Credit limit utilization is a key factor in determining your credit score. This refers to the percentage of your available credit that you're using at any given time. For example, if you have a credit limit of $10,000 and you've used $2,000 of it, your utilization rate is 20%. Most experts recommend keeping your credit utilization below 30%, as high utilization rates can signal financial risk to lenders. A lower utilization rate can positively affect your credit score, showing that you're using credit responsibly without overextending yourself.

High credit utilization can lower your credit score, making it more difficult to secure loans or new lines of credit in the future. On the flip side, keeping your utilization low ideally under 10% can be a major factor in boosting your score. Credit utilization is a significant part of the “amounts owed” category in your FICO score calculation, which accounts for about 30% of your total score. Monitoring your utilization rate and making payments to reduce outstanding balances can improve your credit score and overall financial health.