What Credit Utilization Is (and Is Not)
Credit utilization applies specifically to revolving credit:
- Credit cards
- Lines of credit (personal, HELOC)
It does not apply to:
- Mortgages
- Car loans
- Student loans
- Other installment loans
Paying down a car loan does not lower your utilization ratio. Only paying down credit cards and lines of credit does.
How Utilization Affects Your Score: The Thresholds
Scoring models do not treat utilization linearly. There are approximate thresholds where the score impact accelerates:
| Utilization Range | Score Impact |
|---|---|
| 1–9% | Best — near-optimal for scoring |
| 10–29% | Good — modest negative below 30% |
| 30–49% | Threshold zone — score begins to drop meaningfully |
| 50–74% | Significant negative impact |
| 75–89% | Large negative impact |
| 90–100% | Severe — one of the highest score-damaging states short of a missed payment |
| 0% (no balance reported) | Slightly worse than 1–9% (unused credit) |
Total Utilization vs Per-Card Utilization
Both are evaluated independently in scoring. Consider this example:
| Card | Limit | Balance | Per-Card Utilization |
|---|---|---|---|
| Card A | $10,000 | $9,000 | 90% ← Problem |
| Card B | $10,000 | $0 | 0% |
| Card C | $5,000 | $0 | 0% |
| Total | $25,000 | $9,000 | 36% total |
Even though total utilization is 36%, Card A at 90% is likely suppressing the score significantly. The optimal strategy is not to move debt from Card A to Cards B and C — that keeps total utilization the same — but to pay Card A down.
The Statement Date Timing Trick
Your credit card company reports your balance to Equifax and TransUnion on your statement closing date (the last day of each billing cycle). Your payment due date is typically 21 days after that.
Most Canadians pay on or before the due date — which is correct for avoiding interest, but too late to reduce the reported balance.
Timeline Example
| Date | Event |
|---|---|
| March 1 | Billing cycle starts |
| March 25 | Statement closing date — balance of $2,400 reported to bureau |
| April 15 | Payment due date |
If you pay $2,000 on April 15, the March 25 reporting already locked in $2,400. Your next reporting at April 25 will show the reduced balance.
To reduce the reported balance: Pay before March 25. Even paying to $200 before the statement closing date reports a $200 balance to the bureau.
Credit Limit Increases as a Utilization Tool
A higher credit limit with the same spending means lower utilization — without paying a dollar more.
| Before Limit Increase | After Limit Increase |
|---|---|
| $3,000 balance, $6,000 limit = 50% utilization | $3,000 balance, $10,000 limit = 30% utilization |
How to Request a Limit Increase
- Call the number on the back of your card or log in to your card’s online portal
- Request a “credit limit increase”
- Ask specifically: “Is this a hard or soft inquiry?”
- Hard inquiry: a few points temporary drop, but may be worth it if the increase is large
- Soft inquiry: no score impact
- Most major banks can approve increases with a soft pull if your income qualifies
Who gets approved: Income growth since account opening, long tenure with the card, low utilization currently, zero missed payments.
Installment Loans vs Revolving Credit: Different Treatment
Installment loan balances (mortgage, car loan) are tracked by bureaus but do not feed into your utilization ratio the same way. Scoring models recognize:
- Mortgages are designed to be fully drawn; a $400,000 mortgage balance at a $400,000 limit is not “high utilization”
- Credit cards are revolving and meant to be partially used; a $9,000 balance on a $10,000 card signals overspending
This is why paying down your car loan does not improve your utilization score, but paying down your credit card does.
Multiple Cards: The Portfolio Effect
Having more credit cards than you use well can actually help your utilization score — as long as you do not use them heavily.
| Scenario | Total Limit | Total Balance | Utilization |
|---|---|---|---|
| 1 card, $5,000 limit, $2,000 balance | $5,000 | $2,000 | 40% |
| 3 cards, $15,000 combined limit, same $2,000 balance | $15,000 | $2,000 | 13% |
Having more available credit — which you do not use — lowers your utilization ratio mechanically. This is why responsibly holding 2–3 credit cards can be better for your score than holding 1.
Caveat: Each new card application is a hard inquiry. Space applications 6+ months apart.
Utilization and Mortgage Applications
Mortgage lenders pull your credit during the application process. If you are planning to apply for a mortgage:
- Pay down all credit card balances to under 10% of limits before the application — ideally before the statement closing date that precedes your application
- Do not close cards (reduces available credit, hurts utilization)
- Do not apply for new credit in the 90 days before a mortgage application
- Ask your broker which bureau the lender will pull, and ensure that bureau’s report reflects your optimized balances