For some spenders, a credit limit is like a speed limit: the highest they can go without getting into trouble.

Credit scores place a big emphasis on how much of your credit you use every month. Called a credit utilization ratio, your score dips when that quotient climbs.

And your credit score doesn’t distinguish between the balances you’re paying off every month and those you don’t. It only looks at the totals you’re charging.

The bottom line for consumers is that if you want to keep your scores high, you need to keep those balances low.

How low can you go?

Want to calculate your utilization rate? Add up last month’s card balances. Divide that by the total of all your credit limits on open credit card accounts. The two-digit number after the decimal point is your utilization rate.

Go back and do the same thing for each individual card, too. That’s because the FICO score looks at how much of your total limit you’re using with all your cards together, along with each card individually, says Barry Paperno, consumer operations manager for FICO, the Minneapolis company that produces the FICO score. Utilization rates count for almost 30 percent of your score, he says.

So just how low do those rates need to be? “It varies from consumer to consumer, depending on their overall profile,” says Paperno.

“The lower that percentage, the better for your score,” he says. The goal is not zero, but as close to that as you can manage.

“The people in this country that have the highest scores — 760 and above — have an average utilization of 7 percent,” says John Ulzheimer, president of consumer education for in San Francisco. He recommends keeping those balances to 10 percent or less of the credit limit.

And that’s “reasonable,” says Paperno. “If you’re in that range, you’re not going to get yourself in a lot of trouble, score-wise,” he says.

One irony for consumers is that a zero balance can hurt your score. That’s because the score rewards the individual who can use credit cards but keep the balances low, says Paperno. “But zero indicates that you are not using your cards,” he says.

Why it matters if cards don’t report credit limits

Some cards don’t report credit limits to the bureaus. In that case, the entity calculating the score will often substitute the consumer’s highest balance, which can make your utilization rate look higher than it truly is.

The best way to find out which cards report credit limits is to check your credit report, says Paperno.

The good news is that the practice of not reporting limits is becoming much less common. “Almost all — at least with the major lenders — report the limit,” says Rod Griffin, director of public education for Experian, in Costa Mesa, Calif.

The difference between charge cards and credit cards

If you like living on plastic, you don’t necessarily have to choose between a low utilization rate and the convenience of credit cards.

Charge cards that require you to pay the balance in full every month aren’t included in your utilization rate in the most recent versions of the FICO score, says Paperno.

How to tell which is which: either call the issuer, or pull out that credit report again. If the notation for a card says “revolving,” it’s a credit card, says Paperno. If it states “open,” it’s a charge card.

But several credit experts say it doesn’t pay to stress over utilization rates. “If you’re keeping a low balance and your scores are fine, I wouldn’t worry about that,” says Griffin.

When it can pay to really look more closely at the equation:

  • You’re a year or less from a major purchase, like a home or car. That’s a good time to make sure the balances are paid down, and there’s enough activity on the cards to give you the most advantageous score and terms.
  • You have unexplained card problems, like lower credit limits, declining scores and/or increasing APRs.
  • You’ve recently gotten a new card and want to see how it’s impacting your score.

Other lenders

Your utilization rate isn’t the only factor you want to consider if you’re setting your personal card limits with an eye toward maintaining strong credit.

When you apply for a home or auto loan, those lenders will look at your debt load. But the amount of debt they’ll accept will vary widely, says Chris Kukla, senior counsel for government affairs with the Center for Responsible Lending, in Durham, N.C.

Among other factors, lenders will look at your back-end ratio, which is the total of your payments for one month (car payment, college loans, credit cards, mortgage) divided by your gross income, says Kukla. When it comes to the credit cards, lenders will use the minimum payments based on the current balances, he says.

A few years ago, some lenders were satisfied with figures that went to 55 percent or 60 percent, Kukla says. These days, 40 percent to 50 percent is “on the high end,” he says. Lenders want to know “that you’re not spending more than half your income on debt.”