Occasionally we get questions from readers who have gotten an automatic credit limit increase, and they wonder if there is a downside to accepting it. Or they close a little-used account and their credit scores go down, even though they are using cards and paying them off exactly as they had been.


What’s going on here? Credit scores are calculated in part based on how much of your available credit is being used. You can calculate your overall utilization by adding up all the reported balances on your revolving accounts (i.e. credit cards, lines of credit) and dividing that figure by the total credit limits. Credit scores also weigh in each individual account’s utilization rate.

Your amount of debt, which includes your “debt usage,” (or “utilization”) as it’s called, accounts for roughly 30% of your credit scores. That’s more than any other single factor except paying on time, which accounts for about 35% of your score. Getting a higher credit limit can be a good thing — assuming you don’t increase your debt in tandem — because it results in a lower debt utilization.

In general, the lower your balances relative to credit limit, the better. Credit experts suggest keeping this ratio at 25% or less, but if you are trying to improve your score, you may want to aim for no more than 10%. (You do want to use at least one of your credit cards, though. Having no activity at all doesn’t offer much insight into your repayment habits, and unused cards are at risk of being canceled, which would reduce your available credit and lower your credit age, another major scoring factor.) Using a credit card payoff calculator like this one can help you determine how long it will take you to get out of debt.

If you are concerned that you might be using more than the optimal amount of credit, you can set up mobile alerts to let you know when you are nearing a set spending amount. You can also pay early (or multiple times per month) to keep the balance low. This can be particularly smart if you are rebuilding credit with a secured credit card and have a low limit. You may also want to consider getting another credit card to lower your overall debt utilization rate — you can shop for credit cards on Credit.com.