If your utilization on any one card or overall is above 50 percent, decrease the utilization to boost your credit rating. There are two major ways to decrease your utilization. The first is to reduce your balance on the card by putting fewer purchases on the card and making more payments. The second method is to increase your credit limit. For example, if you have a card with a balance of $816 and a credit limit of $1,500, your utilization is 54 percent. If you call customer service and get your credit line increased to $3,000, your utilization suddenly drops to 27 percent.

Effects of Closing Cards

Closing a credit card account can impact your utilization, so do the math and evaluate the change in utilization before deciding to close an account. You should never close an account with a balance, and any card with 0 percent utilization helps your credit score. When you close a card and lose access to the available credit on that card, your overall utilization is likely to increase. For example, say your balances on all cards add up to $2,219 and your credit lines add up to $8,000, which means your utilization is 28 percent. If you close one of the credit cards, which has no balance and a credit line of $4,000, your utilization will now be 55 percent.

Utilization Tips

Banks sometimes close inactive credit card accounts, so if you carry balances on some cards and would see your utilization spike if a bank closed an empty card, protect your credit rating by using cards with a $0 balance every few months. If your utilization is high and you are planning to apply for credit soon, it might seem like a good idea to increase your available credit by applying for new credit cards. However, opening a card temporarily hurts your credit score through the area that considers new credit, so it is not an effective short-term solution to raise your credit score.