How Credit Utilization Impacts Your Credit Score

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How Credit Utilization Impacts Your Credit Score

Did you know that one of the fastest ways to improve your credit score has nothing to do with opening new accounts or waiting years? It’s called credit utilization.

This article explains what credit utilization is, how it affects your score, and practical strategies to keep it low.

What is Credit Utilization?

• The percentage of your available credit you’re currently using

• Formula: (Total Credit Card Balances ÷ Total Credit Limits) × 100

• Example: ₦30,000 balance ÷ ₦100,000 limit = 30% utilization

Why Credit Utilization Matters

• Makes up 30% of your credit score (FICO model)

• High utilization = higher risk for lenders

• Low utilization = signals responsible borrowing

• One of the quickest factors to change your score

The Ideal Credit Utilization Ratio

• Under 30% = acceptable

• Under 10% = excellent

• Over 50% = risky, damages score

• 0% utilization can also hurt → shows no activity

How High Utilization Affects Your Score

• Can drop score by 50–100 points

• May lead to loan/credit card rejections

• Higher interest rates on new credit offers

Strategies to Lower Credit Utilization

1. Pay Balances Twice a Month

   • Prevents high balance reporting at billing cycle end

2. Request a Credit Limit Increase

   • Same balance, higher limit = lower utilization

3. Spread Balances Across Multiple Cards

   • Avoid maxing out one card

4. Use Personal Loan to Pay Off Cards

   • Converts revolving debt into installment loan (doesn’t affect utilization ratio)

5. Track Spending in Real Time

   • Apps like Mint, YNAB, Cowrywise (Nigeria) help monitor

Example: How Lowering Utilization Boosts Score

• John has ₦200,000 limit, ₦150,000 balance → 75% utilization

• Pays down ₦100,000 → new balance ₦50,000 (25% utilization)

• Result: Score jumps 70 points in 2 months

Mistakes to Avoid

• Closing old credit cards (reduces available credit)

• Maxing out cards, even if you pay in full monthly

• Ignoring utilization on store cards (they count too)

FAQs

• Does utilization matter if I pay in full every month? → Yes, because lenders report balances at statement date

• What’s better: one card with 0% vs. multiple cards? → Multiple cards can lower utilization ratio

• How quickly will my score improve after lowering utilization? → Usually within 30–60 days

Conclusion

Credit utilization is one of the most powerful levers in managing your credit score. By keeping balances low relative to limits, you’ll not only boost your score but also enjoy better loan approvals, lower interest rates, and financial peace of mind.