Understanding Accounts That May Affect Your Credit Utilization Ratio

FICO® Scores only consider certain types of revolving credit accounts when calculating your credit utilization ratios.

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Your revolving credit utilization ratio is part of the Amounts Owed category, which can affect about 30% of a typical person's FICO® Scores. This makes it a potentially significant scoring factor, and a FICO Score considers your overall utilization rate and the highest utilization rates on specific revolving credit accounts.

Here's a primer on which accounts are part of the calculations, which balances matter, and whether carrying a balance on a credit card could help your FICO® Score, so that you can make better-informed decisions about managing your credit.

1. Credit Cards Affect Utilization

Credit cards are the most commonly used revolving credit accounts. You can borrow money by using your card, pay less than the full balance and revolve (or carry) the remainder to your next billing cycle.

FICO® Scores consider credit card accounts that are in your credit report when calculating your credit utilization ratios. This could include accounts that you open on your own, and accounts that you're an authorized user on.

What About Charge Cards?

Charge cards often look like credit cards, and you might be able to use them to make purchases online and in stores. However, charge cards are open lines of credit, not credit cards, which are revolving credit accounts.

With a charge card, you can borrow money, pay off the loan and borrow money again without applying for a new account. But you often have to pay off the entire balance each month — you can't revolve a portion of the balance with a charge card.

Generally, if the card issuer reports the charge card as an open credit account, it won't be included in the revolving credit utilization calculations.

What About Debit Cards?

Debit cards don't affect your credit utilization because they aren't revolving credit accounts and they are not reported to the credit reporting agencies — you're not borrowing money when you make a purchase with your debit card unless you overdraw your account. However, some companies offer bank accounts with an accompanying card for building credit.

These cards function like debit cards, allowing you to make purchases and have the amount immediately withdrawn from your account to cover the balance. But they might actually be secured credit cards. If the company reports the card as a secured credit card to the credit bureaus, it could affect your credit utilization rate.

2. Personal Lines of Credit Affect Utilization

An unsecured personal line of credit is another type of revolving credit account. Similar to a credit card, you may receive a maximum credit limit, can take out loans against the credit line and repay the balance over time — sometimes making interest-only or minimum monthly payments.

Alternatively, the line of credit may have an initial draw period when you can take out loans. The draw period is followed by a repayment period when you have to repay the outstanding balance on a fixed schedule.

As a type of revolving credit account, your personal lines of credit could affect your credit utilization rate.

What About Home Equity Lines of Credit?

A home equity line of credit (HELOC) is similar to a personal line of credit, except you use your home as collateral to secure the line of credit. FICO® Scores treat HELOCs differently than unsecured personal lines of credit.

The HELOC is still considered a revolving credit account in terms of your credit mix. Your payment history, amount owed and the account's age can also affect your FICO® Scores. However, the FICO Score generally excludes HELOCs from credit utilization calculations.

3. Closed Revolving Accounts with Balances Affect Utilization

Sometimes card issuers will close past-due credit cards. You also might choose to close an account and then pay off the balance over time. FICO® Scores will consider these closed revolving accounts with a balance in utilization calculations.

Once the current balance is reported as $0, the closed account will no longer be included in your credit utilization. This is why closing a paid-off credit card might increase your utilization rate — the available credit on the card will no longer be included in your total available credit.

More Credit Utilization Tips to Keep in Mind

Knowing which accounts the FICO® Score considers when calculating credit utilization is important. Additionally, you may want to consider the following tips:

• FICO® Score uses the credit limits and balances from your credit report to calculate utilization which may be different from the current balances you see when checking your account online.
• A low utilization rate might be better for your FICO® Score than 0% utilization.
• You don't have to carry a balance to have credit utilization because card issuers generally report your account information before your bill is due. Using your card for a small purchase and then paying off the balance could help you maintain a low utilization rate without paying interest. If you regularly use a large portion of your available credit and pay your bill in full, you may want to make early payments to avoid having a high utilization rate.
• Some people recommend keeping individual account and overall utilization rates under 30%. But the 30% point doesn't determine who has good or bad credit. A lower utilization rate could be even better — for example, people with 850 FICO Scores have an average overall utilization rate around 4.1%.
• Most FICO Scores only calculate and consider utilization rates based on the most recently reported account information. However, FICO Score 10 T considers trends in your credit history, which may include trends related to your utilization rates.

Understanding your credit utilization rate can be important, but don't forget that many factors can affect your FICO® Score. Learn more about what's in your FICO Score and how to manage credit responsibly to increase your score over time.

You can also get your FICO® Score from FICO for free to track your progress. No credit card required.

Louis DeNicola

Louis DeNicola is a finance writer based in Oakland, California. He specializes in consumer credit, personal finance, and small business finance, and loves helping people find ways to save money. In addition to FICO, Louis works with a variety of financial services firms, credit bureaus, and educational websites, including LendingTree, Credit Karma, and Experian.