How much of your available credit are you using right now? Experts generally suggest keeping your credit utilization ratio – the amount of credit in use compared to your credit limits – below 30% to keep your credit score high.
A new study from CompareCards.com shows that many Americans are struggling to meet that goal, especially in the South. In 27 of the fifty largest metropolitan areas, the credit card utilization rate is above 30% – led by San Antonio, Texas's average utilization rate of 35.1%. If the numbers are rounded, only fourteen of the fifty cities have rates below 30%.
Southern cities are well represented in the top ten utilization rates, including Birmingham, AL (33.3%), Memphis, TN (33.0%), Houston, TX (32.7%), Jacksonville, FL (32.0%), and Louisville, KY (31.9%).
The remaining four cities with top-ten credit utilization rates are Virginia Beach/Norfolk, VA (34.8%), San Diego, CA (32.1%), Baltimore, MD (31.9%), and Riverside, CA (31.8%). The Northwest isn't represented until Seattle, Washington's 31.2% in 13th place, while the first entry from the Northeast is Providence, RI (31.1%, 16th place).
The San Francisco Bay area in California had the two lowest credit utilization rates, with San Jose at 23.8% and San Francisco/Oakland at 26.0%. Colder climates held most of the other low credit utilization areas, including Pittsburgh, PA, and Boston, MA (tied at 28.9%), Cincinnati, OH (27.5%), Denver, CO (27.3%), and Minneapolis/St. Paul, MN (26.1%).
Raleigh, NC (26.7%), Tampa/St. Petersburg, FL (28.4%), and Orlando, FL (28.3%) round out the cities with the lowest credit utilization rates.
Not surprisingly, the study found a significant correlation between credit utilization and income. Cities with higher household incomes have lower utilization rates and vice versa. Families charge more in lower-income areas because they have to, and households with higher incomes are more likely to have higher credit limits.
While 30% is a decent target, borrowers with the highest credit scores tend to have very low credit utilization rates. Data from LendingTree.com found that people with credit scores over 800 – nearing the perfect credit score of 850 – use around 5% of their available credit.
How can you drop your credit utilization? The most obvious (and toughest) way is to pay your debts down and carry smaller balances. To do that, you'll have to adjust your budget to spend less than your income. If you want to reduce your interest payments and lower your debt, join MoneyTips and use our free Debt Optimizer tool. If you simply need more income, look for side gigs or unused items that you can sell.
Another way to increase credit utilization is to ask for a higher credit limit. A 2018 CompareCards.com survey found that 64% of credit cardholders who asked for a higher credit limit were successful, with an average credit limit increase over $2,000.
If you can control spending well enough, you can get a second card and spread your charges across both cards. Credit utilization will decrease with higher total credit limits – as long as you don't use the second card as a license to spend more. However, you could dilute your credit card rewards using this approach.
Consider a balance transfer card with a 0% annual percentage rate (APR) introductory offer as the second card. That way, you can clear off the first card and pay down the debt interest-free with the second card – but again, spending control is important.
Low credit utilization requires fiscal discipline – and a bit of luck to avoid financial emergencies. Can you reach the 5% goal set by the high-credit-score club?
If not, get as close as you can while staying under the 30% mark as often as possible. Your credit score will increase, opening up opportunities for better interest rate offers and perks on future credit needs.
You can check your credit score and read your credit report for free within minutes by joining MoneyTips.