Business credit utilization ratio: What it is, why it matters, and how to calculate & optimize it

Business owners know that not all debt is bad debt. Good debt may be leveraged to help a business expand and make more money. Bad debt is often the result of cash flow problems, and can lead to payment problems. 

Lenders know this too. One signal that may indicate a business owner may be overextended is when they max out lines of credit, such as business credit cards or lines of credit. 

For business owners, understanding and optimizing your credit utilization ratio may mean the difference between getting approved for financing at favorable rates or facing higher costs and more limited options.

Here’s how it works.

What is business credit utilization?

Business credit utilization ratio is a financial metric that aims to measure the percentage of available revolving credit your business is currently using. Think of it as a snapshot of how much your business is relying on these types of short-term loans at any given time.

In the context of business credit, this ratio usually applies specifically to revolving credit accounts like business credit cards and lines of credit. 

How it differs from personal credit

You’ve probably heard of credit utilization in the context of FICO^® scores. And you may know that high balances on credit cards (high utilization) may hurt your credit scores.

While the concept is similar for business credit, there are a couple of key differences: 

1. Business credit reports don’t always list credit limits. If no credit limit is listed for a revolving account, the credit scoring model may substitute the highest recent balance instead. With the Experian Intelliscore Plus^SM business credit score, for example, recent high credit shows the highest account balance in the last twelve months.
2. Most consumer credit scores consider credit utilization, but not all business scores do. Though the impact may vary depending on which credit scoring model is being used, it is almost always one of the key credit score factors in consumer scores. That’s not always the case with business credit scores. The Dun & Bradstreet PAYDEX® Score, for example, is primarily based on reported payment experiences, and not all business credit scores factor in utilization.

What's included

Term loans, equipment financing, and other installment debts aren’t usually included in these calculations. While a scoring model may consider debt levels or monthly payments, installment loans aren’t considered in credit utilization calculations because they don’t have the flexible credit limits that revolving accounts do.

Credit scoring models can evaluate utilization both on individual accounts and across all your revolving credit combined. 

Using $5,000 on a card with a $10,000 limit gives you 50% utilization on that specific account, for example. If you have three cards totaling $25,000 in available credit and your balances total $5,000 across all of them, your overall utilization sits at 20%. 

Credit scoring models may evaluate both. Maxing out even one credit card, for example, may affect your credit scores, even if your overall utilization looks healthy.

How to calculate your utilization ratio

Calculating your business credit utilization is straightforward math:

1. Take your current balance
2. Divide it by your credit limit
3. Multiply by 100 (or move the decimal point two places to the left) to get the percentage

Let's say you have a business line of credit with a $50,000 limit and you're currently using $10,000. Your calculation looks like this:

$10,000 / $50,000 = 0.20 × 100 = 20%

For your overall utilization across multiple accounts, add up all your balances and divide by the sum of all your credit limits. If you have access to $75,000 in combined credit across cards and lines of credit, and you're using $15,000 total, your overall ratio is:

$15,000 / $75,000 = 0.20 × 100 = 20%

Again, though, you may find that your lenders don’t report your credit limits to the business credit bureaus. When a limit isn't reported, the scoring model may substitute your highest recent balance instead. 

This means if your credit report lists an unusually high balance one month, that number could become the benchmark used to calculate your utilization going forward.

What is a "good" utilization ratio for business credit?

While it’s understandable that you would like a definitive answer as to what’s the ideal credit utilization ratio, you aren’t likely to find it. Just as your business is unique, credit scores will look at a lot of different factors, and each credit scoring model may view this factor differently. 

Understanding that there is no “magic number” here, there are some patterns that emerge when you look at businesses with strong credit profiles.

FICO research shows that consumers with the highest credit scores tend to use less than 10% of their available credit. 

The same principles apply to business credit. Staying well below your limits demonstrates you're not depending on every dollar of available credit. Lenders may view low utilization as a sign of financial stability and careful use of credit.

Most card issuers report your balance at the end of the billing cycle, but before your payment is due. For example, your credit card billing cycle may close on January 15 but the payment is not due until February 15. The card issuer will likely submit information about your account to credit bureaus (if it reports to them) shortly after January 15. It won’t wait until you have made your payment.

How utilization affects business credit scores

High credit utilization signals risk to lenders because it suggests your business is relying heavily on short-term financing to operate. When a significant portion of your operations runs on credit, you become more vulnerable to economic downturns, interest rate increases, and revenue fluctuations.

High utilization can also hurt your business’s financial flexibility. When you’re using most of your available credit, you have a limited cushion to handle unexpected expenses or invest in growth opportunities. In the event of an economic downturn or a decrease in revenue, businesses with high debt levels may struggle to make their payments on time.

Different business credit scoring models weigh utilization differently. Dun & Bradstreet’s (D&B) PAYDEX^® score, for example, focuses primarily on payment history. With other credit scoring models, debt may be a factor, but utilization on revolving accounts may be less important. 

Keep in mind that some business credit scoring models, such as the FICO^® Small Business Scoring Service℠ (SBSS℠), consider both the owner's personal credit and business credit information. Since utilization is often an important factor in personal credit scores, high utilization may impact the overall credit score.  

Even when utilization isn't the primary scoring factor, lenders may still look at your debt levels. 

Experian’s business credit reports, for example, contain fields for “total balance amount” and “recent high credit”. Some credit managers use manual underwriting and may evaluate business debt levels rather than focusing primarily on utilization ratios.

Watch the video — Business credit 101: How to check, understand, and improve your scores

7 tips to lower your business credit utilization ratio

Now that you understand how credit utilization works and why it is important, the question is, what steps may help you improve yours? 

Make multiple payments throughout the month

Instead of waiting for your statement to arrive, consider making payments weekly or bi-weekly. This may result in a lower balance when your issuer reports information to credit bureaus. 

If you typically charge $9,000 monthly on a card with a $10,000 limit, for example, making three $3,000 payments throughout the month and timing those payments strategically can keep your reported balance around $3,000 instead of $9,000.

Request credit limit increases

Higher credit limits can lower your utilization percentage if your spending stays the same. Using $5,000 on a card with a $10,000 limit gives you 50% utilization. If your issuer increases that limit to $20,000, though, your utilization drops to 25% without changing your spending. 

Think about contacting your card issuers periodically to request credit limit increases, especially if your revenue has grown or your payment history is strong.

Open additional business credit cards

Adding new revolving accounts increases your total available credit. If you have one card with a $15,000 limit and add another with a $10,000 limit, your total available credit jumps to $25,000. This only helps if you don't proportionally increase your spending. 

Most business credit cards don't appear on personal credit reports unless you fall behind on payments, so apart from a credit inquiry that results from a credit check, opening new business cards typically won't affect your personal credit scores.

Pay before the statement closes

Most card issuers report your balance at the end of the billing cycle. If you pay your balance before the end of the billing period, your issuer may report a lower balance. This strategy can work well if you're planning to apply for financing soon and want to show the lowest possible utilization.

Keep old accounts open

Even if you're not actively using a business credit card, you may want to consider keeping the account open to preserve that available credit. Closing accounts may reduce your total available credit and lead to higher utilization ratios. 

If the account charges an annual fee, though, you may want to close it to avoid continuing to pay the fee. 

Distribute balances strategically

If you need to carry balances, think about whether it makes sense to spread them across multiple cards or lines of credit, rather than maxing out one. Using 90% of one card's limit while keeping others at zero may affect your credit scores more than using 30% across three cards, even if the total dollar amount is the same. Many credit scoring models can evaluate both per-card and overall utilization, so balanced distribution may help both metrics.

Interest rates may also be an important factor here: you may want to use a credit card with a 0% intro APR to finance a large purchase, for example, rather than pay a double-digit interest rate on another credit card. 

Use business charge cards for large purchases

Charge cards without preset spending limits may not be included in utilization calculations. If you routinely make significant purchases that you pay off monthly, using a business charge card instead of a credit card may help you avoid high utilization. 

Just remember that charge cards require payment in full, and don't offer the flexibility of spreading out payments or making minimum payments.

Understand how utilization affects your scores

Use Nav Prime to actively monitor and manage your business credit reports, and build a business credit history. You'll see your utilization across multiple accounts, track your progress over time, and get the tools you need to make informed decisions about your business credit. Your Nav Prime payment is also submitted as a tradeline to the major business credit bureaus to build business credit.