Liz Weston: What is credit utilization and how is it calculated?

Dear Liz: Our credit scores are in the low 800s. We pay all credit card balances before the next bill.

We are currently paying for a cruise for us and our daughter and her husband. We worry about using too much of our available credit and lowering our credit score. We are using the same credit card and paying half the balance this billing period and the other in the next billing period.

I haven’t been able to calculate the “debt usage,” but I’m sure it will be more in the next two months even though we will pay the full amount. With this huge payment, can you suggest anything else we can do?

Answer: It’s yours use credit it’s just the amount of available credit you’re using. If your card has a $10,000 limit and you make $5,000 in charges, your credit limit is 50%. (If you’re not sure what your credit limit is, you can check your account online or call the number on the back of your card and ask.)

In general, the less credit you use the better.

The balance that matters for credit scoring purposes is the balance that is reported to the credit bureaus – and that’s usually what you owe on the date your account is closed.

Making a payment before closing the account can help reduce your credit utilization. Some people make payments every week, or more, to keep their usage in the single digits.

If you’re not planning to apply for a new credit card or loan, however, you may not need to worry about a temporary bump in your credit score because it’s so high. You may still have good credit and recovery after you pay off the balance.

Liz Weston, Certified Financial Planner, is a personal finance writer for NerdWallet. Questions can be sent to him at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at

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