Companies use your payment history to calculate 35 percent of your credit score. Almost as important is your credit utilization, which accounts for 30 percent of your credit score and measures how much of your available credit you use.
Creditors generally want to see you keep credit usage under 30 percent. In other words, if you have a credit line of $1,000, you don't want to use more than $300 of it. And people with the highest credit scores usually have debt utilization levels below 10 percent. Experts warn to never let your total credit usage rise above 50 percent unless you want your credit score to take a dramatic drop.
Keep in mind this portion of your credit score doesn’t measure your total debt, but the percentage of debt you are using. If you have $250 on four credit cards with credit limits of $1,000 each, you may think transferring all of the balances to a single card and closing the other three accounts is a sound financial move. But in reality, you've gone from using 25 percent of your available credit to 100 percent of your available credit, which will negatively impact your credit score even though you have not increased your total amount of debt.
One more word of caution. While a low percentage of credit utilization is ideal, you can actually go too low, Ganotis said. "Generally, the closer your utilization is to 1 percent the better it is for your credit scores, as long as it's not 0 percent," he said.