Credit utilization is your total credit card balances divided by your total credit card limits. A buyer with $3,000 owed across cards with $10,000 in limits is at 30%. FICO puts "amounts owed," which leans heavily on utilization, at about 30% of the score, second only to payment history, and it's the part of a score that can change fastest.
How mortgage programs see it
FHA, VA, USDA and Conventional rules never mention a utilization percentage. Utilization affects your approval in two ways.
The first is your score. Lenders pull a tri-merge report and use the middle of your three scores. FHA allows 3.5% down from 580 and 10% down from 500 to 579. Most Conventional loans start at 620, and Conventional mortgage insurance runs roughly 1.50% a year near 620, falling as the score climbs to 0.46% at 760 and up. On a $291,000 loan, 1.50% is $363.75 a month, so a higher score can lower the payment as well as open the door.
The second is your debt-to-income ratio. Lenders count each card's minimum payment, and FHA and Fannie Mae count 5% of the balance when the report shows no minimum. High balances raise those minimums, and the minimums come out of the room left for a house payment.
A worked example with three cards
Dana has three cards and $10,000 of total limits:
| Card | Balance | Limit | Utilization |
|---|---|---|---|
| Card A | $1,800 | $2,000 | 90% |
| Card B | $900 | $3,000 | 30% |
| Card C | $300 | $5,000 | 6% |
| Total | $3,000 | $10,000 | 30% |
Overall, Dana sits right at the CFPB's 30% guideline, yet card A is nearly maxed. Scoring models look at each card as well as the total, so the 90% card drags on the score by itself.
Paying $1,500 toward card A drops its balance to $300, or 15% of its limit. Total balances fall to $1,500, and overall utilization falls to 15% ($1,500 ÷ $10,000).
Paying off card C and then closing it would hurt. Cards A and B would still carry $2,700, and without card C's $5,000 limit that's 54% of the $5,000 left ($2,700 ÷ $5,000). With card C paid off and left open, the same $2,700 is 27% ($2,700 ÷ $10,000).
Lowering yours before you apply
Pay before the statement date. Card companies usually report the balance on your statement, so a payment made before the statement closes shows up as a lower balance on your report.
Start with the card closest to its limit. A maxed card weighs on the score more than the same dollars spread across several cards.
Keep paid cards open. Each open limit adds to the total that your balances are measured against.
Hold off on new cards and store accounts. A new account adds an inquiry and, once used, a new minimum payment.
When a payoff needs to show up quickly, a rapid rescore can update your credit report within days of the payment posting.
Enter your card minimums in the DTI calculator to see what each payoff frees up. To learn which card to pay first for the biggest score lift, call AAA Capital Funding at 888-601-8344 with your balances and limits in front of you.